By Frank James
The bursting of the real estate bubble and related economic downturn is punishing California's Napa Valley wine industry as increasing numbers of owners of grape-growing acres find their mortgages underwater and consumers opting for less expensive wines.
Bloomberg News reports:
March 8 (Bloomberg) -- In California's Napa Valley, producer of the most expensive U.S. wines, 2010 may be a vintage year for foreclosures as the industry is squeezed by falling land values and a consumer shift to cheaper brands.
As many as 10 wineries and vineyards in Napa will change hands in distressed sales or foreclosures this year and next, up from none in 2008, according to Silicon Valley Bank. In a bank survey of vintners, 7 percent called their finances "very weak" or "on life support."
"We have 250 vintner clients saying this downturn is the worst in 20 years," Bill Stevens, manager of the bank's wine division in St. Helena, California, said in an interview. "Anybody who was late to the party won't have staying power."
Land values in Napa, home to about 400 producers, have fallen 15 percent from the 2007 peak, driven in part by slumping demand for high-end wine, said Robert Nicholson, principal at International Wine Associates, a consulting and financing firm in Healdsburg, California. The decline makes it harder for owners to refinance mortgages, especially if the property is worth less than the loan.
Napa winery and vineyard loan defaults rose fourfold to 18 in the year through January, according to San Diego-based research firm MDA DataQuick. In the survey by Silicon Valley Bank, whose clients are mostly high-end West Coast wineries, 71 percent of respondents said credit is harder to get.
I'm part of that trend of consumers choosing less expensive wines. The Bloomberg story resports that the industry considers a super premium wine one that sells for more than $15 and an ultra premium as one selling for more than $30.
It's been at least a year since I bought a bottle of wine for more than $15 if my memory serves me. I now prefer to purchase box wines which, in their plastic bladders, keep much longer. And since the box contains about three liters of wine, the retail price is about $6.50 a liter which makes it an excellent value.
My favorite quote in the story is this one:
"No more is it about stocking wine cellars with 5,000 bottles of Screaming Eagle," said Bacchus Capital's Kaufman, referring to a Napa "cult cabernet" that can sell for $750 or more a bottle. "High-rollers are discovering that there are lots of drinkable $20 to $40 bottles of wine."
There are drinkable wines cheaper yet. Those high-rollers might want to check out a good box cabernet.