Napa, Calif.--Attendees at the Napa Valley Grapegrowers’ “Ahead of the Curve” seminar probably learned a lot and were inspired by some speakers, but a key panel surely discouraged most.

The annual seminar is designed to let growers know what the future holds. This year, the theme was “Preparing for the New Normal,” shorthand for a time when buyers have reduced their expectations and spending from the heady days before 2009.

It’s an issue especially important to Napa Valley, where wineries are used to selling expensive wines easily, and growers expect top dollar for their grapes. No one forecasts that Napa grapes will start selling for $120 per ton, but broken contracts, minimal prices for uncontracted grapes, and fruit left on the vine were surprisingly common in the normally prosperous valley during the last harvest.

Jim Verhey, chairman of the group’s education committee and himself both a small grower and manager of huge Silverado Partners, noted that fortunately, things seem to be getting better. “We may be coming out of the worst recession in our lives,” he said. “High-end wines seem to have stabilized—but at a lower price. Quality is critical, but perceived value will be the key to success. And many consumers see better perceived value elsewhere.”

Verhey pointed out that 78 of the Wine Spectator’s 100 best wines based on value were from France and California in 1988, but only 38 in 2005. Napa dropped from 15 to two entries. “The scores weren’t that different; the prices were.”

After Verhey’s introduction, Prof. David Teece of the University of California, Berkeley, and owner of a winery in New Zealand, discussed the situation and offered advice to the growers. He especially recommended education, saying knowledgeable buyers are the best customers for quality products, and recommended the Internet and social media for this purpose, if not so much for selling wine directly.

Teece also recommended more cooperation among competitors, and between growers and wineries. “Regional branding is very valuable, and Napa Valley is unique.”
Chilling news
The most interesting session--and the one most chilling to attendees--was a panel addressing high-end wine sales trends. It featured Glen Knight of Southern California retailer the Wine House and Bill Upson, principal of the 12 Real Restaurants including Tra Vigne in St. Helena and venerable Fog City Diner in San Francisco. Michael Honig of Honig Vineyards led the session.

Upson said he has seen little improvement in white tablecloth restaurant sales, which were down 20% last year. He’s responded by using up inventory: selling it by the glass. “Wines by the glass are now half of wine sales at some restaurants, as diners cut back on ordering bottles,” he said.

Upson also noted that the current retail market is price driven. “The buyer who used to pay $75 has figured out that that wine is not much different in quality from one selling for $35. There’s simply no market for wines over $40.”

Knight added, “Unless they see that it’s 60% off, they won’t buy $40 wines.”

In response, Upson is buying directly from wineries to save money, and introduced wines in kegs in some restaurants. “You’ll see barrel wine really take off,” he predicted.

The good news, he said, is that the first quarter of 2010 was up a bit. “New York is turning around, at least at the middle market restaurants.”

Retailer Glen Knight was brutally candid: “Our sales are up 15%. We’re making a lot of money thanks to wineries going out of business and dumping wine.”

His store used to carry $2.75 million in inventory; he’s trimmed it to $2 million. He mentioned that Napa Valley's Caymus Vineyards was one of the first to discount heavily. “From January to June of 2009, we sold four six packs of 2006 Caymus Special Selection at $150 per bottle. Then they reduced the prices, and in the second half, we sold 150 cases at $99.95 per bottle.”

He mentioned Joseph Phelps Vineyards as another discounted wine, and added, “We aren’t selling new wine. We’re using up inventory.” He also pointed out that he can buy aged Cabernet for less than the wholesale price of new wines. “We can buy ‘80s Montelena Cab for $40--the current price is $80--and the old wine is drinking beautifully.”

He notes that Millennial buyers consider Napa Valley Cabernets as “Their father’s Cadillac,” and instead buy wines from Italy, Argentina and Southern France for $10 to $25. “But they’ll spend $200 on a special single-malt Scotch.”

Both speakers also said that Italian and French wine companies promote their wines much more than Napa Valley does, and they want consumer events, not trade tastings. Upson mentioned the Taste of Napa Valley, which brought a dozen wineries to a number of retailers and restaurants, as an excellent example of what works--and of which more is needed.

Knight also complained that Napa Valley wines have become “Parkerized.” “They all taste alike. You owe it to yourselves to stop chasing scores.” He added, “The people you want to talk to are the 65,000 on our mailing list, or the 125,000 on K&L’s. Parker only has 65,000. Talk to Food & Wine and Bon Appetit (not the wine magazines.) They’re far bigger.”

Grower Andy Beckstoffer pointed out that land prices in Napa Valley make it difficult to produce inexpensive wines. One audience member added a comment: “You could increase yields above 2.5 tons per acre.”

The following speaker helped raise spirits. Fedele Bauccio, founder and president of Bon Appetit Management Company, which supplies restaurant-type sustainable food to institutions, encouraged growers to shoot high.

Trinchero’s formula
The last speaker was Bob Trinchero of Trinchero Family Estates, the accidental inventor of white Zinfandel, “The wine you love to hate,” he joked. Trinchero makes a range of wines from low-end Sutter Home to well-regarded estate-bottled wines from Napa Valley. Overall, the winery’s sales were up last year, the biggest in its history. The family owns 7,000 acres of grapes--about 300 in Napa Valley--and has about a dozen brands. It shipped some 15 million cases last year.

Trinchero attributes the company’s success largely to giving the customer what he (or she) wants. This includes not only white Zin, but other popular offerings including Menage a Trois, the largest selling red wine SKU in the U.S.; alcohol-removed Fre; 187ml bottles, PET bottles and Tetra boxes.

He shared a secret, too. The winery sold 250,000 cases of slightly sweet Moscato last year. It’s become popular as a mixer with vodka to form an “Obama” cocktail in the South, although it’s delicious on its own.

Interestingly, Trinchero said that a lot of people buy the alcohol-removed Cabernet to mix with big Cabs and temper their fire.
Trinchero didn’t mention it, but his company is especially savvy in marketing and promotion. It was a pioneer in consumer research, and targets each of its brands carefully to niche audiences.

Talking about the company’s improved winemaking, Trinchero mentioned that the company owns 1,400 acres in Colusa County near Arbuckle planted in 1,100 acres of grapes--which produce 11 to 22 tons per acre. Trinchero paid just $5,000 per acre to buy and develop the land in 1988.

All in all, Trinchero’s message was probably not applicable to many Napa Valley growers or wineries--or even one they want to hear--but it probably made many think. Is it so bad to meet customer demand rather than try to change it?