I get this magazine called American Vineyard which is usually a quick read, but the December 2010 issue really caught my attention on a subject that has had me wondering for a long time. How is Washington going to compete in a very narrow market for wines over $15? Yes, I know the Washington Wine Commission said there is no limit to the price you can charge and as long as you charge enough, there is no limit to the amount of wine you can sell at these inflated prices. The recent fall of Whitman Cellars and Olsen Estates might point out this fallacy. They were both limited production operations, somewhere around 5000 cases, but at $40 per bottle, they penciled out to 2.4 million dollar per year operations. The banks bought into it.
Then the crash hit. Wine drinkers found out that they can get good wine for under $15 - in fact a lot of those $40 wines on closeout. Folks, wine drinkers are never going back. The American wine consumer has matured. Wine magazines, competitions, wine societies (the members now arrive in walkers and wheelchairs), Bobby Parker, et al are passé, caput, finito, done. For those of you wineries waiting for the rebound, the tooth fairy doesn't exist and there is no Santa Claus, either. Sorry to have to be the one who told you.
How does the 'Rule of 100' work? According to the article, 'SJV Winegrowers Cheerful' (for those who don't know, the SJV is California's biggest wine region and the source of Chabless, Hardly Burgundy, and Two Buck Chuck.)
The rule of 100 works like this: if you pay $100 per ton for grapes, you need to charge $1.00 for your wine, $300 for grapes and $3.00 for your wine and so on. Since most wine is selling for under $10 per bottle, the most a winery can pay for grapes is $500 per ton if they sell to a distributor or $1000 per ton if they sell through the tasting room only.
This is how it works for the grower. The San Joaquin Valley grower produces 14 tons to the acre on a highly mechanized block of grapes. He get $400 per ton or a yield of $5600 per acre. The Walla Walla farmer hand prunes and trims to 2 tons per acre and gets $3000 per ton for the grapes yielding $6000 per acre. The growers are both making similar money. That's fine and dandy.
The wineries are a different story. The mega winery in Modesto can sell its wine nationally for $4.00 per bottle (or less because of the scale of the operation). The Washington winery has to get $30 per bottle and sell it within the state because they lack national distribution. If it is sold by the winery directly to retail/restaurants, it hits the shelf DOA at $44 per bottle. (Handcrafted, ultra premium, award-winning, Wine Expectorator score 95, blah, blah, blah, just like every other bottle on that shelf.)
The most a Washington grape grower can hope to ripen every year in a warm area like the Rattlesnake Hills or Horse Heaven Hills is about 4 tons to the acre. Working this backward from a needed $6000 yield per acre, the grower must get at least $1500 per ton for grapes. The winery must get $15 per bottle, so it hits the shelf at $21.50 (self distributed) which is not a good price point, but $14.99 at the winery tasting room will work - assuming your tasting room can sell a couple of thousand cases per year.
Looking into my cloudy yet crystal ball, I see the Washington wine industry shrinking dramatically. There will be spectacular failures like Whitman Cellars or quiet closures like Olsen Estates. I see the amount of land dedicated to wine grapes leveling off or even declining.
I see wine tourism (visiting wineries in real wine country like the Rattlesnake Hills or Red Mountain - not 'park and drink wine villages', strip malls, or industrial parks) continuing to do well and you will see more wineries using the wine bar concept (sell your own wine in a bar atmosphere) in order to sell their product directly to the consumer at a good profit. I'll call that the 'brew pub' model.
It's not about the wine, it's about the experience. Wine is just another food commodity. Would you walk down row of industrial roll-up doors to taste over-priced canned green beans? I hope the Washington Wine Commission gets it someday.