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Makers of high-end wines caught in 'dead zone'

  • At Toad Hollow Vineyards tasting room in downtown Healdsburg, recently, Roger Nunley, right and Barbara Jabaley of Atlanta Georgia take in several different wines during an afternoon of tasting. (Kent Porter / The Press Democrat) 2009

Hedge fund manager Eric Flanagan spent millions to build the finest boutique winery money could buy.

He purchased 120 hilltop acres with panoramic views of Bennett Valley, hired the best vineyard and winemaking consultants, and spared no expense in constructing his Flanagan Family Winery.

Complete with caves bored deep into the hillside and the finest French oak fermentation tanks and barrels, the modern, curved-roof facility opened in 2006.

But Flanagan, who manages New York-based EMF Financial Products, made a critical mistake — he assumed California's high-end wine market would continue its inexorable march upward.

He found out how wrong he was last fall, just as his $100 wines were trying to gain traction in the market. The economy was in free fall, housing prices were plunging and consumers were pulling back sharply, eating out less and shunning luxury goods.

His timing couldn't have been worse.

"I think the efforts we made in the winery were good," said Mark Mazzoni, assistant winemaker since 2006 and its only full-time employee. "It's everything else that was falling apart around us."

The winery, including 16 acres of cabernet sauvignon and syrah vineyards, is now for sale for $8.5 million. An adjacent property is listed for $1.5 million, recently reduced from $2 million.

The demise of Flanagan Family Winery is just one stark example of a powerful shake-up under way in the U.S. wine industry. Consumers who for decades have been steadily trading up to higher-priced vintages have reversed course, trading down to cheaper wines in search of better values.

Some think the reversal will be short-lived; others say something has fundamentally changed in the wine business.

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