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Value Drives Northwest Wine Sales

A generous harvest will feed lower-priced sales leaders

by Peter Mitham
Frank Roth Tagaris Winery Eliseo Silva
Frank Roth, head winemaker for Washington’s
Tagaris Winery and its sister label Eliseo
Silva Wines, says that consumers recognized
the value of Eliseo Silva and have begun
trading up to the higher-priced Tagaris.
Vancouver, B.C. -- Northwest winemakers anticipate the 2009 harvest will buoy the fortunes of a region that already has reaped rewards from a tough economy by offering good-value wines.

Preliminary harvest reports from British Columbia and Oregon highlighted the solid development of fruit after a slow start to the season, with a burst of heat in July and moderate temperatures through August and September contributing to steady development of flavor characteristics.

Oregon winemakers, who have suffered lagging sales of the 2007 vintage, hope this year’s crop will bring good wine to a receptive market when it hits shelves late next year and through 2011. Many economists are forecasting a recovery, albeit modest, by the end of 2010.

In the meantime, consumers have pared back spending in favor of wines perceived as delivering good value.

While several high-end wineries in Washington and Oregon are feeling the pinch of lower cash flows as consumers limit spending, many are seeing business pick up when consumers trade down from what other regions are offering.

A recent report by Wine Opinions, released at the recent Wine Industry Financial Symposium in Napa, noted that Washington wines are the leading alternative to premium Cabernet Sauvignon from Napa (read Wines & Vines’ coverage of the report here).

Moreover, the dividing line for sales was $20 a bottle -- with the biggest growth seen in the $6 to $15 per bottle range. Sales of wines at those prices from Woodinville-based Chateau Ste. Michelle are up 17% from a year ago, and Ste. Michelle Wine Estates is abandoning plans to discontinue its Stimson Estate Cellars brand. Stimson Estate wines include Chardonnay, Cabernet Sauvignon and Merlot that sell in 1.5-liter bottles for about $10.

“It’s driven by the change in the economy and the economic conditions,” said Jan Barnes, marketing director for Chateau Ste. Michelle Wine Estates. “There’s growth in the 1.5-liter business overall in the wine industry, so we thought that would be the right thing to do -- just to keep it.”

She added that consumers have been tending to trade down, choosing a $15 bottle of wine rather than a $20 bottle.

“Our high-end wines are definitely being impacted by the economy, and the restaurant business -- especially for the high-end wines -- (is) just dismal right now,” Barnes told Wines & Vines. She expects a recovery in sales to take hold by 2011, but it will continue to favor mid-priced wines.

“I think the consumer mindset has taken a long-term shift. I think they’ll be more selective,” Barnes said. “I do think there’s going to be a market for high-end wines and luxury wines forever. How big that segment will be will probably be the difference.”

According to Frank Roth, head winemaker for Tagaris Winery and its sister label Eliseo Silva Wines in Richland, Wash., the shift to value has been good, especially as the wineries take in what is looking like a record harvest.

Eliseo Silva Wines have seen uptake in New York because of their quality and reasonable prices. Both Eliseo Silva and Tagaris produce wines from estate-grown grapes, with pricing in the range of $10 to $15 per bottle for Eliseo Silva, compared to $30 for a Tagaris bottle.

Eliseo Silva’s production followed demand upward, and now runs at 22,000 cases per year versus 14,000 cases when it debuted in 2005. This year will see its largest harvest, the investment in vineyards pointing to confidence in the under-$15 segment of the market.

“It seems to be that things are picking up,” Roth said. “People are starting to get back into buying wine.” The interest in the Eliseo Silva label also seems to have benefitted Tagaris wines, Roth said, a phenomenon that came as a surprise.

The downturn in the economy not only drove sales of Eliseo Silva, he said, but it boosted awareness of the upper-tier label just as people who typically bought more expensive wines started to scale back their spending. “Eliseo Silva kind of pulled Tagaris along with it, just because people see the quality in the $10 product or $15 product that we have,” Roth said. “It’s worked very, very well for us.”

Statistics from the B.C. Wine Institute indicate that dollar sales in British Columbia of wines bearing the Vintners’ Quality Alliance seal totalled $164 million Canadian (approximately US$160 million), up 2.2% for the 12 months ended Aug. 31, 2009, over the same period a year earlier. Volume sales were up 3.7% for the same period, topping 6.9 million liters. Volume sales were trending up this summer, compared to last year, when the summer months showed a gradual decline.



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