Ste. Michelle CEO: Economic factors key in wine’s Pacific Northwest migration

NAPA - Washington state may be overshadowed by California’s wine industry, but it is gaining prominence and will continue to do so thanks to cheap land, fewer regulations and growing recognition of the quality of the Evergreen State’s varietals.

That was the message Tuesday from Ted Baseler, president and chief executive of Ste. Michelle Wine Estates of Woodinville, Wash., which has grown to be the nation’s seventh-largest wine company through the strength of its home market, an astute import business focused on a few specialized brands and through strategic acquisitions, such as its 2007 purchase of Stag’s Leap Wine Cellars in Napa Valley.

The Pacific Northwest’s growing stake in the U.S. wine industry has been highlighted in recent years by E&J Gallo’s move into the Washington market and Jackson Family Wines’ acquisitions in Oregon, notably for pinot noir grapes from the Willamette Valley.

“It’s really exciting to see highly credible Californian wineries getting engaged in Washington and Oregon,” Baseler told attendees at the Wine Industry Financial Symposium on Tuesday at the Napa Valley Marriott. “It’s a fairly recent phenomenon. I call it the overnight success that just took 30 years.”

The reasons for the Northwest rush are mainly economic, including the higher cost of California land. Vineyard acres in Napa County at the top end are hitting almost $300,000 per acre; the top price in Sonoma County is around $150,000, according to the Correia Co.

In contrast, Baseler, one of more than 40 speakers at the two-day conference, noted that vineyards sell for $50,000 per acre in Washington’s Red Mountain region in the south-central part of the state that is noted for its cabernet sauvignon, malbec and merlot.

Water is more plentiful with the Columbia River, the country’s second-largest watershed, and the industry has been aided by local irrigation projects, Baseler said. In the Golden State, counties are dealing with new state rules for pumping groundwater in the midst of a drought. In addition, North Coast residents have expressed growing frustration with the increased traffic and events tied to the industry, which drives tourism in the area. Activists and residents in Napa and Sonoma have urged elected officials to enact greater restraints.

Those issues have come to a forefront for the industry at the same time Washington has increasingly received more plaudits for its wine. In 2009, Wine Spectator named Ste. Michelle’s Columbia Crest 2005 Reserve Cabernet Sauvignon the top wine in the world.

“What does the little brother do to the big brother?” Baseler asked, referring to the interstate rivalry. “We’re always trying harder. We’re trying to attempt to do things that are always on the creative, cutting edge.”

More than 30 years ago, when Baseler came to Ste. Michelle, Washington had 20 vintners with a few thousand acres of vineyards; now it has 807 wineries with more than 60,000 acres, Baseler said. He said it can support up to 200,000 planted acres.

“Water is an issue, like everywhere, but there is significant water available,” he said. The industry has “grown very dramatically, and the future is very bright for Washington.”

Others share that view. The conference Tuesday also featured a survey of wine executives compiled by Robert Smiley, director of the Wine Graduate School of Management at UC Davis. The respondents are able to comment anonymously to speak more frankly on issues confronting them.

“I would say one of the biggest threats that the California cabernet probably has is from Washington. I don’t think it takes the American consumer much to translate from California to Washington,” one executive wrote. “As cost of goods rise here - either through water or land scarcity - we will struggle to keep our prices down, and eventually, they will calibrate through supply and demand.”

Still, with that growth comes challenges just like the North Coast communities are now facing.

For example, there are now more than 100 tasting rooms in the Woodinville area in King County, and Baseler noted that there is some backlash developing from residents over related impacts.

Still, he said, it’s “not as acute as it is here (in California).”

Much as respected viticulture and enology programs at UC Davis and Cal Poly San Luis Obispo have seeded California’s industry, Washington’s wine industry is poised to get a boost from Washington State University’s new Wine Science Center, which opened this summer. It is named after Ste. Michelle Wine Estates, as Baseler led the effort to raise $23 million for the project.

The company has grown under Baseler’s leadership as he advocated a “string of pearls” strategy, in which each of his 13 wineries are granted autonomy to make decisions on winemaking while the parent company provides administrative and financial support.

Ste. Michelle’s revenue has grown 65 percent from 2004 to 2014, with $643 million generated last year. Its presence in Washington is enormous, accounting for more than half of the state’s wine production, according to Wine Business Monthly.

Overall, Washington wine production grew 9 percent from 2007 to 2014, to 12.6 million cases, according to Baseler. In contrast, California wine production - which accounts for 90 percent of U.S. production - grew 2 percent and imported wine decreased by 0.8 percent during that same time frame.

“Washington brands respond very well when they are on promotion,” Baseler said. “We attract premium wine consumers.”

One area where Baseler sees potential growth is in merlot, which has suffered a consumer backlash over the past 10 years in large part to the movie “Sideways,” whose protagonist voices a continual screed against the varietal. It accounts for about 8 percent of wine made in the United States. Washington’s merlot crop was up 2.8 percent in April from a year earlier.

“As meager as it is, we’re still positive about the future of merlot,” Baseler said.

You can reach Staff Writer Bill Swindell at 521-5223 or bill.swindell@pressdemocrat.com. On Twitter @billswindell.