Yountville, Calif. -- Continuing its goal of providing useful educational information to members, the Napa Valley Grapegrowers (NVG) held a well-attended seminar on marketing grapes March 20 at the Yountville Community Hall.

Well known speakers covered understanding the confusing grape crush reports, pricing options including bottle pricing, contracts and relationships --and the NVG's new services for members.

The lead speaker was Jim Verhey of Silverado WineGrowers, who took attendees through the Napa Valley grape crush reports, with an emphasis on the two most important tables, No. 8, covering all grapes sold, and No. 10, prices paid to independent growers.

He noted that the first table is best for figuring percentiles, the second for average prices.

Verhey has manipulated the data, which is available online in Excel spreadsheets, to provide more useful data on Cabernet, and plans to post that and data on other varieties for members to use on the NVG website, napagrowers.org.

He noted that growers aren't always realistic about prices, however. "Remember that half the grapes sell for above the median, but half sell below."

He pointed out that although the median for Napa County Merlot grapes was $2,750 per ton last year, 3.6 tons sold for $12,887 per ton, but 98 tons sold at only $600. He also noted the huge impact communications--perhaps he should have said "marketing"--has on prices.

The median for Cabernet Sauvignon was $4,250, and Verhey said 50 to 80% of the grapes sell within 10% of the median. Cult wines sell for 50% over the median, but he said that only 3% of the grapes end up in bottles that retail for more than $50.

Many growers base their prices on the averages, perhaps asking for 10% above them, for example, but a few sell some grapes based on the prices of the bottles they will go into. This is limited to single varieties, generally limited vineyards, and typically expensive wines.

The usual bottle pricing is to sell fruit (per ton) for 100 times the retail bottle price, and although that may seem arbitrary, grower David Beckstoffer showed research demonstrating that the number is pretty reasonable.

He found information as far back as 1979 that had 23° Brix Cabernet Sauvignon grapes selling for 103 times the Mondavi bottle price of $7.

Analyses by Price Waterhouse in the 1970s placed grapes as 12.5% of retail cost, and information published in the Wine Spectator for Groth in 1997 quoted 12.25%; Global Wine Partners in 2007 for a $50 bottle, 14%.

Using a yield of 150 gallons per ton of grapes, and 13% as the grape cost results in 98.7 times retail bottle cost.

To check this math, Beckstoffer plotted the retail prices (at tasting rooms) for five representative Napa Cabs, created trend lines of the results, then displaced it 2.5 years to account for aging, and found this tracked grape prices well--at 100 times bottle price.

He noted, "Bottle prices are more stable than grape prices long term."

Though believing this is a good way to price grapes in many applications, Beckstoffer admitted that his company only sells about 5% from this type of formula--though it uses this type of calculation in negotiating for the fruit it sells to 50 Napa wineries.

The third speaker was Lee Hudson, whose Hudson Vineyards supplies grapes to 27 wineries, most long-term customers--10 for more than 10 years. Hudson discussed how to create and maintain long-term contracts. He believes this works because it creates partnerships instead of the adversarial relationship that can develop between growers and wineries, and also helps ensure profitability in a cyclical business.

He also believes that it's the best way to maintain a good reputation for your fruit.

Hudson tries to have a couple of larger clients, and many smaller ones, and only works with families he wants to be working with long term. He starts slowly with a two-year fixed term contract, intending to work long term. This provides a chance to decide if the partners want to work together.

He recommended agreeing on clear expectations of target sugar and yields--both a target and range--for these are areas where disagreements may arise.

He likes to fix prices for the term of the contract, but warned, "The more you ask for, the more the customer will expect from you." Hudson doesn't like formulas, but negotiates every other year. "If you can't agree, then agree to work one additional year together."

He sells some grapes by the acre, but in any case, he turns over responsibility for the fruit to the customer after it reaches an agreed trigger point.

Profitability is the issue, not price, he said. "We've learned we can't go into bottles that cost less than $25." He calculates his farming cost at $9,600 per acre, based on 200 hours per acre including development, depreciation, cost of money and farming--but not land cost. In Napa Valley, it's difficult to make money if you include the cost of land, but you can realize a good return if you sell it.

Hudson is one of the few growers who formally licenses his name, although he charges only a nominal $1 to do so. He gets two bottles of wine to taste, and can withhold approval to use his name if he feels the wine doesn't have the quality he expects. "I wouldn't license without experience and a long-term contract," he added.

Hudson wants to have a relationship with his customers' owners, and he expects them to spend at least four sessions per year with him in the vineyard:

• Winter: Review and plan
• Spring: Head suckering and leafing
• Summer: Veraison and crop estimating
• Harvest: Vine and crop condition

If it comes time to end a contract, he recommended not to do it for price alone, but because conditions have changed. He reserves the right to end a contract if the winery changes ownership. He added, "Make sure to give fair warning."

The final speakers including Jennifer Kopp, NVG executive director, outlined the group's new programs, including weather services for members and an improved online winegrape market service, which is automatically posted to the winebusiness.com website at no cost to the grower.