Thursday, April 01, 2010

The Tidal Wave

There has been a lot of talk lately in the news and on wine boards about how hard it is in the wine industry right now. One article mentioned that as many as 20-25 wineries in Napa might fail or be sold in distress this year. Our friends at Eaglepoint Ranch have decided to stop making wine and just sell grapes. The hardest hit wines have been those over $75. Even wines that get 100 points from critics are not selling out now.

It's been hard times. Most people in the wine business don't want to talk about it. Everyone has been impacted. For us we've had two really big impacts. The first really had more to do with the low yield harvest in 2008. The low yields meant we had about $30,000 in expenses (mostly barrels) that we had already committed to and ended up not using. It also meant that we came up about $25,000 short in grapes we were selling.

That was a double whammy. One was supposed to pay for the other. All of a sudden we were in the hole $25,000 we were not expecting. That was all happening the very same month the stock market melted down, and yes 10% of our customers are in New York City. But we adjusted our budget, reduced plans for 2009 and cut back on all but the essentials to make wine. It's been a long haul but as we enter Q2 2010, we have no outstanding invoices, just our regular monthly expenses. That's the first time since the Fall of 2008.

The second was we allocated a fair amount of wine to be sold at restaurants and retail in 2008 and 2009. That sector has been hit the hardest. I could probably write a novel about the 'middle tier' in the wine business, but I'll just say I feel let down, and I'm much more cautious now about allocating anything to distributors or brokers. We've managed to kick start those sales, but it's turned out to be 100% our own effort and initiative.

That second item is really what the title of this posting is about. Most of the comments from wine lovers about the crisis have been that they hope their favorite wineries will make it through and offering reasons for hope. In response one winery owner said:

"I think that even if you survive the downturn, you are also going to be swimming against a tidal wave of accumulated inventory being liquidated by those that didn't survive."

Now that's the thing I fear the most. I see it every day, wine being discounted 50% or more, 2 for 1 offers, anything to move inventory. People have a limited amount of money to spend on wine and this 'tidal wave' is going to be the hardest thing for us over the next two years.

This has gotten long, so I'll do a 'part two' tomorrow. In the mean time here's something lighter, a picture of my favorite flower the California Wild Poppy from a hike Stefania and I went on Sunday.

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