Monterey County winemakers play global chess game

Imports have vintners vigilant

Caught unprepared for a flood of imports into the wine market, Monterey County vintners expect to prove that they too can play the global game.

Chaos theorists speak of a "butterfly effect," or the far-reaching consequences of local events. This particular butterfly flapped its wings in England. Australia and then California sneezed.

Between May and July, Australia imported 14.3 million gallons of bulk wine, typically chardonnay, said Kurt Gollnick, chief operating officer at Salinas-based Scheid Vineyards. Monterey grows the most chardonnay of any California county.

"England raised an excise tax on wine the first of the year," Gollnick said. "It significantly increased the cost to consumers and as a result wine sales fell precipitously. England is the No. 1 import market for Australia. The growers and processors there needed to find another home for that wine and they basically dumped it in America. They caught everybody in California off guard."

The Aussies shipped it cheaply — in 6,000-gallon bladders inside metal tanks, for bottling or boxing here. "The prices they were landing in California were below the cost of production for both Californian and Australian growers," Gollnick said. "So it feels a little like dumping."

The state was in a period of underproduction for chardonnay, and prices were expected to stay up. California winemakers also faced 7.5 million gallons of Chilean imports, mostly cabernet sauvignon, Gollnick said.

Plans changed.

"Suddenly you're seeing Australian wine for $3.99 or $4.99 and here I am at $9.99 with California wine," said Bill Leigon, president of Soledad-based Hahn Family Wines. "That forces the competition to meet the prices."

There are various levels of competition and nobody's going broke, at least not anytime soon. Demand for wine in the U.S. has grown during the recession. Brands more than $15 have been hard hit, but sales are steady on bottles priced $10 to $14 and have even soared on wines under $7, Leigon said.

"There's still plenty of room for a Hahn or a Scheid or anybody to grow," he said. "But you're going to have to take that market share away from someone else to do it. You have the phenomenon of big winners and big losers. Imports are now 31 percent of the California market. We have to address that 31 percent."

Part of the Hahn strategy is to go global itself. The vintner is about to launch its own Chilean wine brand, Copa del Rey.

"We brought our winemaking technique to Chile," Leigon said. "We sent our winemakers down there to work with them. Ultimately I plan to bring it in bulk and then bottle it here, finish it, age it more or whatever we need to do."

Hahn Family Wines is also working on a potential deal to sell zinfandel in Europe. Hahn would ship in bulk — a little like the Australians do — and the wine would be bottled on arrival.

"Going abroad just allows us to sell more," Leigon said. "Small wineries are joining that trend. If they could sell it all here [in the U.S.], they would."

"The number one take-home lesson for Scheid Vineyards is the complete realization that the wine industry is now globalized," Gollnick said. "We can no longer plan our business around the domestic market."

Because of the rush of imports, some California growers have had trouble selling their grapes. Creating ad hoc partnerships with winemakers like Scheid Vineyards — which has a custom crushing facility built in 2005 — is a way for them to get value out of the fruit before it just rots on the vine. Last Thursday, two truckloads of chardonnay grapes arrived at Scheid from Sapphire Hill Vineyards' and Russian River grape grower Tim Meinken.

"It's a new business model," Gollnick said. "It's a shared risk, shared profit environment with growers. That's the benefit of having a winery."

The other benefit is that Scheid is saved from making some tough decisions about its own grapes. "Because we have a winery, we don't have to discount grapes," Gollnick said. "We're going to turn it into wine."

Ralph Mendez, cellar master for Scheid, says the firm processes wine now for about 25 growers.

"A lot of people don't want to invest in bricks and mortar so they source out," Mendez said. "That's where we come in. We'll do all the winemaking up to bottling if they so desire, or ship it in bulk tanks."

Leigon acknowledges that to consumers it may all just seem chaos, like finding Florida orange juice on California shelves and California orange juice on Florida shelves. But the apparent craziness becomes more understandable once you consider market factors, he said.