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04.01.2009  
 

Northwest Vintners Strategize

Blending with bulk wines adds value, builds inventory

 
by Peter Mitham
 
 
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Bernau plans to blend some purchased wine into his 2007 vintage Pinot Noir to meet demand.
Turner, Ore. -- Short supplies rather than a sagging economy were the primary cause of a decline in revenues for Willamette Valley Vineyards Inc., which released its year-end 2008 financial figures yesterday. Revenues for the year ended Dec. 31, 2008, totaled $16 million, down 4.2% from revenues of $16.7 million during the previous fiscal year.

"We do have some slippage, but it's not that much," said Jim Bernau, co-founder, president and chair of WVV. Bernau told Wines & Vines that supply of three Pinot Noir releases fell short of demand, cutting into overall sales volumes and reducing the cash available to cover expenses related to implementation of a new inventory management system.

General and administrative expenses rose to $6.5 million from $5.6 million a year earlier, driven largely by the cost of implementing the management system. Profits dropped 58% in 2008 to $708,594, down from a record $1.7 million profit in 2007.

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Willamette Valley Vineyard chairman Jim Bernau.
"We didn't have enough to feed the pipeline in 2008, so that's partly why we have reductions in profits. We just don't have the inventory, despite my best efforts to get my hands on fruit supplies," Bernau said. While sales outside Oregon were down about 5.5% in 2008, dropping to $6 million from $6.3 million in 2007, Bernau said distributors sold customers the same volume of WVV wine. Distributors and customers were just slower to restock inventories.

"It was almost like the distributors knew something was coming, because in the first quarter of 2008 they shrunk their inventories by almost half," he said. Bernau is optimistic that the strategy distributors took will mean steadier sales in 2009, provided consumer demand remains the same. Though he doesn't believe the end of the recession is in sight, Bernau is optimistic that WVV's sales figures for the first three months of 2009 will tell the tale. They're due out in mid-April.

Right now, he notes that WVV's retail store in Turner is busy, as are the events he attends. "In 2008, when the economy was supposed to be in the tank, we were about even to the best year ever in our history," he said. "People, I think, are still choosing wine--and recreation and entertainment around wine."

That said, the wines that WVV sells for $20 to $28 in Oregon are more of a premium product in other states, and that means a focus on working value into its products.

While fine dining establishments have cut orders significantly, more affordable products such as Pinot Gris have been picking up the slack. WVV also tapped 204,400 liters of bulk wine from Willamette Valley wineries in 2008 to address inventory shortages. About 70% will be used to produce 2007 Vintage Pinot Noir.

Juice from the 2007 season, which was cool and damp, wasn't necessarily up to snuff for wineries making $50 bottles of Pinot Noir, but Bernau will be able to mix the juice into his own bottles--lending extra value to wines that retail for less than $30 a bottle. (Other wineries in the Pacific Northwest, including British Columbia's CedarCreek Estate Winery, plan to mix upper-tier juice into their value-tier wines this year.)

The strategy is not only helping WVV boost inventories, it's providing an outlet for some smaller wineries that don't have access to the distribution channels that WVV does, thanks to its size and reputation.

"A lot of these younger brands, a lot of these younger wineries have inventory that's hard for them to sell," Bernau said. "They're finding it's nice to have us as an option, and we definitely need the wine."

Bernau's optimism underlines the point A to Z Wineworks managing partner Bill Hatcher made at the Oregon Wine Industry Symposium at the end of February, concerning the need for smaller wineries to move inventories in order to weather the recession and associated cash crunch.

It also shows how Oregon wineries can expand markets for their products, another concern expressed at the February symposium.

"Oregon has just scratched the surface of national distribution. You can fly all over this country and go out to dinner and not find Oregon wine on a wine list," Bernau said. "We can grow our sales in a down economy. It just takes time and preparation, and getting out there and getting that distribution."
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