Rising consumer confidence lifts industry's spirits
By MATEUSZ PERKOWSKI
Heading into 2010, Oregon's wine industry was bracing for the worst.
Sales in the prior year had dropped by double-digit percentages while grape production rose sharply.
Inventories of unsold wine were piling up at a time when thousands of recently planted vineyard acres had yet to reach maturity.
Wineries and grape growers were afraid the oversupply would continue mounting and deepen the industry's financial troubles.
But 2010 wasn't as painful as anticipated.
"It wasn't exactly the disaster we thought it would be," said Chris Welch, a broker with the Ciatti Co., which trades in grapes and bulk wine.
The amount of grapes lost to animals, disease and weather increased sevenfold in 2010, intensifying the effect of lower yields caused by poor fruit set and cool temperatures.
Altogether, production dropped 23 percent across the state, according to USDA's National Agricultural Statistics Service, ensuring that a bountiful crop did not aggravate the oversupply.
Meanwhile, Oregon's total wine sales climbed about 25 percent, topping $250 million, while inventories of bottled and bulk wine fell by roughly 6 percent altogether.
Overseas exports, which jumped in volume by two-thirds, were a contributing factor to the sales increase.
Grocery retailers also helped absorb the supply of bulk wine by using it for store brands, said Welch. Overall, the year proved that economic challenges to Oregon's wine industry were not insurmountable.
"There's a lot of wine in tank, but I feel like there's a home for that wine," he said during the recent Oregon Wine Industry Symposium in Eugene, Ore. "Relative to the rest of the market in America, it's not that much wine."
Though manageable from the sales perspective, additional grape production from recently planted vineyards may overwhelm Oregon's crush capacity, he said.
Most of the state's acreage is devoted to Pinot Noir, so those grapes achieve ripeness at roughly the same time. A sudden spike in demand for custom crushing can hike the cost for that service.
"Everything comes in at once," Welch said. "It's a very constrained window."
Barring any major disasters that would destroy demand, the outlook for Oregon's wine industry in 2011 is positive, said Rob McMillan, founder of Silicon Valley Bank's wine division.
Wineries are beginning to respond to steadier consumer confidence, reducing the discounting trend that has hurt revenues, he said. The majority of wineries intend to hold their shelf prices, but more are now looking to increase prices than to drop them.
"It's a very good sign," McMillan said. "It shows we're past the bottom."
Grape growers may still feel pressure from wineries to reduce contract prices, but after 2011, prices for the crop can be expected to stabilize or even rise, he said.
New vineyard planting has slowed, so wineries may want to think about entering into longer-term contracts for grapes to lock in their supply, McMillan said. "I think we're there in the cycle."