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Economy Compels High-rollers to Buy Cheaper Wines

  • Spence Cooper
  • March 18, 2010
Money & wine
Wineries in financial trouble

Many financial analysts suggest the “smart” money is investing in emerging markets instead of the developed world. Their investment advice may prove to be sound, at least when considering the financial nature of many French and American winemakers.

The distressed economy has not been kind to small, high-quality wineries in Napa Valley, California, or France for that matter; inexpensive imports from Chile and Argentina have whittled away at U.S. winery sales.

According to Silicon Valley Bank, as many as 10 wineries and vineyards in Napa will change hands in distressed sales or foreclosures both this year and next. In a bank survey of winemakers, 7 percent characterized their finances as dire.

“We have 250 vintner clients saying this downturn is the worst in 20 years,” said Bill Stevens, manager of Silicon Valley Bank’s wine division in St. Helena, California. “Anybody who was late to the party won’t have staying power.” — meaning that only veteran winery owners who’ve invested wisely and have equity in their land will survive.

Land values in Napa have fallen 15 percent since 2007, driven in part, says Robert Nicholson, a wine consultant, by slumping demand for high-end wine. Nicholson says the decline in property values makes it harder for owners to refinance mortgages, especially if the property is worth less than the loan.

Can the French Survive the DownturnLast week, The Federation of French Wines and Spirits Exporters reported that exports of French wine have declined — French exports fell 17 percent last year, while imports to the U.S. dropped by a 23 percent.

In Britain, French sales fell by 20 percent; high-end Champagnes and cognacs sales were hit the hardest.

According to Gomberg, Fredrikson & Associates, an industry consultant, U.S. retail wine sales dropped 3 percent to $29 billion in 2009, after nearly tripling for 17 years through 2008. Last year consumption increased 2 percent to 323 million cases, but consumers are buying less-expensive labels, the consultant’s March 5 industry report says.

Sales of super-premium bottles priced more than $15 declined 10 percent last year, and those over $30, defined as ultra-premium, fell at least 15 percent, according to Rabobank Nederland, the Dutch bank that finances agriculture businesses.

“Consumers are looking at price point and saying that Napa is not the price they want to be buying at,” says Stephen Rannekleiv, lead analyst on the Rabobank report. “Wine prices drive grape prices drive land prices.”

France, as well as Napa Valley are up against substantial competition from emerging South American winemakers; at Miguel Torres Chile, a family-owned company whose vineyards in Spain date back 300 years, sales rose to $15.3 million from $11.4 million between 2004 to 2008.

Of the 3.9 million Miguel Torres’ bottles produced in 2008, 82 percent were exported to more than 80 markets. Chile’s wine exports last year totaled 670 million liters valued at $1.36 billion.

“No more is it about stocking wine cellars with 5,000 bottles of Screaming Eagle,” said Bacchus Capital’s Kaufman, referring to a Napa “cult cabernet” that can sell for $750 or more a bottle. “High-rollers are discovering that there are lots of drinkable $20 to $40 bottles of wine.”

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