Modestly priced wines boost California industry

The California wine industry enjoyed a boost from below last year.

The recession hurt sales of high-end brands, but consumers drank more wine overall, pushing U.S. per capita consumption to a record high.

But with the economy worsening, and a tax increase and a drought looming, 2009 stands to be a tougher year for the wine industry, which is gathering this week in Sacramento for the annual Unified Wine and Grape Symposium.

To help bridge the state's budget gap, Gov. Arnold Schwarzenegger wants to increase the excise tax on winemakers from 4 cents per 750-milliliter bottle to just under 30 cents. After markups by distributors and retailers, industry groups estimate consumers would pay an additional 50 cents or more per bottle, an increase they say will hurt sales and winery profitability.

"It would eliminate thousands of jobs in California," said Robert Koch, president of the San Francisco-based Wine Institute. The tax is part of the tangle of budget proposals that the governor and the Legislature are wrangling over.

The threat to the industry from drought is hard to quantify, since water supply conditions vary across the state's many wine-grape regions. But reservoirs are low virtually everywhere, and after two years of little rain and heavy groundwater pumping, aquifers are strained as well.

Compared with many other segments of the economy, the wine industry has so far weathered the recession fairly well. If anything, lower-priced winemakers appear to have benefited as consumers have grown more frugal. Ceres-based Bronco Wine Co., which owns the $1.99-a-bottle Charles Shaw label, saw sales grow 10 percent last year.

Still, as the layoffs and losses continue to mount, even companies like Bronco are wondering how much they'll be able to grow in 2009.

"I've got to give a major speech tomorrow to my troops, and I'm pondering that question very heavily," said Fred Franzia, Bronco's chief executive.

Clarksburg's Bogle Vineyards is mounting new marketing efforts in hopes of maintaining the 13 percent growth it recorded last year, said James Eichel, key accounts manager. Sales of the company's wines, most of which retail for $8 to $12, sagged in November and December but look to be rebounding , he said.

California vintners benefited last year from a weak dollar, which made their wines more affordable compared with imports. But the dollar has been growing stronger, and that stands to hurt the domestic industry this year.

The economy seems to be having a mixed impact on traffic at local tasting rooms.

In El Dorado County, most wineries have seen visitor traffic drop by 10 percent or more in the last year, said Pamela Miller, who owns Single Leaf Winery in Somerset. In Lodi, David Lucas, owner of the Lucas Winery, said his traffic has been steady. A spokesman for the Napa Valley Vintners trade group said tasting room sales were flat in 2008.

The annual wine and grape symposium typically attracts more than 10,000 wine industry players to the Sacramento Convention Center and surrounding hotels. More than 550 booths hawking everything from tractors to corks will fill the main exhibit hall, which opens today.