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Sad Sideways Sequel in Oregon
By Linda Murphy
Mar 3, 2009
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Rex Pickett, author of the novel "Sideways" (which, of course, was turned into the Oscar-winning, Pinot Noir-themed movie in 2004), recently spent time in Oregon, playing golf, sipping wine and talking about writing a sequel to his book, with Miles and Jack visiting Oregon's Willamette Valley.

Oregon wine producers got very excited, knowing the tremendous impact the movie had on tourism in Santa Barbara County, the setting for the book and movie, and on Pinot Noir sales throughout the country.  Yet last week, vintners were presented with grim figures on restaurant wine sales at the Oregon Wine Industry Symposium in Eugene -- numbers that show the wine biz has gone sideways.

A report compiled by consumer pollster ACNielsen said wine sales dropped at 22 of America's top 25 restaurants during the past year.  At the end of 2007, 18 of those 25 restaurants had sales increases.  Quite a reversal.

The plummet is important to all wine producers, but especially to Oregon winemakers, most of whom make relatively small amounts (under 5,000 cases) of mostly expensive wines, which are targeted for sale to restaurants, selected fine-wine shops and mailing list members.  Unlike California and Washington state, which each have a healthy mix of large, multi-brand wine companies, medium-sized producers and small boutique brands, Oregon's winemaking muscle is flexed mostly at the super-premium end and largely with Pinot Noir, the best bottles costing upwards of $45 a bottle.

While some consumers still have the means to purchase any wines they wish, no matter the price, and to dine out frequently, most are scaling back on such expenditures, buying less expensive bottles, drinking more from their cellars, bringing their own wine into restaurants, and dropping off of exclusive mailing lists.

The ACNielsen survey was a kick to the gut for Oregonians who target their wine sales to fine-dining establishments, and to all United States wine producers who believe that restaurant-only is the path to profits and a highly buffed image.  Not today, it isn't.

Across America, the deepening recession has changed how most of us eat and drink.  While consumers appear to be buying as much wine as before, they're trading down, buying less expensive bottles (or boxes).  Oregon doesn't have a lot to offer in the $15-and-under category, where most of the sales action is during these trying times, so wine lovers with a $12 price limit will look to wines from other states and countries.

Restaurants are closing and reducing their days and hours of operation.  Wine companies have trimmed their work forces (Sonoma County's Jackson Family Wines, owner of the Kendall-Jackson brand and a couple dozen others, laid off a reported 170 employees in late January).  Production of some brands is being consolidated at central facilities, although tasting rooms may remain open.  It seems like a California winery is sold every other week. 

Bill Hatcher, managing partner of A to Z Wineworks in Dundee -- one of the few Oregon wineries to focus on value-priced wines -- spoke at the Eugene symposium and cautioned that the rapid growth of the state's industry, combined with the drop in consumer spending, means Oregon winemakers will likely produce twice as much wine as they can reasonably expect to sell.  He also predicted that strong brands would likely weather what could be a long storm before economic recovery, yet those on shaky ground may not survive.

Hatcher, who also heads Rex Hill Winery and is a former managing director of Domaine Drouhin, both in Willamette Valley, wrote a more detailed warning to his winemaking peers in the Oregon Wine Press late last year.  He said that Oregon Pinot Noir sales have grown 3 to 5 percent annually, while production increased at a 30 percent rate; the number of wineries doubled in the past four years to nearly 400. 

'The Oregon Pinot Noir boom has really been one of overzealous investment without a sufficient market to underwrite it,' Hatcher wrote.  'Even if growth rates climb to 7 percent annually, the industry is looking at 38 months of inventory at the end of 2012.  If not another vine was planted over that horizon, supply only drops to 37 months.  In other words, the toothpaste is already out of the tube.'

Among other things, Hatcher pointed out that the consolidation of national distribution makes it difficult for new brands to enter the market.  He criticized the lack of sufficient funds to market Oregon wine, and expressed the view that the promotion of sub-appellations has the effect of over-branding Oregon.  'There is a misplaced belief that quality will sell itself,' he said.

'The marketing we do assumes a scholarly quality in tending to further refine the knowledge of those already loyal aficionados.  To broaden our market appeal, we must creatively distinguish tangible and intangible values unique to Oregon.  The state and the industry are innately rich in such attributes, but they are not self-evident and we haven't fostered them.  There is a great opportunity at hand to cultivate the mystique of Oregon wines, but to do so, we must first transcend our narrower self-interests.'

While Oregon's efforts in sustainable viticulture and winemaking are admirable, he said, they don't help to sell wine and should not be the main talking point of vintners.  Hatcher cited a study by a UCLA economist which showed that while consumers value the principles of sustainability, organics and biodynamics, they don't generally make their purchasing decisions based on those principles.

'The effort must begin with an institutional mind shift away from marginal research, obsessive certification, and other academic pursuits,' Hatcher said.  'In contrast, other major winegrowing regions dedicate at least half their financial and non-financial resources to attracting and retaining the consumer.  While much of the problem is how resources are allocated, a concomitant issue is the overall lack of funding.'

Some Oregonians aren't pleased that Hatcher spoke so forcefully and so publically, yet if he is correct, his wake-up call should be heard by every vintner in America, and anyone contemplating becoming one.  Oregon's woes are being experienced throughout the country, and any winemaker who isn't concerned about his or her business now is a fool, or has money to burn.

True, Oregon's circumstances are unusual, with nearly all of its eggs in the high-end Pinot Noir basket, and with fame that came so rapidly that everyone who wanted to produce Pinot Noir high-tailed it to Willamette Valley.  Even the Burgundians came to Oregon to make Pinot. 

But there can be too much of a good thing, and Oregon appears to have it.  How its wine business shakes out is anyone's guess: How many brands, if any, will go under?  Will grapes go unpicked?  Will a wave of private labels be created to use up excess grapes and wine?  Will consumers see lower prices?  Will we finally be able to buy Oregon Pinot Noir at Trader Joe's?
 
One thing is for sure: If Rex Pickett writes the "Sideways" sequel any time soon, Miles and Jack's road trip won't be nearly as much fun as the first one.