Following a decade of unprecedented growth, in which the number of wineries, vineyard acreage and consumer prices on bottles of wine rose by 50 percent, it's the morning after for California's wine industry.
At least three wineries -- Sonoma Creek Winery, Quail Ridge Cellars and Vineyards, and Bridlewood Winery -- have filed for bankruptcy protection since the fall, and there have been several high-profile mergers in which weakened wineries were swallowed up by the competition.
Grape growers throughout the state have endured prices plummeting as much as 75 percent over the last two years, and are desperate to sell vineyard land -- but there are few buyers. Even the state's most influential vintner, Robert Mondavi, is trying to unload hundreds of vineyard acres on the Central Coast. Some growers in the Central Valley are ripping out vines to plant other crops.
It's all the inevitable outcome of colliding forces: a worldwide glut of wine combined with flat consumption. It is bound to get worse for California, with imports rising 17 percent last year and now accounting for 25 percent of U.S. wine sales, according to the Calistoga-based Wine Market Report.
"It's 'the perfect storm': a downturn in the economy, the overproduction of grapes and cheap imports," said Tom Pillsbury, vice president of estate wine sales with Young's Market Company, one of the state's largest wine distributors. "It's a good time to be a consumer. Prices will continue to drop on wines that are better than ever."
In fact, it is looking like party time for wine lovers. Prices are falling on wines at all levels, and some hard-to-get labels are more readily available. The improved growing techniques that helped cause the glut also improved the quality of wine, even in the cheapest bottles.
But the bad times also will affect consumers. The wide variety of hand-crafted wines that have boosted California's stature around the world will dwindle, according to industry experts.
"It's the coming homogenization of the wine industry," said Kim Stare Wallace, a second-generation winemaker at Dry Creek Vineyard in Sonoma. "Small wineries will be grabbed up by the big guys."
Those in the industry agree that only well-known brands, and well-heeled vintners, will survive as independent operators.
"We are going to lose scores of wineries to bankruptcy," said Joe Ciatti, one of the state's largest brokers of bulk wine. He calculated that as many as 200 of the state's wineries, or more than 20 percent, could go out of business or be bought by a larger competitor.
There is just too much of a good thing. Stores are being flooded with cheap, high-quality wine not just from California, but also from Australia, South America and South Africa.
At the same time, American drinkers haven't embraced the windfall as a reason to drink more wine. Overall, wine sales were flat in 2001 and 2002. Well-heeled baby boomers, whose love affair with premium wine had been driving yearly increases of as much as 20 percent in that category, are reaching their limit. Younger drinkers are grabbing a six-pack or sipping martinis, shunning wine as their parents' obsession.
The pain is going to be acute among the vintners whose bucolic, agrarian lifestyle is woven into the fabric of California's consciousness. Wealthy refugees who cashed out of Silicon Valley, Wall Street and other walks of life poured into wine regions, planting vineyards and pressing namesake wines, sometimes to great acclaim.
That pilgrimage pushed the number of California wineries from 600 to 900 during the recent decade, according to statistics compiled by Motto Kryla Fisher LP, a leading wine industry analyst. As prices fall in the face of the wine glut, these fledgling wineries are being forced out of business, said Fred Reno, president of the Henry Wine Group, another of the state's major wine wholesalers.
"The smaller wineries selling fewer than 20,000 cases a year don't have the ability to cut prices and stay profitable," he said. "The really overpriced wines would have to go from $75 to $35 [a bottle] to make a difference" in how much wine is sold. Even mid-sized wineries that ought to be profiting are hurting. Stare Wallace of Dry Creek is fighting to preserve the independence of the winery her father founded in 1972. Making 130,000 cases a year of moderately priced wine -- $12 to $20 a bottle -- Dry Creek is in a market segment that some experts say continues to expand as much as 6 percent a year. But it is also a segment dominated by big companies -- Kendall-Jackson Vineyards, Robert Mondavi Family Vineyards and Wineries, Beringer Blass Wine Estates, Constellation Brands, E&J Gallo Winery -- with outsized marketing clout.
"We're hunkered down, hoping to survive," she said. "Everyone is slashing prices. Big companies are dumping wine on the market. The under-$10-a-bottle market is brutal."
The brand collectors -- the large wine-making corporations -- often buy wine in bulk, funneling a blend of high- and lower-quality grapes into their various labels, sometimes with little attention to the quality history of the label.
"The big companies aren't buying yet, waiting for prices to drop," said Ciatti.
One isn't. E&J Gallo Winery bought not just one winery, but two -- Louis M. Martini Winery and Mirassou Vineyards -- changing a long-held policy to grow only through internal expansion.
Vic Motto of Motto Kryla Fisher, the wine industry consultants, expects more than $1 billion worth of winery mergers and acquisitions over the next couple of years. "If you don't have a strong brand identity, you are in trouble," he said.
"It's a dogfight out there," said Ken Spadoni, a Sonoma real estate broker who specializes in vineyards and wineries. "Mondavi has $70 million worth of Central Coast real estate on the market," he said. "The banks are bearing down on everyone. And land values are falling."
Spadoni said there are more vineyards on the market today than there have been since the 1980s -- and none of them are selling. "I'm waiting for the sellers to lower their prices," Spadoni said, "and telling buyers to wait another year before buying. It is going to get worse before it gets better."
How will it all end? Many analysts predict two wine worlds will emerge: higher-quality, more consistent mass-market blends sold in supermarkets, and a smaller universe of premium wines from the state's elite growing areas. Prices are expected to creep back up, but it will take years.
Naturally, the lower tier will be dominated by giants, such as Gallo and Bronco. But the top tier will have to get bigger to stay in the game too, and that's beginning to happen.
Premier Pacific Vineyards, a winery investment company in Napa, is pushing for approval to build a 5,000-acre vineyard in Sonoma County, which would be the largest vineyard holding in one of California's most prestigious regions.
"There aren't enough vineyards for the high-end sector," said Richard Wollack, co-chairman of the company. "Baby boomers will be consuming more of this wine in their fifties than they are in their forties, and there's isn't enough vineyard land to supply that coming demand. No one else is developing vineyards, but we are."