Hard line from Vineyard Economic Seminar

Barry Bedwell, president of Allied Grape Growers, laid it on the line at the annual Vineyard Economic Seminar in Napa in July: "If you don't have a contract for the fruit, don't plant any vineyards." Bedwell, citing major increases coming up in production as well as competition from imports, said that speculative planting could lead to major problems for California growers, especially in the interior valley.

Allied Grape Growers, an organization representing over 500 growers, released projected increases of 38% in Chardonnay, 47% in Cabernet Sauvignon and 41% in Merlot over the next three years. Bedwell said the updated projection of grape supply takes into account the fact that vineyard acreage is seriously underreported and there is a time lag involved as well. He estimated that underreporting could be as high as 20% and even higher in some areas.

However, he said it was premature to talk about a glut. "There are factors that make it possible for most of that increased production to be absorbed," he said. "Consumption is rising. If you factor in the bulk wine imports, you come up with an 18% growth rate in consumption for 1997," he said. Other factors that could lead to more consumption include increased generic and brand advertising, Bedwell said.

Bedwell believes that the increase in production will lead to a downward pressure on prices, even in the premium coastal areas.

Attendees also heard predictions of an increase in public stock offerings and mergers. David Goldman, managing director of NationsBanc Montgomery Securities in San Francisco, said investment bankers will play an increasingly important role in financing the wine industry, providing money through stock offerings and joint ventures. He believes that there will be four or five wineries making public stock offerings over the next two to three years.

"Public equity offerings completed by wine companies in the past two years amounted to $186 million, a small drop in the bucket when compared against a backdrop of unbelievable IPOs and follow-on offerings," Goldman said. Total new equity offerings in 1997 and this year to date amounted to $145 billion.

Goldman said that with the cost of doing business in the wine industry rising, equity offerings seemed to be the way to go which, in turn, will lead to consolidations and mergers.

"The days of the small independent and relatively inefficient wine producer are numbered," he warned.

Goldman's warning received big play in the press. Unfortunately, most news reports ignored the word "inefficient" in his forecast.

James Verhey, president of the UCC Vineyards Group, suggested that leasing vineyard land rather than buying could be a good option for vineyard development. Comparing the costs of a lease to an outright purchase of a 40 acre parcel, Verhey concluded that the lease or leaseback option would give an equity return of about 12%, compared to 8% for purchase.

David Freed of The UCC Group, which sponsored the seminar, said a questionnaire answered by participants before the meeting, showed continued optimism for the industry's profitability through 2002. Freed said the survey results include the following highlights:

* 37% of respondents believe the premium sales upswing will last through 2002;

* 35% believe that the growth of premium wine sales is due to the strength of the economy;

* 34% see the main threat to the industry's profitability as an economic downturn;

* 23% believe the opportunity to expand sales lies with the health benefits of wine consumption, 17% with increased advertising and 10% with wine exports;

* 81% believe Cabernet Sauvignon sales will increase over the next two years, 77% believe demand for Pinot noir will increase, 76% believe Zinfandel sales (red) will grow;

* 60% believe Chardonnay sales will grow, 33% believe Sauvignon blanc sales will be up.

In the area of grape prices, a third of respondents believe Sauvignon blanc prices will increase while 43% expect Chardonnay prices to go down by the millennium. Some 56% believe Cabernet Sauvignon and Pinot noir prices will go up; 44% expect an increase in (red) Zinfandel grape prices while 49% expect Merlot prices to soften by 2002.

Survey participants see a continued bull market for North Coast vineyards with 86% believing demand remains very strong for Napa properties, 80% for Sonoma properties and 55% for The Central Coast. The impact of Central Valley production on North Coast prices will not be significant, according to 45% of respondents.

Resources:

UCC Vineyards Group, 1776 Second St., P.O. Box 6230, Napa, Calif.; Tel.: (707) 2559222; Fax (707) 255-2044; E-mail: [email protected].

RELATED ARTICLE: 6 CHEFS RECEIVE MONDAVI AWARD

The award for Culinary Excellence this year went to Michael Chiarello of Real American Restaurants, St. Helena; Christopher Hastings of Hot and Hot Fish Club in Birmingham, AL.; Jean Joho of Everest in Chicago; Anne Kearney of Peristyle in New Orleans; Jean-Marie Lacroix of Fountain Restaurant in Philadelphia and Eric Ripert of Le Bernardin in New York City.

One of the criteria for the award is that the chef appreciates wine and creates dishes that pair well with wine.

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