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07.14.2011  
 

Breaking Down the Oregon Wine Report

Industry growth is impressive, but doesn't guarantee profits

 
by Peter Mitham
 
 
Ed King Estate Oregon wine
 
Ed King, founder of King Estate Winery, says that in spite of the recession, there's "been a broader acceptance of Oregon wines by America."
Eugene, Ore.—Oregon’s wineries are claiming their place on the national stage, but there’s still work to be done if their growing impact is to translate into long-term economic stability.

A widely published report commissioned by the Oregon Wine Board from Full Glass Research of Berkeley, Calif., pegs the contribution of Oregon’s wine industry to the state economy at $2.7 billion, up from $1.4 billion in 2004. That translates into net added value of $1.6 billion last year vs. $996 million in 2004.

The increase is driven primarily by investment in vineyard acreage and a consequent increase in wine sales. According to the report, there was a net addition of 5,500 acres of vineyard between 2004 and 2010, representing direct investment of $126 million. The new acreage contributed to greater production and revenues of $252 million on case sales of 1.75 million in 2010 at Oregon wineries, up from $157 million on sales of 1.4 million cases in 2004.

“The wine industry happens to be a very good industry to have in the state,” report author Christian Miller told Wines & Vines. “The ripple effect is very strong, and the amount of margins captured by wine producers is higher than in a lot of other agricultural products, because you’re ending up with a consumer packaged good at the end, rather than just selling raw materials on the bulk market.”

This was true despite the recession, which dealt the industry strong headwinds in 2009. Data indicate the Oregon wine industry is experiencing a V-shaped recovery, rather than the less robust rebound seen in other economic sectors.

Analysts credit this to greater sales outside the state: Direct-to-consumer sales and recognition on the national stage have buttressed Oregon’s earnest sales efforts. Out-of-state sales now account for 59% of cases sold, up from 48% in 2004.

Growth does not equal profits

But robust investment and sales doesn’t necessarily bode a healthy industry. “This is about investment and spending,” Miller said. “It doesn’t necessarily mean (the business) is profitable or that sales are growing— though in this case they are.”

Ed King, founder of King Estate Winery near Eugene and the state’s single-largest vintner, hammered this point home. He didn’t shy from saying that the industry has encountered a reckoning—some producers more so than others—and the industry will continue to come to terms with the impact of the recession, no matter how strong the recovery.

King feels the industry—as evidenced by ongoing spending by both the industry and consumers—remains in good shape. “It’s a very dynamic situation in the state,” he said. “The recession itself has picked winners and losers in Oregon, yet through that process—where certainly there’s been plenty of struggle—the report indicates there’s nonetheless been a broader acceptance of Oregon wines by America.”

The challenge the industry faces, he believes, is to harness the strengths highlighted in the report to drive the industry into the future. Recent discussions among lawmakers in Salem regarding event regulations are a case in point.

Wine tourism now contributes $158.5 million annually to the economy, compared to $92 million in 2004. “People are recognizing this is a high-quality dollar. It often comes from out of state, and it stays here,” King said. “We do want to continue in this direction. That’s good for us, good for the industry and good for the state.”

Public hearings and industry discussions regarding the kind and number of events wineries can host on land zoned exclusively for farm use were challenging, but King (who supported changes to event regulations) believes the conversation was necessary.

“What we’ve been through this year in the legislature has been a kind of snapshot of an industry that’s growing,” he said. “It shows a maturing industry with maybe a better idea of where it’s going.”

Tourism, like any other investment, represents not only revenues but also jobs. Those jobs, according to Oregon state data, are worth more than ever. Wine-related jobs in the state now exceed 13,500 and pay an average annual wage of $28,259 per person. Six years ago, there were just short of 8,500 jobs paying an average of $23,942 per year.

King said the increase translates to about $2 more per hour per worker per year, but he was hesitant to attribute this to higher labor costs on the ground or an influx of professionals to the industry pushing up the average.

Regardless, both King and Miller said that higher costs not only highlight the value of the industry but the need to keep wine flowing to consumers willing to pay for what workers are producing.

With rising production from the acreage planted in the past five years, and “fierce competition” from other wine regions, Miller advised wineries across the state—both in the Willamette Valley and growing areas such as Southern Oregon and the Columbia Gorge—to boost awareness and distribution of what they have to offer.

“The opportunities are strong,” he said. “You have to have a concrete plan. You have to know how you’re going to sell it, to whom and where.”

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