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State's boom in small wineries is at risk

The growth has been rapid, but many of the boutique wineries have been forced by the economy to lower prices. And the state's wide variety of wines complicates national marketing.
Chateau Ste. Michelle Winery in Woodinville.

Chateau Ste. Michelle Winery in Woodinville. David Herrera/Wikimedia Commons

Benson Vineyards, in the new Lake Chelan wine district

Benson Vineyards, in the new Lake Chelan wine district Sue Frause

Washington state has been enjoying a boom in small wineries. Might that boom be a bubble? 

The state had 19 wineries in 1981 and 163 in 2000. That grew to 534 by 2007. Today, Washington has 739 wineries and about 350 vineyards. The bulk of the boom has been in small wineries, and roughly 700 of today's wineries are boutique operations. Small businesses traditionally have small cash reserves, so they struggle when the economy (or the weather) turns adverse.

Statistics on the failures of small wineries are lacking. Washington's wine economists don't have such figures, although they say qualms about a boom in new wineries peaking out are valid. The federal government subsidizes little wine industry research, reports Michael Brady, an assistant research professor specializing in agriculture and viticulture at Washington State University. "There's a lot of opportunity for breaking new ground in studying the economics of wine production," he adds.

Andy Perdue, editor of Wine Press Northwest magazine, says he has heard of three or four wineries going out of the business in 2011, in some cases because the owners wished to retire. "I still think there's room to grow. I don't know how much there is," comments David Volmut, co-owner of Sequim's three-year-old Wind Rose Cellars.

In April, the Washington State Wine Commission released an economic report that voiced optimism, but also pointed out hurdles for the state's wine industry. The study's highlights:

• Washington's wineries produced 11.2 million cases in 2010, selling for more than $1 billion.

•The state's five largest wineries  produce at least 70 percent of Washington's wine The next 30 largest wineries produce 20-25 percent. That means the remaining 704 wineries produce 5 percent to 10 percent of the  state's wine. Boutique wineries are a tiny slice of Washington's gross wine production.

•Washington is unusual in that much of the actual winemaking is far away from the vineyards that grow the grapes. With 95 percent of the grapes grown in Eastern Washington, they are routinely trucked four hours across the state to wineries — an expense that adds to costs. For example, King County has 117 wineries, hosts the state's wine-distribution networks, and produces 17.2 percent of the state's wine, despite having only a few vineyards. Walla Walla County has the most wineries in the state at 123, up from seven in the mid-1990s. But Walla Walla County produces only 3.6 percent of Washington's wine. Benton County's 64 wineries produce the most in Washington at 41.6 percent of the total.

•Small wineries are handicapped by lack of capital (it takes a minimum of two years before before the first bottles can be sold), a lack of economies of scale, and less access to major distribution networks. "It's a slow-paying job," Volmut said. Boutique operations depend on tasting rooms, such as roughly 80 wineries and tasting rooms clumped together in Woodinville, plus one-to-one relationships with restaurants and small groceries. Perdue said a seven-year-old state law allowing wineries to have two instead of one tasting room has helped boutique wineries by letting them open those extra establishments around Seattle. 

•Washington has a wide variety of wines, which complicates national marketing. The large selection is good, but effective marketing themes are normally based on specialties and brand-name vineyards.

•At least 30 percent of Washington's wines are sold within the state. The state's wines also make up 3 percent to 5 percent of the national market. Warner notes that the nation's wine production rises at a rate of 3 percent annually. He believes Washington's production has the potential to rise 5 percent a year.

•Overall, Washington's wine industry has weathered the recession well because the bulk of the wine sells for $15 or less per bottle, the report concludes. However, Mike Veseth, an economics professor specializing in the global wine industry at the University of Puget Sound, says many small wineries' business models are designed to produce high-priced wine. Meanwhile the recession is forcing down prices and cutting into profits.


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Comments:

Posted Mon, Jul 16, 3:06 a.m. Inappropriate

That's a striking photo of the vineyard above Lake Chelan, but seeing nary a blade of grass or anything at all green under the vines doesn't inspire me to partake of its fruits. I guess they are pretty much all that way though, with every bit of competing vegetation poisoned off, probably with some patented Monsanto designer chemical guaranteed to kill off everything except grapevines.

How much wine can people drink? Europe's various subsidies have created a "wine lake" there. Have any Washington grape growers thought about selling - wait for it - grapes? In the U.S., grapes seem to come in two varieties, generic light green seedless and occasionally generic light purple seedless. And they all taste insipidly the same. It's not unusual to see 6 or 8 different, seeded varieties for sale in parts of Europe, including those luscious purple-black beauties that explode with grapiness in one's mouth.

Just the thought of them makes me want to sell the dog and find some way to get over there this fall. Why can't there be decent grapes on this continent? Americans finally learned that there was more to bread than Wonder Bread, and more to beer than Bud. Here's hoping we wake up to real grapes one of these decades.

Posted Mon, Jul 16, 10:15 a.m. Inappropriate

Snoqualman - anyone who knows anything about wine knows that many of the best vineyards have soil conditions that are terrible for just about any other kind of crop - usually very rocky and dry, almost more 'dirt' than 'soil.'

It's pretty conventional wisdom that vines need to struggle to produce good fruit for winemaking, and "seeing nary a blade of grass or anything at all green under the vines" is very typical for a quality vineyard where watering is kept to a minimum.

I'd be shocked if you could find a single winery in Washington where "every bit of competing vegetation is poisoned off, probably with some patented Monsanto designer chemical guaranteed to kill off everything except grapevines."

Posted Mon, Jul 16, 4:55 p.m. Inappropriate

How could Snoqualman's comment possibly be an Editor's Pick as his comments are grossly wrong? As Super Steve pointed out, very, very few, if any, vineyards use the chemicals Snoqualman accuses them of using.

And as for his quality comment "taste insipidly" - this is totally wrong. There are wonderful wines from Washington and they are recognized as such by both wine experts and wine consumers. Some may be expensive and hard to find - Cayuse, Quilceda Creek - but most are available - Andrew Will, Efeste, Seven Hills, L'ecole 41 - the list of excellent quality wines can go on and on.

Please at least drop the "Editor's Choice" from Snoqualman - his absurd comments are wrong by any measure.

Posted Mon, Jul 16, 8:51 p.m. Inappropriate

Whidbey Eye, I muchly hope I am wrong about herbicides being the reason there is nothing at all growing among the vines in that picture. But I think I can recognize herbicided ground when I see it. Nothing else produces that totally barren look - nothing.

Chelan is not a desert. Semi-arid, maybe. It's tough to keep life down and keep ground absolutely lifeless, even there. Look at the picture - there is a leafed out deciduous tree in the middle distance. Yet the vines in the foreground don't appear to have leaves. Maybe they are just starting to grow, and it's late May or early June? Is there just a fringe of new growth on the grapevines? Maybe someone who knows more than me can explain what is going on there, and when.

Whatever it is, it looks chemically induced. Maybe it was tilled and then teams of laborers grubbed out everything between the vines, but that's not what it looks like to me. There would still be some green things left were that case, and there is just nothing here but lunar barrenness, more than what tilling and grubbing would do. I have seen many vineyards where nothing at all grows but the grapevines. I have seen others where they mow between the rows and/or till, and it doesn't look poisoned. My guess is that poisoning off all the competition like it looks here means more grapes, since they then get all the water that is applied or falls from the sky. Were I a wine drinker, I'd want my wine to come from one of the non-poisoned vineyards. And were I the owner of the vineyard in this picture, I'd use some other picture for my advertising.

As for "insipid" taste, I meant grapes, not wine. You know, those wonderful little fruits you'd occasionally see them eating in those old Italian sword-and-sandal epics from the 60's. Grapes!

(Disclaimer: None of the above is in any way intended as libelous toward any fruit or vegetable.)

Posted Wed, Jul 18, 5:45 p.m. Inappropriate

Interesting piece. One question that occurs to me is how many wine label starts are really intended to make money? isn't it sort of starting novel which the author may feel compelled to do but his motivation may not be conventional profit seeking. That question does not alter the value of this article or diminish the economic realities of wine making but one would expect a lot of failures in a business model that has such a slow start and such an ephemeral goal. And, as the article says, big sex appeal.

kieth

Posted Mon, Jul 23, 8:13 a.m. Inappropriate

Farmers were (and still are) dazzled by the prospect of an acre that produces $10,000 worth of crops. A lot of small wineries started when those farmers realized they couldn't sell the crop and had to start a winery to put the grapes to use.

Posted Thu, Sep 13, 12:47 a.m. Inappropriate

A virtual 2% increase in production might be beneficial for the country. Producing 5% of the total of the US is not by any means a poor performance, but perhaps that exportation could be a viable way.

Yonion

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