Wine Talk

Snooth User: John Andrews

Wineries still closing ...

Posted by John Andrews, Nov 19, 2010.

It seems that that poor sales (i.e. cash flow) is still causing trouble through the wine industry.  The following wines are closing up:

  • Frazier 
  • Cosentino
  • Eos
  • Kluge (VA) 

More details here: http://napavalleyregister.com/lifes...

Replies

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Reply by Vine Master Fanucchi, Nov 19, 2010.

Also here in the heart of Sonoma / Napa / Mendocino  many of the giant wineries that have purchased "mid sized" wineries are consolidating production for efficency to their large "Factory sized" wineries while leaving a skeleton tasting room crew at the various brand locations.   Just like on the big store shelves a consumer really dosn't know if their favorite brand chardonnay is truly something distinctly different from the next or dose it simply have a different lable with a different price!    I don't want to be dispariging, some do still go to great effort keep their programs seperate but some never did!

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Reply by VegasOenophile, Nov 20, 2010.

I only know Cosentino.  Always a shame when places close, but it's the business cycle of life I suppose.

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Reply by dmcker, Nov 21, 2010.

More will continue to close, according to what I've heard. I always though that when we began discussing this on this forum more than a year ago, we hadn't even seen the tip of the iceberg.

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Reply by Stephen Harvey, Nov 21, 2010.

It is the same in Australia, oversupply of wine globally is going to see more wine businesses dissappear.

I have written a number of articles on this subject and the pressure on price for wines outside of the few superstars will remain under constant pressure for the foreseeable future.

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Reply by zufrieden, Nov 21, 2010.

The fact of the matter is, there are far too many wineries in North America to meet the diminishing demand.  There were too many 5 years ago to sustain production - however laudable or excellent the quality offered.  It costs a lot of money to purchase, establish and make flourish any sort of quality production.  Unless we are talking about venerable old properties in centuries old locations with long pedigrees or deeply bankrolled and long established "boutique" operations (as they are often called in North America), I hold little optimism for the survival of large numbers of quality producers.  

Many of the newer, quality producers are likely leveraged to the hilt and living on borrowed time (if not money as well).  Quality production or no, survival will be difficult and will probably come - as some have pointed out - in the form of absorption into larger enterprises whose devotion to the particulars may succumb to the machinations of the accountants.

Of course, if you operate a small production winery that has a devoted following and you are not intent on becoming rich from the fruit of the vine there is a good chance you'll be around a few years from now. The key is your purpose: what passion is driving your devotion to your work?

For example, small family operations in my neighborhood that provide a decent if not lucrative living derived from reputation and recognized attention to quality will survive - even if slightly battered by the vicissitudes of the economy.  

The newcomers, I fear, may not fare so well...

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Reply by John Andrews, Nov 22, 2010.

The big challenge in Northern California (and probably most of the US) is cash flow.  Most wineries sink a a lot of cash into producing wine.  It then gets stuck in inventory and if you can't sell the wine your cash is tied up in inventory.  That's why the web discounters of wine have had plenty of things to sell and you see great deals.  Wineries need cash and discounting still gets them funds to keep the business running.  Smaller wineries (less than 10,000 cases) can survive easier.  Mid-sized (10,000 to 100,000) that rely on distribution are really finding it tough.  Large wineries can put pressure on distributors to get stock moving.  A winery is a business and without a good business model they are destined to fail. 

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Reply by John Andrews, Nov 22, 2010.

@zufrieden ... I disagree with one of your statements and that is diminishing demand.  I think it is actually the opposite.  There is increased demand for wine but the price sensitivity and selectiveness has increased dramatically.  

The consumer has way more options than before and I can say from working in two tasting rooms that people are really looking for deals but when they find one that meets their criteria, they buy and buy big (I cite the 3 cases I sold to one customer this past weekend). 

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Reply by gregt, Nov 22, 2010.

I thought Kluge had scads of money?  Or maybe the heirs or trustees or whatever they are decided that a winery isn't a good investment?  Esp in Virginia?  In any event, that one is a little different from the others.  A vanity project with a lot of uphill work to do. 

Eos didn't close - they were acquired by Bob Foley.  How is that a bad thing?  He bought them because he wanted a foothold in Paso Robles and thought they were a good bet.  Seems like positive news to me.

Cosentino was a small place that did something like 25 or 30 lables!  How do you maintain that kind of output?  Very bad business plan IMO, as well as impossible to compete against the big guys in Napa.  Frazier opened in Napa in 1995 or 1996.  Their wine never did all that well with the critics, and like it or not, that's important for an unknown winery.  They didn't or more likely, couldn't, do much marketing, and they were competing with Cabs and Merlots in Napa, head to head with the best of CA.  I feel for the people if they're really closing, but it's like opening a restaurant in Manhattan - a tough business and about as far from a sure bet as you can get.

All that said, recent indicators are that the wine business is picking up ever so slightly.  Not sure if it will be sufficient to save the people who've run out of cash, but who knows.

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Reply by Vinoboutique, Nov 22, 2010.

I believe there are several types of consumers: 1) There are the bargain drinkers who simply pickup what's cheapest in the stand.  2) There are the "label snobs" simply looking for big names and who's only pleasure is that of the big name on the bottle. 3) There's  the explorers who are always looking for quality and never settling for what they are told they should be drinking. 4) The aficionados who are devoted to X or Y style, varietal or region and like the "explorer" constantly seeks to be surprised with quality within their realm.

At the end of the day, the game for any educated consumer should be the price-quality relationship. Unfortunatley this equation is best served by the same family owned producers who have flow problems but who truly love what they do. I'll pick a smaller producer and a lesser known region 9 out of ten times. 

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Reply by Richard Foxall, Nov 22, 2010.

I agree that the volume consumed is probably not dropping much if at all, but people are (rightly) unwilling to pay $80 a bottle, even for great wine.  It's just unaffordable for most people.  This cycle is not new, although some of the reasons are.  Big wineries will absorb the smaller mid-sized outfits that have decent channels.  They probably don't gain much by buying out really small wineries--they buy businesses, not labors of love.  Some of those will be more or less abandoned, although a few of the smaller wineries that aren't leveraged (land was in the family, bought by someone with lots of cash from another business) may buy up the land of the small guys who bought with borrowed money.  That's my prediction.  Foley is like that.  I think Foley buying Eos is a little worrisome, because he has been showing his predatory side in Healdsburg.  I also wonder how an insurance guy can run so many labels now (including Merus, which was dumping it's second label Altus for 80% off) and do quality, or is it just another business to him now?  Good winemakers who are not big landowners but have reliable customers will be in a good position to buy quality grapes for their product, too, and will survive because their costs go down.  It's a great time to make wine, according to my source at K&L, who says that drinkers are trying new things.  But it's hard to sell it at a profit.

A lot of Web 2.0 folks and bankers were among the people who decided to go into the wine business in Cali in the last few years.  Many of them had no business doing it--they were following a trend, loved wine (because someone poured them big oaky messes like Silver Oak), and thought that, hey, I'm as smart as Jason Pahlmeyer/Bob Foley/celeb winemaker of your choice, and wanted that "lifestyle."  Of course, the families in Bordeaux did that back in the day, too, and it worked for some of them.  Lew Platt of HP quietly planted a great vineyard for Pinot (Scherrer gets most of it).  Not saying it can't work, but safer to do it with your own money so you can ride it out.

Long term, I think many of us are going to become accustomed to vulture-like habits, and wine drinkers are gong to think twice even as the economy recovers, expecting to get this kind of value for a while to come.  Meantime, my cellar is growing at crazy discounts.  Not just California wines, either. Cote Roties and Hermitages half off? Got that.  CdPs from high end estates and good but not overhyped vintages?  Sure, and they will throw in some of that HUGE 2007 while they are at it.  We are all seeing this--WTSO, WineryInsider, etc. are just the tip of the iceberg, especially here in Northern Cal. 

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Reply by StevenBabb, Nov 22, 2010.

i work for a large wine/liquor retailer... cheep stuff (crap for the most part) sells by the case... especialy during a big sale... nice-ish bottles fall by the wayside... its a shame...

EOS has a couple of nice things... particularly their dessert wine... nothing too magical, and i think that makes it more aproachable... robert foley does a good job... at the restaurant we just started pouring his pinot blanc by the glass... it will be interesting to see what he does there...

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Reply by bob vizsla, Nov 22, 2010.

Some interesting thoughts about survival, in Cali.  I do get plenty of great deals on wine access.com, but still love to go out and find what new. Interesting that there is talk of EOS, which was Ken Brown, now of Solvang.  There are still some great Napa producers that dont drive Porsche Turbos, try Vincent Arroyo, just out side of Calistoga, for one.

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Reply by napagirl68, Nov 23, 2010.

In my area, many of the winemakers are physicists and engineers.. retired or still working.  The local winemakers tend to "help" each other with equipment, etc.  Many are good friends.  They tend to do wine on  a very small scale, and have a faithful following.  That is what I like about most of the wineries I enjoy all over CA area... small family operation with huge cult followings..  often sold out quickly.


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