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Winemakers struggling to stay afloat in recession

A woman participates in a wine tasting.

TEXT OF STORY

Kai Ryssdal: There were times back in the depths of the financial crisis, when all you wanted to do at the end of the day was go home and have a good stiff drink. Fact is, that while the recession has been good for sales of hard spirits, wine has actually had a much rougher go. Since the economy went wrong, consumers don't want to pay for those notes of blackberry and coffee and that lingering finish. What they care most about is price. Winemakers who were unprepared for the demand shift have found themselves over a barrel.

From North Carolina Public Radio, Janet Babin reports.


Janet Babin: Tom Meyer never quite fit into corporate America. Once, during a strategy session at Fetzer Wines, he and other execs were asked to explain why the company was in business. Most said to make a profit. Meyer had a different take:

Tom Meyer: Yes, we're here to make a profit, but the profit's going to be the result of our good action. And I was gone within two months after that.

With the day job gone, Meyer opened up two business back in 2003 -- a BBQ restaurant called The Q Shack and a wine brand called Sauvignon Republic.

Meyer: Whether you're farming for wine, or for hogs or for collard greens, farming is farming.

The pulled pork sandwiches really took off. And wine drinkers were happy to pay $19 for a bottle of Sauvignon Republic in stores, or even more in trendy restaurants. But these days, Meyer's wine is sharing shelf space with Two Buck Chuck at Trader Joe's. It sells for 70 percent off its original price.

Meyer: $6.99 represents an extremely... We had to sell it far below what we had in it... Just to get the inventory gone.

Meyer needed to unload his inventory, because the company collapsed. Many U.S. wineries will find themselves in Meyer's situation this year. Since the financial crisis, demand for pricey wine has gone the way of other luxuries. Those bottles of Steak House Cabernets aren't moving, in restaurants or retail shops. Wine makers typically borrow the money they need for next year's vintage, against last year's stash.

Alder Yarrow writes the wine blog, Vinography.com.

Alder Yarrow: When people simply stop buying wine at most price points above $10, the real value of your inventory plummets, and as a result, banks stop lending money, and really bad things happen.

Prominent California wine makers, like Ross Valley Winery and Havens Wine Cellars have folded, and several more wineries are barely holding on. Peter Kaufman is managing director of Bacchus Capital, a company that funds wine makers.

Peter Kaufman: The wineries that produce these sorts of wines have grown for so long, and had planned for unending 10 to 15 percent annual growth, and then boom.

But there are small signs that the worst may be over. Wine importer Kermit Lynch has both a wholesale and retail business based in Berkeley. Kermit Lynch manager Steve Waters says when the recession hit, restaurants stopped buying wine, but the retail store was slow and steady. Now, Waters says the situation's reversed.

Steve Waters: Our wholesale divisions in California and throughout the country have been on fire, a 10 to 15 percent increase. So it seems like, people are going out again, people are going to restaurants are buying wine off wine lists, which is great.

If the wine business does rebound, you can bet entrepreneurs like Tom Meyer, of now defunct Sauvignon Republic will be ready. After a tough year, his restaurant's holding on. And with the wine label, Meyer says he only missed the mark by a few million.

Tom Meyer: And I think had we had another -- this is going to sound crazy -- another $2 million, we would have gotten over the hump, made the wines we wanted to make, paid our bank notes, life would have been great.

At least he can keep his glass half full of the wine he made, for 70 percent off retail.

In Durham, North Carolina, I'm Janet Babin for Marektplace.

Log in to post5 Comments

Math was never my strength, but I'm pretty sure that 30% of $19 is not $6.99.

Nice story. Saw Michael's comment above and agree that it would have been nice to talk about Billington's failure rather than Havens' which was only part of the Billingtion biz (nice job selling the winery in time though Michael).

I think you could also have touched on very successful wineries during the recession. Our winery (Pacific Rim in Washington State) has grown 35% in 2009 and we are currently growing 30% in 2010. Why? because we are at a sweet price ($10), with great quality and a product that is in high demand (domestic Riesling wines). Like in every recession there are losers and winners, folks that cannot adapt or offer an obsolete product get swept out (unless they are bailed out by the federal government of course).

Everyone started making distillates and microbrewing has been in full bloom. To get in the spirits business because you have some excess materials really wasn't feasible.

Why not distill and make yet another grape-based vodka, or age in the empty barrels to make brandy, and use that new revenue to stay afloat (no pun intended)? The excess wine inventory and additional motivation from increase in 'hard liquor' sales (i.e. a demand-driven price increase) seem to make a perfect scenario for new distillation to occur.

Your story missed a significant detail: Havens Wine Cellars (which I and my partners sold successfully in 2006 at top of the market) did not fail. Billington Imports, to whom we sold, failed in 2009; all of Billington's assets, including the Havens Brand, were then liquidated by PNC Bank later that year. I continue to make wine under the Abrente label.

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