Gloomy Outlook for CA Wine Industry

More articles are surfacing about the gloomy outlook for California wine industry. As I once heard, there is a direct correlation between the stock market and the wine industry. Yesterday the LA Times' article, California Wine Industry Turns Sour, about the challenges ahead.

Here are some of the highlights:

• Joe Ciatti, one of the state's largest brokers of bulk wine, predicts that that as many as 200 of the approx. 900 state's wineries, or more than 20% could go out of business or be bought by a larger competitor.


• Consolidation- At least three wineries (Sonoma Creek Winery, Quail Ridge Cellars and Vineyards and Bridlewood Winery) have filed for bankruptcy protection since the fall, and there have been a number of high-profile mergers as weakened wineries are swallowed up by the competition. Over $1 billion worth of winery mergers and acquisitions over the next couple of years is expected.
• Sonoma Creek and Napa-based Quail Ridge were mid-sized "virtual wineries" not owning vineyards, a winery, or even a storage facility for aging wine... They bought grapes from growers and contracted a rent-a-space winery for processing, bottling and storage. It can be a very profitable way to operate right now, if a company can take advantage of depressed grape prices. "Sonoma Creek over-committed to long-term grape contracts when prices were high," Ciatti, the broker, said.
• Prices Dropping- Grape growers throughout the state have endured prices plummeting as much as 75% over the last two years, and are desperate to sell vineyard land -- but there are few buyers.
• Hand-crafted wines that have vaulted California's stature around the world will dwindle, according to industry experts. Only well-known brands, and well-heeled vintners, will survive as independent operators. The smaller wineries selling fewer than 20,000 cases a year don't have the ability to cut prices and stay profitable.
• Dry Creek market segment expected to expand as much as 6% a year.