July 19 (Bloomberg) -- Ziggy, a golden Labrador trained to sniff out bad wine corks, is showing off his tricks at Sojourn Cellars’ tasting salon in Sonoma.
I’m visiting this charming white clapboard house to find out why owner Craig Haserot is thriving when big-name Napa wineries are discounting their cabernets 30 to 50 percent to clear inventory.
“The main thing is that from the beginning we’ve sold 70 percent of our pinots and cabs direct to consumers online,’’ says Haserot. Ziggy wags his tail.
I recently visited several premium wineries in Sonoma that are growing, in contrast with their recession-battered peers. Like Haserot, their managers know how to run a business, have kept prices reasonable and capital investment low by buying grapes rather than buying vineyards, are good marketers, and sell most of their wine outside the traditional distribution chain.
Haserot left a job in software sales management to follow his wine dream in 2001 after meeting his Sojourn partner, winemaker Erich Hadley, on the tennis court. Haserot says his business background inspired his decision to forgo capital investment in an expensive winery building or his own vines.
Sojourn’s single-vineyard wines are made with grapes purchased from various vineyards and then vinified at a custom crush facility (my faves are the Rodgers Creek and Sangiacomo pinots). In 2008, Sojourn produced 3,500 cases; in 2009, 5,000. In 2010, with six pinots and three cabs, it may be more.
The recession has been brutal for most small to medium northern California wineries. Those who bought into the “vintner lifestyle’’ at the peak of the market a few years ago may not make it.
Many top names, especially in Napa, have thousands of unsold bottles in their cellars and barrels full of wine from the bountiful 2009 harvest. Last fall, Napa’s Caymus coped by slashing the price of its famous special selection cabernet by a third.
Even big players are hunting for cash flow. On June 24, U.K.-based giant Diageo Plc announced the sale of 2,000 acres of vineyards and Sterling and BV wineries in Napa Valley for $269 million in a leaseback deal to Southern California real-estate investment trust Realty Income Corp.
As proprietors drop grape contracts and cut back production, a larger-than-ever percentage of growers’ grapes will be up for grabs this fall.
Tons of Savings
“I just got a phone call offering me pinot noir from the West Side Road area in the Russian River appellation for $2,500 a ton,’’ Haserot says, smiling. “I would happily have bought the grapes in 2008 when the price was $4,500, but they were all contracted to other wineries.’’ Freeman Winery in the Russian River Valley town of Sebastapol, a maker of well-balanced, subtle pinots, is another success story, with revenue up 8 percent in 2009 over 2008. Ken Freeman, who founded the winery with his Japanese wife and now winemaker Akiko in 2002, is a businessman, too, with a day job as managing director of Knight Capital Partners, which provides capital placement services. The Freemans, too, buy grapes -- pinot and chardonnay -- though they’ve also invested in a winery with a dramatic stone wine cave.
Part of Freeman’s brand-building strategy has always been exports -- it sells 20 percent in Asia, especially to Japan -- while 40 percent is direct-to-consumer sales, which generate far more revenue than selling through a distributor to retailers.
The dark cloud hovering over direct selling, though, is H.R. 5034, the Comprehensive Alcohol Regulatory Effectiveness (CARE) Act of 2010, a wholesaler-backed bill introduced in Congress in April that now has 126 cosponsors. Last week’s planned hearing was postponed indefinitely. If the bill passes, it could put an end to consumers buying wine directly from wineries, now legal in 37 states thanks to a 2005 Supreme Court ruling.
“If it passes, it would be an unmitigated disaster,’’ Haserot says. “It would crush small wineries instantaneously.’’
Sonoma may be suffering less than Napa because wines there haven’t seen the same massive price increases over the past 10 years. Sojourn Cellars charges $48 for its pinots, while Freeman’s go for $42 to $54, prices that still sell.
While Haserot and I are chatting and Ziggy, tired of performing, curls up on a couch, vineyard and winery real estate appraiser Tony Correia of Correia-Zavier Inc. drops by.
“There’s a lot for sale but the best properties are still holding their value. There are more buyers for hard assets than you would think,’’ he says.
Distress sales are mostly wineries started recently by people who thought producing 2,000 cases of a $150 cab would impress their friends and bring in the cash. Yet those who know what they’re doing, -- like William P. Foley II, chairman of Fidelity National Financial Inc., who recently snapped up Sonoma’s Chalk Hill winery -- want the best and are willing to pay for it.
As Haserot puts out some salads for lunch, he says, “Selling $10 to $20 million worth of software is a walk in the park in comparison to the wine business. This is the hardest work I’ve ever done.’’
(Elin McCoy writes on wine and spirits for Muse, the arts and leisure section of Bloomberg News. The opinions expressed are her own.)
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