Analyst Fredrikson to present latest on wine sales, outlook

SANTA ROSA – Although the long-term outlook for the North Coast wine industry remains bullish, local and global factors are weighing on the business in the short term that will require creative responses, according to Jon Fredrikson, a top industry analyst and keynote speaker at a Business Journal conference April 7.

“Certainly, it’s a painful time financially for small and medium-sized wineries on the coast,” said Mr. Fredrikson, principal of Woodside-based Gomberg, Fredrikson & Associates.

They’re faced with a sudden, and in some cases dramatic, slump in restaurant sales, inventory pushback from distributors, retailers and restaurants as well as wine club cancellations because of the

global economic recession, according to Mr. Fredrikson.

“It melted away a decade of sales and hit the reset button,” he said. “There are parallels to the 1970s with people buying wine at much lower price points.”

Mr. Fredrikson plans to touch on the latest first-quarter wine sales data from various sales channels as well as final 2008 results by source and price during his presentation at Wine Conference 2009 in Santa Rosa.

The theme of the conference, which also includes a panel of executives from small to large wineries, is the various challenges facing the wine business in the North Coast and ideas to survive and thrive.

For example, Mr. Fredrikson noted that some small wineries that are encountering a slowdown in shipments to the trade are exploring options for wine older than last year’s vintage as second labels or bulk wine. Others are discovering new ways to sell directly to consumers, a sales channel in which the potential for a higher percentage of each dollar going to the winery may offset the often significant discounts on bottle price or shipping charges needed to close the deal.

Yet the worldwide fiscal failures have helped ease pressure from imported wines, as a weakened dollar increased the price of Bordeaux wines comparable to Napa Valley cabernet sauvignon brands, according to Mr. Fredrikson.

And California wineries in general and on the North Coast in particular received serendipitous help from nature.

“The shorter crop in California last year is like our own, built-in TARP plan because we do not have inventories we have to deal with,” Mr. Fredrikson said, referring to the Troubled Asset Relief Program in the banking industry. “If it had been another crop like 2005, it would have been a knockout punch.”

This shortage could become longer term as regulations throughout the North Coast tighten water use and other envi-ronmental concerns and as available land in well-known winegrowing areas dwindles, according to Mr. Fredrikson.

“We’ve had a great run, but we’re not going to see a spurt in production from traditional regions,” he said. “Some are looking to brand new regions with water, but they are unproven for wine quality.”

Areas of the state known for large-volume wine production are facing environmental regulation related to water needs for protected wildlife and emissions of gases blamed for climate change, Mr. Fredrikson noted. And budget shortfalls in state government have increased pressure to significantly raise excise taxes on wine.

Mr. Fredrikson’s presentation will be followed by a panel discussion featuring Derek Benham, chief executive officer of Purple Wine Co.; Michael Riel, vice president and general manager of Paul Hobbs Winery; Bob Torkelson, president and chief operating officer of Trinchero Family Estates; and K.R. Rombauer III, sales director for Rombauer Vineyards.

Part of the backdrop to their suggestions for strategies going forward is the state of wine industry finance, which affects credit for sluggish receivables and financing for expansion projects that are less expensive to undertake now, according to panel moderator Michael Sullivan. He is senior vice president of Wells Fargo Bank and head of the institution’s North Coast commercial banking focus, 60 percent of which is related to the wine business.

Overall, the wine industry continues to have access to capital. However, cash has become king once again, and lenders’ financing spreads are widening for the deals to which they’re choosing to dedicate limited capital, according to Mr. Sullivan.

“In the past, cash flow was important, but there was so much liquidity that if a client’s cash flow was tight and if there was a good story you could dive into a deal,” he said. “Now they are more focused on cash flow as the repayment source, because there may not be another bank to refinance your mistake.”

Wells Fargo & Company is an underwriter and partner in the conference along with the Business Journal and Farella Braun & Martel.

The conference will be held at the Vintners Inn in Santa Rosa. Registration will start at 7:30 a.m., and the program will run from 8 to 11:30 a.m.

April 3 is the deadline for registration, which costs $49 a person, and tables of 10 can be purchased for $510. To sign up, call Linda Perkins at 707-521-5264 or visit www.northbaybusinessjournal.com.