Growing number of wineries competing for dwindling dollars
Wednesday, December 28, 2011
WENATCHEE — Washington’s reputation for fine wine continues to grow along with the number of wineries in the state. The wineries produced 12 million gallons of wine last year, adding $3 billion to the state’s economy.
What’s still to be seen, however, is how many of Washington’s more than 700 wineries — about 450 new ones started just in the past decade — will be able to survive with so many competing for consumer dollars in a tough economy.
Some won’t make it, says Mike Veseth, a University of Puget Sound economist who teaches a class on wine economy. But you don’t hear about many closing because they often merge with or get bought by other wineries. Even when a winery stops production, it has a two or three year supply of wine yet to bottle and sell, he said.
“With so many good choices, wineries need to give consumers a reason to buy their wines,” said Veseth, who writes a wine blog, wineeconomist.com, and authored a book this year on wine economics, “Wine Wars.”
“Price competition is increasing, too,” Veseth said, with heavy pressure to lower prices. “Washington wine has many advantages — the wines themselves are excellent and good value, too — but that may not be enough.”
The best thing wineries can do, he said, is sell the wine themselves, at the winery or through wine clubs.
“Direct sales allow wineries to really tell their story,” Veseth said. And bring home a larger share of the profit. More than 40 percent of the cost of a wine sold in a grocery store can go to the store and the distributor, he said. The winery keeps all of the money from a direct sale.
At Lake Chelan, Tsillan Cellars sells 98 percent of its wine to people who come to the winery or buy through its wine club, said owner said Dr. Bob Jankelson. He said most of the wineries around the lake are doing well because they can sell their wine through direct sales, much of it to tourists drawn by the lake. Tsillan Cellars, with its Tuscan-styled tasting room and restaurant, is surrounded by vineyards, and overlooks the southeastern tip of the lake. A new event center is under construction on the grounds.
“When wineries are notorious for negative cash flow, you have to do everything you can to get people to come to you,” he said. “This is really wine with a sense of place. I think we do it better than anywhere else.”
Washington wineries are focused mostly on the premium wine market, with most wines sold for $8 a bottle or more, according to the Washington Wine Commission. Small boutique wineries — the type largely found in North Central Washington — are more likely to price their wines in the $15 to $20 range.
North Central Washington’s wine industry has also grown quickly. The first NCW winery still operating opened a dozen years ago. Now, there are more the 60.
“There’s a lot of competition. It’s fierce. And yet there’s a lot of people still getting into it,” said Laura Mrachek, co-owner with her husband, Mike, of Saint Laurent Estate Winery in Malaga.
Started in 2003, Mrachek said Saint Laurent has so far weathered the competition successfully. The winery has introduced a line of lower-priced wines — Lucky Red and Lucky White — that has offset sluggish sales of its higher-priced wines. The Mracheks also attribute their success to diversified farming with more than 500 acres of apple, cherries, blueberries and grapes. Of their 260 acres of grapes, only a small amount is used for their own production. They didn’t make their own wine this year to allow sales to catch up on inventory and to make sure they had enough grapes to fulfill their contracts — and guaranteed income — with larger wineries.
“We’re farmers. We have to have a return on our land,” she said. “We’re glad we took this year off. A lot of people are struggling out there.”
Terry Flanagan closed a deal this fall to sell his Ryan Patrick Vineyards winery in Cashmere to the much larger Wahluke Wine Co. in Mattawa. Flanagan had been successful in selling his popular Rock Island Red and Naked Chardonnay wines in grocery stores and Costco, but was having trouble keeping up with the necessary expansion.
“It was tough for me because whenever you want to expand, it takes another big outlay of capital,” he said. Wahluke Wine Co. produces custom wines for other wineries in the state, but was searching for an established label it could buy for its own premium wine, Flanagan said. Wahluke was already making Ryan Patrick’s Naked Chardonnay and offered to buy Flanagan out while keeping him and his wife on as employees marketing the wines and running the Leavenworth tasting room.
“It was an opportunity for me to find a way out with some retirement. I didn’t have a succession plan,” Flanagan said.
Larry Lehmbecker, owner of Vin du Lac Winery in Chelan, said he invested $250,000 two years ago to expand the winery’s processing capability. At 13,000 cases, Vin du Lac is the largest of the 16 wineries that have started around Lake Chelan.
“All of us who have dove into this have quickly found out that it’s 10 times the work and the expense as we ever thought it would be,” Lehmbecker said. “But it’s also been the most satisfying thing I’ve ever done.”
Vin du Lac wines have racked up scores of medals and has won rave reviews, but the wine doesn’t sell itself. “I’d like to say the wine has created a name for itself, but the reality is that we’ve had to push and push and push,” he said.
Rick Steigmeyer: 664-7151
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