Trouble ahead for Oregon wineries?

Posted: Monday, October 05, 2009

PORTLAND, Ore. - Unsold inventory and a public reluctance to continue purchasing premium wines could lead to problems for Oregon vintners.

Industry analysts say a confluence of economic events are threatening the state's $1 billion wine industry.

An early analysis says the 2009 vintage of Oregon wines show promise, but analysts believe the unsold inventory from the poorly received 2007 vintage could stymie the state's wineries.

Some winery owners say they're having problems finding the cash to pay for the glassware needed to bottle 2008 offerings.

"The shakeout everyone expects is already starting," said Barbara Insel, whose Napa, Calif.-based Stonebridge Research Group tracks industry trends. "If you don't have a strong balance sheet and a strong product portfolio, you probably won't make it through this."

In addition to the general economy - consumers wary about spending, bankers hesitant to extend credit lines - the state's 395 commercial wineries and 855 vineyards remain stymied by unsold inventory and a poorly received 2007 vintage.

Concerns about 2007 wines have prompted many enthusiasts to sit on the sidelines waiting for the 2008 offerings, due in coming months. But the increased inventories, with the 2009 grapes now headed for the crusher, have some owners struggling to bottle the 2008s.

"Never in my experience have I heard of that happening before," said longtime vineyard and winery owner Dick Shea. "It's not something people want to talk openly about, but I'm certainly hearing it from bottling companies."

The first victims might be wineries that sell only high-end pinot noir, Oregon's signature wine grape. That business model worked well when consumers weren't afraid to spend. But with buyers trading down to less-expensive brands many of those upstart wineries could be in trouble.

"It's the same as the housing market," said Rob McMillan, founder of Silicon Valley Bank's wine division. "A property that had too much debt is now worth less."

Across the industry, sales figures are off from prior years, said Kurt Wittman, vice president for Northwest Farm Credit Services. But those numbers vary from winery to winery.

Wittman's own year-to-year survey of eight large Oregon wineries shows sales ranging from plus 10 percent at one operation to minus 20 percent at another. Taken as a group, however, sales were off by only 1 percent.

"I'm reluctant to say the sky is falling," Wittman said, "but challenges are certainly out there."

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