Oregon Wine Industry Optimistic

Symposium seeks fresh alternatives

by Peter Mitham
patricia skinkis
Oregon State University researcher Patty Skinkis was honored with an Outstanding Service Award this week at the Oregon Wine Industry Symposium.
Eugene, Ore.—The mood among close to 1,000 attendees at the annual Oregon Wine Industry Symposium this week was upbeat, but wineries are mulling alternative directions as the economy stabilizes.

While strengthening sales of wines priced at $20-plus per bottle were cause for optimism and even applause during presentations by bankers, economists and market observers, a cautious attitude on the trade show floor and the inception of a new series of seminars about white wine production underscored the discussion taking place within the industry regarding its future.

The Pinot Noir success story dominates Oregon wine production, but it brings as much risk during downturns as it does wealth during robust eras. Pinot Noir and Pinot Gris account for 53.6% and 16.7%, respectively, of state grape production according to the latest National Agricultural Statistics Service numbers.

But a discussion of whether other world-class white wines are possible from Oregon highlighted the potential for Riesling and Chardonnay—thanks to new plantings of Dijon clones—to diversify the industry. Both varieties were once significant elements of local production. Riesling has fallen from 23% of plantings to just 3% during the past two decades, however, while Chardonnay acreage in 2010 is just 72% of what it was in 2000.

During a review Tuesday of the industry’s economic state, Chris Welch, a partner with bulk wine dealer Ciatti Co., explained that Pinot Noir’s dominance contributes to high production costs and the need for Oregon producers to target buyers of premium wines. With so much Pinot Noir being produced in the state, he said, production costs tend to be higher: Processing capacity faces greater demand within a shorter harvest window than in areas with a greater distribution of grape varieties that can be harvested during an extended ripening period.

Diversification in varieties could ease the crunch at crush, and offer a fresh selection of wines to the market. Albariño, Arneis and Viognier are among the grapes now finding their way into wines, largely from Southern Oregon producers. This also shows there’s more to the state than Willamette Valley Pinot Noir.

Premium Pinot rebounding

Meanwhile, though, a rebound appears to be shaping up for Pinot Noir and the premium wine market. Same-store sales at chain restaurants are inching back, according to stats presented by Liem Le of the The Nielsen Co., and wine sales are creeping back even if consumers remain more discriminating in what they’re buying. Off-premise and direct-to-consumer channels show the most promise, however.

“There’s been a lot of activity for Oregon Pinot Noir—good price and velocity,” Welch told his audience Tuesday afternoon. Moreover, export sales are up and private-label business is creating opportunities to heighten the profile of Oregon wine: More than one speaker highlighted the need for this.

“I’m actually pretty optimistic about the year ahead,” said Rob McMillan, founder of Silicon Valley Bank’s Wine Division. The data he’s reviewed indicates some wineries are even considering selective price increases that tap into growing demand in the upper tiers of the market. “It says that we’re past the bottom,” he said. “Everything’s starting to be a little more upbeat.”

The main challenges lie in the uncertainty of the economic recovery.
Liem Le’s presentation on the symposium’s opening day noted that households with $100,000 and more in annual income are where growth in discretionary spending is occurring. With news outside the conference tipping the potential for $5 per gallon of gas by summer, the average consumer is likely to stay cautious.

With respect to oil prices, during a Wednesday afternoon session titled “Weathering the Storm,” Clark Seavert, a professor of agricultural and resource economics at Oregon State University speculated, “There’s going to be a big challenge, I think.” More expensive oil and petroleum products will add to grape production costs, and consumer confidence may not yet be resilient enough to tolerate the ripple effects. “How is that going to affect consumer thinking and what they buy?” Seavert asked.

McMillan, during his presentation, noted that the expiration of federal stimulus funding would also have an impact, though how severe this will be depends on economic circumstances at the time.

McMillan pointed out that the expiration of federal stimulus funding would also have an impact on the recovery, although how severe this will be depends on economic circumstances at the time.

On the plus side, Oregon’s wine industry is in good hands. While a lifetime achievement award was presented to Norm McKibben, a veteran of both the Oregon and Washington state wine industries, Oregon State University researcher Patty Skinkis was honored with an Outstanding Service Award for her work in focusing and propelling research initiatives on behalf of industry.

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