Vineyard & Winery Management Magazine

WAWGG Annual Meeting Addresses Mechanization

February 11, 2013

WAWGG Annual Meeting Addresses Mechanization
Immigration changes push Washington state grapegrowers to mechanize
By Andy Perdue

Wine grapegrowers are turning to mechanization not only as a result of shortages in migrant labor, but also because it often costs less.

A seminar held Feb. 8 at the Washington Association of Wine Grape Growers (WAWGG) annual convention in Kennewick, Wash., called “Will Immigration Reform Drive Mechanization” looked at all sides of the issue and provided a glimpse at what the future may hold.

Vineyard owners and managers got a clear message that the minority labor force that the wine industry relies on will be increasingly difficult to find and maintain. They also learned of emerging technologies that will continue to make them less reliant on labor.

“It’s on everyone’s mind,” said Mike Gempler, executive director of the Washington Growers League in Yakima. “Immigration will affect labor supply, which affects the economics of the business.”

The Washington Growers League is a legal, housing and safety advocate for farm workers in Washington state. Gempler said he is optimistic that the current political climate in Washington, D.C., could lead to sweeping immigration reform, and it is led by Republicans who realize change is needed after losing the presidential election in November.

“If immigration reform is passed into law, we hope we’ll be able to maintain our current workforce and secure a flow of seasonal labor,” Gempler said. “If there is no immigration reform to solve agriculture’s problems, then mechanization will be one of the primary options.”

It already is a primary option for Mike Andrews, owner of Coyote Canyon Vineyard in Washington’s Horse Heaven Hills. He grows about 25 varieties of grapes on his 1,123 acres and supplies fruit to Ste. Michelle Wine Estates, Hogue Cellars and more than a dozen other wineries.

Andrews added 700 acres to his vineyard between 2006 and 2009, but crackdowns on illegal immigration created a labor shortage and left him in a bind. He already was harvesting 90% of his vineyard by machine, so he added a mechanical leaf stripper.

“It was a combination of saving money and a labor shortage,” Andrews said.

With the leaf stripper, Andrews can work through 20 acres a day with one person. A worker doing it by hand could handle perhaps an acre, he said. Andrews figures he reduces his costs more than 65% with the mechanical leaf stripper.

Leaf stripping allows deeper spray penetration, increased airflow to reduce disease pressure, more sunlight, better cluster counting and easier color thinning at veraison. That adds up to improved fruit quality, Andrews said.

Because of his more highly mechanized vineyard, Andrews has not had any difficulty finding enough labor for the past few years. He hand harvests perhaps 100 acres for higher-end wineries.

That average is true across Washington. Vicky Scharlau, executive director of the state grapegrowers association, estimates that at least 95% of all Washington wine grape vineyards are mechanically harvested.

Scharlau, who once worked for the state apple commission, said grapegrowers have a distinct advantage over the tree fruit industry, which is heavily reliant upon manual labor, especially during harvest.

“Wine grape growers have the luxury of mechanization,” she said.

Russ Smithyman, director of viticulture for Ste. Michelle Wine Estates, demonstrated how the state’s largest wine producer uses technology and mechanization to differentially harvest grapes not only within the same block but also along individual rows.

Using aerial multispectral photography and remote sensors, Ste. Michelle is able to perceive differences. Those grapes are harvested and processed separately, providing winemakers more options in the cellar.

“This is a technology that’s not necessarily looked at for labor efficiencies,” Smithyman said. “It’s technology that’s focused more in quality differences.”

Beginning in 2005, Ste. Michelle set up a system that used aerial mapping to signal the workers operating the harvesting equipment when to switch gondolas and, thus, keep grapes within the same rows separate depending on the size of the canopy.

Growers at the convention also watched a video of a fully automated mechanical pruner being developed by Vision Robotics in San Diego, Calif. Clark Seavert, an agriculture economist at Oregon State University in Corvallis, said that while the technology is impressive, it is not yet economically feasible because it can prune just one vine per minute and would need to be at least twice as fast. He noted the company is four years away from commercializing the system.

Seavert has developed a software system called AgTools that helps farmers determine if mechanization makes economic sense. The software is provided at no cost to U.S. farmers at www.agtools.com.

Whether greater mechanization becomes necessary comes down to immigration reform, Gempler said. And growers are not optimistic.

“There’s a lot of skepticism about whether anything is going to happen,” he said. “People are worried, and they hope Congress will act.”

Andy Perdue is editor of Great Northwest Wine (www.greatnorthwestwine.com), a news and information website.

North Coast Wine Industry Gathers at Wine Industry Expo

December 10, 2012

North Coast Wine Industry Gathers at Wine Industry Expo

Trade show and conference draws more than 2,000 attendees

On Dec. 5, the Wine Industry Network (WIN) welcomed attendees and exhibitors to the first North Coast Wine Industry Expo, held at the Sonoma County Fairgrounds in Santa Rosa, Calif.

In addition to panel discussions on sales, marketing, production and vineyard operations, the event included a trade show featuring 190 exhibiting wine industry suppliers. More than 2,000 industry professionals attended the show.

Session highlights included panel discussions on vineyard marketing, hiring and maintaining a good labor force, and telemarketing vs. social media.

Vineyard Marketing

In a session about vineyard marketing, Mark Chandler of the Chandler & Company consulting firm advised grapegrowers to resist the temptation to take advantage of the current fruit demand by inflating prices. "Don't get greedy,” he told attendees. “Let’s be fair in price negotiations now, and (the wineries) will reciprocate later.”

He also recommended that growers reciprocate clients’ support by being good customers themselves: Buy their wines, share them with friends, and be sure to let the clients know about it.

Staying on top of industry trends can also give growers an advantage in the marketplace, Chandler added, so it’s important to attend conferences, follow industry publications and visit other wine regions to learn about their vineyard practices. "Be ready to spend a little extra money on tax-deductible travel," he said.

Perhaps most important, he said, is to project an image of being ahead of the curve.  “Leadership is a magnet for business,” he explained. “People want to have a relationship with the go-to people in the industry."

Getting Good Labor

During the same session, viticulturist Hector Bedolla of Grape Wise LLC spoke about an issue that’s currently on many growers’ minds: getting and keeping a high-quality labor force.

One of the most important ways to do that, he said, is to get out and actively meet people.” “Networking opportunities are everywhere,” he told attendees. “Make eye contact and make physical contact."

Once you’ve hired your labor force, pay attention to the work they do. “Observe your workers for work ethic and work quality, and talk to your foremen and supervisors frequently,” Bedolla advised. “Train them to be your eyes and ears, and train your front- line workers to do (the job) to the letter.”

It’s important to motivate and reward good workers, he added, which can be accomplished not only with financial incentives, but through camaraderie and scholarship opportunities.

Letting employees know that their safety is important is also an effective motivator. “Having a safety program develops loyalty,” Bedolla said, “and loyalty is very important.”

Telemarketing vs. Social Media

The day’s most well-attended session focused on direct marketing. After an overview about compliance issues relating to telemarketing and social media marketing practices, given by Ryan Thurman of Contact Center Compliance, Michael Houlihan of Great Thinks faced off with Vin Tank’s Paul Mabray about telemarketing and social media.

“A regulatory perfect storm is happening,” Thurman explained, noting that 30%-40% of Americans have abandoned their land lines in favor of cell phones. New regulations taking effect in January will forbid telemarketers from using robotic dialing systems to call cell phones without written consent from the call recipient. Sending unauthorized text messages could carry government fines of up to $16,000 per text.

Despite the regulatory challenges ahead, Houlihan pointed out that phone communication is a highly effective way to sell wine – especially products costing more than $35 per bottle, which typically require hand-selling.

“It's real-time, it's high-tech, it's personable,” he said of telemarketing. “Wines can be sold at full price," rather than at a discount. With online sales, communication is a one-way street, he added, and discounting is required – which can cause problems in winery-retailer relationships.  

According to figures from direct-to-consumer sales provider VinoPRO, the company’s telemarketing sales jumped from $5.5 million for 30 winery clients to $8 million for 50 clients in 2012. “It's a small slice of the pie,” Houlihan acknowledged, “but that slice is getting bigger and is more efficient than other slices."

The key to successful telesales, he said, is to find the right person to represent your winery on the phone. "A telemarketer is a personal wine steward,” Houlihan said, especially if he has a good customer relationship management (CRM) system in place that shows when wine club members last visited the tasting room, and which wines they’re interested in.

"It's important to have a real person on the phone,” he asserted. “People don't buy your wine, they buy you."

However, not everyone prefers to interact with salespeople by telephone, Vin Tank’s Mabray pointed out. 

"People like to talk about wine on social media – a lot,” he told attendees. “The volume of conversations we have access to is unprecedented in wine history." This gives wineries new access to customers and potential customers who are looking to interact.

Relying on media coverage to support a winery’s message is no longer enough,” Mabray said. “There are only ‘20 super-critics’ in the world" with over 100,000 readers, and they’re becoming rarer still with the decline of regular wine coverage in newspapers and other publications.

Pouring at large tasting events is a waste of money, he added, because they often turn into “drunk-fests,” and attendees rarely remember what they’ve tasted once they’ve sobered up.

Social media interaction enables wineries to engage in storytelling, gather intelligence about customer service experiences and inspire recommendations. "It's better when someone else tells your story,” Mabray said. “Recommendations drive our industry."

It can even lead to sales, as people today feel more confident about buying a wine if they see a lot of “likes” or positive comments posted about it online.  

During the question-and-answer segment, Mabray and Houlihan agreed that telemarketing and online sales methods should be used in combination with each other.

In the end, Mabray pointed out, they’re both about interacting with customers.

"If a customer calls your winery, do you answer the phone?" Mabray asked, equating picking up the phone to responding to social media comments. “The ROI is in talking to your customers.”

To register in advance for the 2013 North Coast Wine Industry Expo, visit www.wineindustryexpo.com.

Grape Selling Secrets Revealed at Sonoma State Seminar

November 30, 2012

Grape Selling Secrets Revealed at Sonoma State Seminar

Industry experts share their strategies

By Michelle Locke

After a couple of very tough years, things are looking up for the wine grape market.

“Supply is no longer a bad word,” said Glenn Proctor, partner in the Ciatti Co. brokerage, speaking at a wine business seminar at Sonoma State University Friday. “The new reality is (that) having supply is now advantageous.”

Activity and demand are up in virtually all segments and there appear to be some market gains in higher price-points. Meanwhile, traditional large buyers are back in need of supply.

And although the 2012 harvest is predicted to be substantial, possibly record-setting in some areas, it looks like the dynamics are in place for a “normal” year, not tipped wildly in favor of either seller or buyer as it has been in recent years, Proctor said.

He gave his initial take on the still-developing market during his presentation as one of four industry veterans who appeared at Sonoma State University on Nov. 30 for the seminar, “The Experts’ Secrets to Selling Wine Grapes.”

The main secret, it appears, is: Know before you grow.

That means studying up on everything from the right person to contact at a winery to knowing what kind of program you’re farming for – don’t try to sell $30 per bottle grapes into a $10 per bottle program.

And be aware of the market for grapes, bulk wine and retail wines. The truth is that wines selling for more than $25 a bottle make up a tiny part of the national market. If everyone plants for a $40 bottle, there’s going to be a supply problem, noted panel discussion leader Nick Frey, president of the Sonoma County Winegrape Commission.

Marketing your vineyard and grapes is critical even if you have a contract, said Frey, who recommended that growers have a marketing plan and a good idea of what makes their grapes and vineyards special. Meanwhile, growers should build a network of grape buyers and brokers – and keep track if those people change companies, since the wine industry still tends to be about individual relationships.

As an example of marketing efforts, Frey talked about the “We Are Sonoma County” marketing campaign, which aims to promote the Sonoma County brand. Currently, about 1 in every 20 bottles of wine sold in the United States is from Sonoma County, and the Commission’s goal is to double that by 2016.

When you get an offer for your grapes, Frey recommends considering it carefully – it might be your only offer. If growers are concerned that prices might rise after they’ve signed on the dotted line, they might look for a shorter-term contract or build the possibility of pricing adjustments into the contract.

Researching the market takes many forms, said panelist Randy Luginbill, vice president of winery relations at Silverado Premium Properties, the largest independent non-winery grower in California with more than 11,000 acres under production.

A good place to start is the annual “Crush Report” published by the California Agricultural Statistics Service, which presents a host of data, such as average and median grape prices. Other sources include subscription data services like Nielsen, which indicate which brands are hot.

Joining and being active in state and local grower organizations is a good way to stay connected, Luginbill said, and cruising the aisles of beverage stores to see what’s on the shelf is also a useful approach.

A few years back that came in handy when he was looking to sell some excess pinot grigio grapes and getting nowhere. He visited a store, came upon a bottle of pinot grigio from someone he did business with (but hadn’t realized had a pinot grigio in their line) and, voila, a sale.

Making the first contact can be hard. Luginbill recommended that growers start with a list of wineries that seem to fit their grapes’ profile and find out who is the right person to call. When growers make that call, they should be prepared with good, quality information about the vineyard, with things like variety, clone, rootstock, spacing, vine age, soils and more.

Should you send wine samples? That depends on how good those samples are.  Luginbill said it can be appropriate in some cases. Proctor cautioned that growers should only send wine samples if they’re “really sure it’s the best your vineyard has to offer.”

Selling grapes through a broker can be helpful for a number of reasons, not least of which is that the broker has the ability to say things to both parties that neither could say face-to-face, Proctor pointed out.

Signing a contract doesn’t end the process; it’s important to keep communications going, even if that means letting the buyer know about potential problems. In other words: If your vineyard has mildew, pick up the phone.

“The thing about this business is… the people in general are pretty good,” said Proctor. “I really think it’s about relationships and about communications.”

Diageo Hosts Rule-Breaking Tour

November 9, 2011

Diageo Hosts Rule-Breaking Tour

‘Stark Raving’ events combine wine, food trucks and humor writer Joel Stein

By Tina Caputo, editor-in-chief

Say you’ve just launched a wine brand aimed at Millennial men, and you want to plan a series of events to attract them. Would you recruit a hot young actress to pour the wines? Hire an alt-rock band? Partner with an electronics company?

What about sponsoring the book tour of a Time magazine columnist whose work has nothing to do with wine?

It sounds crazy, but it just might work. 

The wine in this real-life scenario is Diageo’s Stark Raving, an 80,000-case line of rule-breaking non-vintage wines priced at $12.99. The writer is humorist Joel Stein, whose book, “Man Made: A Stupid Quest for Masculinity,” chronicles his attempt to attain manhood through various testosterone-fueled activities.

Diageo sponsored Stein for a six-city book tour – still in progress at the time of this writing – of New York, Denver, Chicago, San Francisco, Tampa and Houston. While the events include elements of a traditional book-signing, Diageo added a wine-and-food pairing contest. The twist is that the food – which can be anything from Peruvian ceviche to Vietnamese “Banh mi” sandwiches – is made by local food-truck vendors to match particular Stark Raving wines, and attendees are asked to vote on their favorite combinations.   

“The idea for Stark Raving is really about mavericks and breaking the rules,” explained Jessica Callahan, brand marketing manager for Diageo Chateau & Estate Wines. “It’s all about doing things differently, from putting a crazy man on our label to not having vintages to using varieties like tannat.”

This theme naturally carried over into Stark Raving’s wine events.

“The Millennial consumer is breaking the rules left and right in terms of wines that they enjoy and how they’re enjoying them, so we really wanted to do something fun and different. What’s more maverick than food trucks? They’re taking the restaurant business and moving it into a truck and creating crazy food combinations.”

Stein’s book also seemed like the perfect pairing for Stark Raving’s target demographic. “We thought it was a great match,” Callahan said. 

Stein wrote “Man Made” after his wife gave birth to a boy, and Stein realized that he wasn’t equipped to teach his son how to be a man. The book chronicles Stein’s attempt to learn manly skills through various activities, including three days of boot camp at Fort Knox, fighting UFC fighter Randy Couture and hunting turkeys.

Although Stein, 41, isn’t quite a Millennial himself, his funny, irreverent writing style appeals to a wide age range. 

“Yes, Time magazine readers are older, but there’s a sub-group of readers that get the magazine in high school, or nerdy kids who read their parents’ copies,” Stein said. “If you send me to a nerdy high school event – like a Model U.N. or Junior Statesmen – that is as close as I could ever get to being a rock star. I think it’s because they see me in a very minimal way being ‘punky,’ while still being part of the establishment, and that’s very appealing to a hard-working high school kid.” Obviously, teens are not Stark Raving’s target audience, but his popularity with younger readers illustrates the diversity of Stein’s readership.  

Stein is also well versed in wine. He’s written articles on the subject for Time, including one in which he tasted a wine from each of the 50 states, and he drinks wine with dinner on a nightly basis. His knowledge comes in handy at the Stark Raving events, where he acts as chief wine-pairing judge and contest emcee.

So far, the Stark Raving/Man Made tour has attracted an average of 200 attendees per city, including plenty of male Millennials. 

“It’s definitely hitting with our target,” Callahan said. “We’ve had a bunch of people come because they’re fans of Joel, but then we’ve also gotten people coming because they love the wine, and we’re getting a ton of people who are interested in the food trucks. The food trucks are a really big driver.”

Gina Gallo Q & A

A Few Questions for Gina Gallo

Third-generation E & J Gallo winemaker opens up about her family’s business, consumer trends and women in the wine industry

By Editor-in-Chief Tina Caputo

Third-generation winemaker Gina Gallo, granddaughter of Julio Gallo and grandniece of Ernest Gallo, grew up in her family’s wine business. She began her career at E & J Gallo as a salesperson before crossing over to the winemaking side. Today she’s the senior director of winemaking for the world’s largest wine company.

Despite her busy schedule, Gallo lent her highly developed palate to Vineyard & Winery Management’s 2012 International Women’s Wine Competition, held Sept. 18-19 in Santa Rosa, Calif.  Between judging rounds, she shared her views on her family’s business, consumer trends and women’s progress and challenges in the U.S. wine industry.

Vineyard & Winery Management (V&WM): What were Gallo’s strongest brands in the last year?

Gina Gallo (GG): Louis M. Martini for sure. It has a lot of good history, a rich tradition, and having Mike (Martini) involved has helped tremendously. And then Barefoot is on fire. I think Jen Wall’s done an amazing job with the taste profile and the flavor of those wines. I think what makes that wine so great is, at that price, people think it must be sweet, but it’s definitely dry and well balanced.

William Hill Chardonnay is also really doing well, and the Laguna Ranch Chardonnay. Outside our family business, a wine that’s doing extremely well is the La Marca Prosecco from Italy. It’s really starting to create an amazing wave and it’s just a beautiful wine, not too sweet.

V&WM: As the economy slowly improves, do you see consumers moving up the price scale?

GG: We’ve been very fortunate at the premium level – it’s had lovely growth, even when the economy wasn’t that good. We’re right in that area for people who were buying that $60 or $70 bottle of wine – they can buy an amazing $20 or $30 bottle of wine from us that has beautiful value. We’re seeing a little bit of action (at the high end), but I still think it’s going to take a while, honestly.

V&WM: What trends do you find encouraging for the U.S. wine industry?

GG: There are still so many people that aren’t enjoying wine on a daily basis, so there’s a great opportunity (to bring everyone) together to share the beauties of wine. The wineries here in California have tremendously improved in quality over the years, so if you’re not putting out quality today, it’s impossible. It just comes down to style and character, and value. And then there’s the new generation – they’re not afraid to buy wine.

V&WM: You’re here judging the International Women’s Wine Competition. Do you believe that women prefer a “softer” style of wine than men?

GG: What they’re looking for depends on the woman. I’m not into the feminine vs. masculine style thing – I just don’t see that. A lot of women like powerful wines that are extremely structured. But women are more likely to buy something they heard about from a friend, or intuitively buy something because they like the way it looks. I think men are a lot more ratings-driven, while women like to try different things and they’re more playful with it.

V&WM: As a woman in the wine industry, have you ever felt resistance from male colleagues because of your gender?

GG: No, but I could see it out in the “real world.” I never felt like there wasn’t support at Gallo – my grandpa definitely supported me, and our longtime winemaker Marcello (Monticelli) was always extremely supportive of me from day one. On the winemaking side, if you look at our production team we probably have more women than men. My dad jokingly asked me the other day: “Is this because of you?” We were just laughing. I think it’s a great mix, and it’s probably the best thing that’s happened to the production side.

V&WM: What about outside the family business?

GG: I think in the whole wine world, it’s still a man’s world – especially in sales. Women are making great strides, but at that top level, you still don’t see a lot of women – and that to me is crazy in this day and age. But I think with the whole generational change there’s going to be a big flip-flop.

V&WM: What advice would you give to women who are getting started in the wine business, or are trying to move up in the industry?

GG: I think it’s important to stay positive, and to stand up and be true to yourself. When you’re right you’re right, and people can’t argue with that. So you should never hold back.

Buena Vista Winery 'Reborn"

Renovation-in-progress revealed at Count Haraszthy’s 200th birthday celebration
By Tina Caputo, editor-in-chief, Vineyard & Winery Management

On Aug. 31, Buena Vista Winery celebrated the 200th birthday of its founder, "Count" Agoston Haraszthy, with a media preview of the historic Sonoma winery's renovation-in-progress.  Dressed in Victorian costume and accompanied by a character actor portraying the “Count of Buena Vista,” Jean-Charles Boisset, president of Boisset Family Estates, led the tour in his trademark theatrical style. 

“We’re excited to take the history of Buena Vista into the 21^st century,” he said.

The winery was founded in 1857, and changed hands many times before Burgundy-based Boisset Family Estates purchased it from Ascentia in 2011. In addition to Buena Vista, Boisset owns Raymond Vineyards in Napa Valley and DeLoach Vineyards in the Russian River Valley.

Over the last year, extensive renovations have been underway on Buena Vista's grounds, Champagne cellar and even its wine program. Boisset is bringing winemaking back to the winery's old Champagne cellar for the first time in three decades, and is reintroducing historic varietals such as French Colombard. Renowned winemaker David Ramey has signed on as consulting winemaker.

“It’s being returned in many ways to its original roots,” Ramey said, “and that’s just fabulously exciting.”

With a focus on providing a visitor experience that will encourage guests to linger and make multiple visits, Buena Vista will offer a barrel tasting, a sit-down clonal tasting and a Champagne-inspired lounge.

Click to see Vineyard & Winery Management's video highlights of the Aug. 31 media event, featuring comments about the future of California's oldest premium winery by Jean-Charles Boisset and consulting winemaker David Ramey.

Chinese Wineries Give Imports a Run for their Money

Oregon photographer provides inside look at Chinese wine industry

By Tina Caputo, Editor-in-Chief

China has been a hot topic in the U.S. wine industry for the last few years, with excitement building about the country’s potential as an export market. But while winery export managers have been busy trying to establish their American brands in China, the Chinese have been building a wine industry of their own.

Oregon-based photographer and writer Jānis Miglavs spent the last three years traveling throughout China to photograph wineries, walking the vineyards of every major Chinese winegrowing region. During his travels he interviewed a variety of winery executives, winemakers and vineyard workers.

His insights and images will be presented in the book “China Wine,” to be published later this year by China-based Beijing Culture 163. Written in English and Chinese, the book will focus on 10 wineries in diverse regions across the country. It will also include a climate map of the Chinese winegrowing regions.

On October 14, Miglavs will present a slide show about the Chinese wine industry at the Mumm Napa Fine Art Photography Gallery, in the Napa Valley.

Promising Quality

Like the Napa Valley, China has its share of over-the-top wineries designed to attract tourists. “There’s one winery – Chateau Changyu Global – that I call the ‘Disneyland Chateau,’” said Miglavs, a former National Geographic freelancer who now focuses on the wine industry. “They have a shooting range and an archery range – they even have bowling. And it’s all in this faux French village.”

Even so, he added, wine quality isn’t necessarily taking a back seat to entertainment. “The production facilities for most of the wineries in China are very state-of-the-art. There are winemakers, say up the Ningxia and Shanxi areas, that are very concerned about the quality of the grapes and making really good wine.”

Among the wineries setting the standard in China, Miglavs said, are Grace Vineyards in Shanxi Province, Silver Heights in Ningxia Province and Chateau Helan Qingxue in Ningxia Province.

“My favorite wine region is in the Yunnan Province, on the border of Tibet,” Miglavs said. “The vineyards are planted at anywhere between 6,000 and 9,000 feet, and the terrain is amazingly steep there,” he said. “I think that’s probably going to be one of the prominent regions in China to grow the best grapes for wine.”

Although it’s in a tropical zone, the high elevation keeps temperatures cool and free of rain pressures during harvest. “The soil is very well-draining, and it’s really well suited for growing grapes.”

Joint Ownerships

Vintners who wish to plant grapes in China lease the land from the government, usually on a 50-year contract, and many wineries have multiple owners. “It varies,” Miglavs said. “For example, the ‘Disneyland’ winery has minority shareholders that are American, French, Italian and Portuguese. But 70% is owned by Changyu, the oldest winery in China, and most of Changyu is owned by the government. A lot of the wineries are owned by the government, or partially owned by the government and joint ventured.”

Because most of the locals have no experience growing wine grapes or making wine, the wineries rely on foreign consultants to advise them, or hire winemakers from outside the country. “A lot of Australians and French wine consultants are there,” Miglavs said. “Many of the winemakers in China are French and Australian.”

Local laborers – some of whom have experience growing table grapes – are being trained to do the vineyard work. “Everything they do is hand labor, because labor is so cheap there right now,” Miglavs said. “I remember one of the winery CEOs telling me, ‘I can get 1,000 workers in a day’s notice.’ Of course, that varies according to region.”

China’s wineries are mainly planting red grape varieties, including Cabernet Sauvignon, Merlot and Cabernet Gernischt, which is believed to be of European origin.

International Trade

The motivation of most Chinese winery owners, Miglavs said, is to make wine for the Chinese people – not to export wine to other countries. “Most of the wineries just look in their own back yard, because the annual growth in wine consumption in China is between 15% and 20%.”

With that kind of growth, and with China already producing more wine than Germany, could the Chinese industry be looking to supply its country’s thirst for wine without the help of imports?

Not likely, Miglavs said. “In Hong Kong and a little bit in Beijing, the wine buyers can be very sophisticated and knowledgeable about wine. Those buyers are interested in prestige and French wines.”

It appears that American wineries – at least those making luxury wines – will continue to find a receptive market for their products in China. But who knows? Maybe someday California vintners will find their products competing with Chinese wines for shelf space, right here in the United States.  

For more information about Miglavs’ presentation at Mumm Napa, visit http://jmiglavs.com/#/Gallery Shows and Events.

Silicon Valley Bank Predicts Long-Term Growth Phase for U.S. Wine Industry

Sales of U.S. wines $20 and up likely to increase 7%-11% in 2012

On April 17, Silicon Valley Bank (SVB) released its annual “State of the Wine Industry” report for 2012-2013. Based on research, in-house expertise and a survey of nearly 500 wineries, the report addresses trends and critical issues facing the U.S. wine industry.

SVB predicts that the fine wine segment is starting a long-term, steady growth phase.

“We believe we are quickly trending to a position that has not yet been experienced in the business,” said Rob McMillan, founder of Silicon Valley Bank’s Wine Division and author of the report. “Supply will be structurally short for an extended period in all production winery sizes, demand will continue to grow at a little slower pace post-recovery, imports will take a larger share of total domestic sales and make larger inroads into the lower priced wine categories.”

One of the biggest obstacles to growth over the next several years, he said, will be finding supply at the right price and quality. “The function of selling wine will now be on par with managing costs, and will become the dominant competitive issue over the next several years.”

SVB’s key predictions and findings include:

-Sales growth in the fine wine business of 7-11% in 2012.

-Domestic wine inventories evolving into a state of shortage.

-Increasing prices for grapes and bulk juice as growers see recovery.

-Increasing plantings to feed the looming grape shortage.

-Imports taking larger market share in the United States.

-Bottle price increases, but not a return to pre-recession prices.

-Increasing difficulty for discount-reliant flash sale websites.

-Millennials are over-valued as fine wine consumers.

Raising Prices

According to the SVB report, the next 12 months will be “much better (for the industry) than the financial collapse of Biblical proportions just experienced.” For consumers, however, the deep-discounting party will soon be over.

“With supply imbalances corrected and the economy continuing to make positive progress, we should see modest upward movement in the price-quality scale,” the report predicts.

“Buying cheap wine is going to become increasing difficult in a market that is moving to shortage… If those companies have a culture of selling on price alone, they will be disadvantaged. In our opinion, sites that focus on replicating the wholesaler’s theoretical job in selling and marketing wine will be the survivors in what is sure to be a shakeout in the segment.”

Short Supply

As wine demand increases in the United States, producers will be faced with short supply in the coming year. While Oregon and Washington State could benefit due to a higher level of non-bearing acreage than states like California, and lower land costs, demand will largely be met through foreign bulk and bottled wines.

“Even though worldwide supply is about as balanced as any time in memory,” the report explains, “imported juice is available to buy and that will decrease the market share for domestic producers in U.S. wine sales.”

Additional planting in all appellations, with the exception of those with the highest land costs, may provide a long-term solution to the supply problem. However, it will take at least five years to reap the results of increased planting.

Millennials Not Yet Ripe

Contrary to the common belief in wine marketing circles that Millennials are hugely important to fine wine sales, SVB theorizes that the excitement is premature. While Millennials are more wine savvy than their parents were at their age, most simply can’t afford to buy luxury wines (over $20).

“I’ve heard some in the wine business argue this group is moving back home and has lower living expenses and higher disposable income to buy wine,” McMillan reports. “However, that argument ignores the fact that this demographic today has the largest unemployment rate and at the same time is starting out more burdened by college loans, (and) is experiencing delayed entry into the labor market.”

While the industry waits for this generation to come into its own, McMillan suggests, Generation Xers – higher earners and more established in their careers – are a more realistic target.

Social Media for All

Whatever generation the industry is targeting, according to SVB, social media is increasingly important to those efforts.

“Social media isn’t really about selling today or about reaching the young,” the report states. “Those 55-64 making over 100K a year are almost as likely to have a smartphone as those in the 35-44 age bracket, making $35-75K per year tech savvy buyers. It’s about adapting to a revolutionary change in the way we all communicate.”

To request a full copy of the 29-page report, contact McMillan at rmcmillan@svb.com.