Wines & Vines Home
   
 
Welcome Guest
LOGIN |  CREATE ACCOUNT
 
ADVERTISEMENT
 
 
 
05.06.2013  
 

New Chapter for Vineyard Business

Investor David Freed says U.S. wine industry has changed dramatically, and big players are scrambling to secure grapes and land

 
by Paul Franson
 
 
snows lake vineyard
 
Large wineries are buying vineyard land in an effort to secure fruit for winemaking. E. & J. Gallo purchased Snows Lake Vineyard (above) in Lake County, Calif., in 2012.
Napa, Calif.—In preparation for the 2013 Vineyard Economics Seminar on May 23 in Napa, founder David Freed conducted a survey of attitudes and concerns among wine industry executives.

Freed, who also is chairman of Silverado Premium Properties, a leading wine industry vineyard investment company, added some big concerns of his own to the findings.

“Through the years, the industry has cited the wheel developed by Bill Turrentine of economics 101: When grape prices rise due to shortages, people overplant, then prices drop and the cycle continues.”

For example, in 1995, prices were way up and people planted heavily. In 1998, wine grapes were in oversupply.

Unfortunately, says Freed, “That’s the last time the prognosis worked.”

He notes that there wasn’t much planting from 2005 to 2008 as would have been expected, and in fact, there hasn’t been much vineyard planting in California between 2008 and 2013. California non-bearing (newly planted) acres are down from 2001, yet consumption has grown at 2%-3% annually even during the recession as people traded down.

California wine shipments are up from 163 million in 2001 to 208 million in 2012, according to Gomberg, Fredrikson & Associates, but California wine grape acreage is down from 570,000 acres in the ground in 2001 to 546,000 acres in 2012.

“The need has been met primarily by bulk and bottled imported wine,” Freed says, noting that imports’ market share increased from 22% in 2001 to 35% in 2012, according to Gomberg-Fredrikson.

Shipments of wine made from California grapes actually dropped last year (from 216 million cases in 2011 to 208 million cases in 2012), while imported wine shipments were up 15% (from 107 million to 123 million cases. Other states shipped 29 million in 2012, an increase of 500,000 cases.

The 2012 harvest hit a record in tonnage, but Freed says that only Napa and Sonoma had great years, and that was partly because the harvests in 2010 and 2011 were so low.

He says, “2012 was a good year in Santa Barbara and passable in Monterey and Paso Robles, but was just a good/average year in the Central Valley. Of course, they didn’t suffer as much as Napa and Sonoma from bad harvests in 2010 and 2011.”

He added that 2005 was the previous record year, but the excess was used up in a few years, and the yield from 2009 was gone in a year. “2010 and 2011 were very short.”

Freed said in spite of the large crops last year, wineries took all they could get—not just what they had contracted for—and they didn’t ask for discounts.

And though usually no one starts talking contracts until the Unified Wine & Grape Symposium in late January, winery buyers were negotiating for grapes in December 2012. “They had a short 2011 and short to normal 2010 and pressure from lenders to reduce spending. Demand was like we haven’t seen it for a long time, and I’ve been in the wine grape business for 32 years.”

He added, “There’s only so much California acreage. Wineries could no longer assume that they could get the grapes they needed.”

Wineries also got more flexible about yields. Some wineries in Napa and Sonoma brag about all the fruit they drop, claiming it will make better wine, but research shows the correlation is far from exact. “They let us produce more tons per acre in 2012, and everyone agrees that the quality was excellent.”

Freed said that the tipping point was Joe Gallo’s talk at the San Joaquin Valley Winegrowers Association’s annual meeting in Modesto in 2011. (See Gallo Speaks: Rare Address by Winery CEO.) “When Joe Gallo said they were signing pre-planting contracts, everyone knew things had changed. Gallo is smart. They know what they’re doing.”

Signing contracts wasn’t all that E. & J. Gallo did. It started buying vineyards and wineries, including huge Snows Lake Vineyard in Lake County, Columbia Winery and Covey Run in Washington and more. Gallo also bought a vineyard in Monterey County from Freed’s Silverado Premium Properties.

In addition, Kendall-Jackson/Jackson Family Wines, which had been out of the market in the years leading up to Jess Jackson’s death in 2011, got back in. “We sold a property in Sonoma to them, and wherever we went looking, they were there. They’re still out there,” Freed said, adding that Jerry Lohr of J. Lohr Vineyards & Wines, Trinchero, Fred Franzia’s Bronco, The Wine Group, Bill Foley, Stewart Resnick—all private companies—were buying vineyards, sometimes with wineries on them.

“If we put a vineyard in Paso Robles for sale, we could predict who’d be interested,” he said regretfully. “We had had the business of buying property to ourselves during the recession!”

In spite of divestures, Freed and Silverado Premium Property’s CEO Mark Couchman continue to buy property as they sell others. “We buy and improve the property, then sell it when the time is right. Our investors like to see us take a little profit.”

Wineries not only wanted to ensure a supply of grapes, but they also wanted to control future costs. “They want to know their costs for the next 10 years.”

Freed noted that it’s very difficult to plant a new vineyard, too. “Forget Napa. It took up four years to get permits to plant a vineyard in the Soscol Mountain property southeast of Napa (formerly Kirkland Ranch).”

“There’s not much land in Sonoma either, and in Monterey you have to outbid vegetable farmers, in the Central Valley: nut orchards. Santa Barbara is as hard as Napa.”

All in all, Freed says he’s never seen this much pressure on grapes before. Fortunately, the man routinely called “savvy” has made the right choices.

Get information on the Vineyard Economics Seminar and register at winesymposium.com.

SHARE »
Close
 
Currently no comments posted for this article.
 
CURRENT NEWS INDEX »


 
Wines & Vines Home
 
866.453.9701 | 415.453.9700 | Fax: 415.453.2517
65 Mitchell Blvd., Ste. A San Rafael, CA 94903
info@winesandvines.com
Wine Industry Metrics
 
Off-Premise Sales » Month   12 Months  
November 2014 $708 million
5%
$7,844 million
6%
November 2013 $673 million $7,428 million
     
Direct-to-Consumer Shipments » Month   12 Months  
November 2014 $274 million
21%
$1,799 million
16%
November 2013 $225 million $1,558 million
     
Winery Job Index » Month   12 Months  
November 2014 127
-5%
226
15%
November 2013 134 196
     
 
MORE » Released on 12.15.2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 

FEATURES
 

Practical Winery & Vineyard Library
 
Search the PWV archive »
 
 

Direct To Consumer
Wine Shipping Report
2014
 
Download full report »
 
 

CALENDAR
  • January 7
     
    Putting Your Brand to Work
     
  • January 9-18
     
    Icewine Festival
     
  • January 13-16
     
    VinCO
     
  • January 15
     
    WineFlavor 101B
     
  • MORE »
 

READER COMMENTS
 
Article: Grape Industry Lukewarm on Immigration Act »
 
A band-aid it may be but instead of the negative tone of this article which...
Reader: Guest
 
Article: Oregon Wine Institute Plans for the Future »
 
When Mark is involved, things are going to work out just great! We miss the...
Reader: Peter Bell
 
Article: Spanish Cooper Sells Chinese Oak »
 
I would love to find Us wineries using the Chinese oak barrels. Do you know...
Reader: Guest
 
Article: Prohibition Laws Linger 81 Years Later »
 
Trader Joe's (Union Square) and Whole Foods (Upper West Side) both have wine shops attached...
Reader: Guest
 
Article: Prohibition Laws Linger 81 Years Later »
 
Maybe the economy could use another boost by repealing the post-prohibitionary laws too. Make it...
Reader: csm noble
 
 


Directory/Buyer's Guide — Your Wine Industry Marketplace
 
 
WINERY SEARCH
 
 
Advanced Search »
SUPPLIER SEARCH
   by Product
 by Company Name or Brand
 
Browse by Category »
2015 Directory/Buyer's Guide
The Wines & Vines Directory and Buyer's Guide
 
 
EXPANDED ONLINE SEARCH INCLUDED WITH PURCHASE
 
ORDER NOW »
 
LEARN MORE »
 
 
Wines & Vines Magazine
 
 
LEARN MORE »
 
SUBSCRIBE »
 
Digital Edition Now Available!
Wines & Vines Digital Edition Now Available
 
LEARN MORE »
 
ORDER NOW »
 
 
The Wines & Vines Online Marketing System
 
The Industry Standard winery marketing application
 
FREE LIVE DEMO »
 
VIEW VIDEO »
 
 
 
 
Latest Job Listings
 Viticulturist
 West Sussex, UK
Winemaking and Production
 Winemaker & Vineyard M...
 Markham, VA
Winemaking and Production
 Back Office Manager
 New York, NY
General Administration and
 Sales Coordinator
 Paso Robles, CA
Sales and Marketing
 Retail Wine Department
 Napa, CA
DTC, Tasting Room and Retai
 Senior Vice President
 American Canyon, CA
General Administration and
 Administrative Assista...
 New York, NY
General Administration and
 Driver/Shipping And Re...
 Novato, CA
General Administration and
 Night Superintendent
 Ripon, CA
Winemaking and Production
 Tasting Room Sales -Fu...
 Calistoga, CA
DTC, Tasting Room and Retai
 
More Job Listings >>
Follow Us On:
 
 





Home  |  About Us  |  Editors  |  Subscribe  |  Print Edition  |  Digital Edition

Advertise  |  Site Map  |  Contact Us  |  Privacy Policy
 
 
Copyright © 2001-2014 by Wine Communications Group, Inc. All Rights Reserved.
No material may be reproduced without written permission of the Publisher.
Wines&Vines does not assume any responsibility for any unsolicited manuscripts or materials.