California wine industry slumping after decade of growth

LOS ANGELES -- After a decade of unprecedented growth, California's wine industry is slumping, threatened by a worldwide wine glut and flat consumption, among other factors, experts said.

"It's 'the perfect storm': a downturn in the economy, the overproduction of grapes and cheap imports," said Tom Pillsbury, vice president of estate wine sales with Youngs Market Co., one of the state's largest wine distributors. "It's a good time to be a consumer. Prices will continue to drop on wines that are better than ever."

Holiday sales of California wine declined in nearly all categories this season for the first time since the 1991-92 recession, according to A.C. Nielsen's WineScan. At least three wineries have filed for bankruptcy protection since the fall and grape prices have plummeted as much as 75 percent over the last two years.

Growers are desperate to sell vineyard land, but few people are buying. Meanwhile a series of high-profile mergers has seen weakened wineries swallowed by the competition.

The bad news follows a decade of expansion that featured a 50 percent rise in the number of wineries, vineyard acreage and consumer prices on bottles of wine. Baby boomers who helped grow premium wine sales by as much as 20 percent a year have reached a consumption plateau and younger drinkers don't have the same love affair with wine as their parents, analysts said.

Meanwhile good, cheap wine from Australia, South America and South Africa is filling stores. Overall, wine sales were flat in 2001 and 2002.

The increase in California wineries from 600 to 900 over the past decade was due in part to businessmen and entrepreneurs from the Silicon Valley, Wall Street and elsewhere who abandoned office jobs to establish vineyards and press namesake wines.

But the negative trends hitting the industry are pushing those small wineries out of business, creating an environment that favors winemaking giants. Only well-known brands and well-heeled vintners will survive as independent operators, experts agree.

"We are going to lose scores of wineries to bankruptcy," said Joe Ciatti, one of the state's largest bulk wine brokers, calculating that as many as 200 of the state's wineries could go out of business or be bought by a larger competitor.

"The smaller wineries selling fewer than 20,000 cases a year don't have the ability to cut prices and stay profitable," said Fred Reno, president of the Henry Wine Group, another major wholesaler. "The really overpriced wines would have to go from $75 to $35 Ua bottleÜ to make a difference" in how much wine is sold.

Some growers in the state's agriculture-rich Central Valley are simply giving up and ripping out vines to make way for other crops.

"The price doesn't justify keeping them in the ground," said Gary Wilson, a grower near Bakersfield, who plans to pull out 20 percent of his wine acreage.

There are no firm statistics, but thousands of acres are expected to be turned over to other crops or left fallow, according to the California Association of Wine Grape Growers.

Others are trying to sell their wine acres. Ken Spadoni, a Sonoma real estate broker who specializes in vineyards and wineries, said there are more vineyards on the market now than there have been since the 1980s, but no one is buying them.

"I'm waiting for the sellers to lower their prices and telling buyers to wait another year before buying. It is going to get worse before it gets better," he said.

Robert Mondavi, the industry's most influential figure, has $70 million of vineyard acres on the Central Coast for sale, Spadoni said.

The picture is bright for one group: consumers, who are paying less for better wine. But for those who appreciate the diverse, hand-crafted labels that have contributed to California's reputation in the world of wines, disappointment may lie ahead.

In the end, many analysts predict, two wine worlds will emerge: higher quality, more consistent mass-market blends and a smaller universe of premium wines from elite growing areas.

"It's the coming homogenization of the wine industry," said Kim Stare Wallace, a second-generation winemaker at Dry Creek Vineyard in Sonoma. "Small wineries will be grabbed up by the big guys."