Ste. Michelle Wine Estates (SMWE), one of the largest US wine companies, recently told a meeting of grape growers in Washington State that it expects to purchase 40% less fruit over the next five years.
The announcement could have a significant impact on the Washington wine sector. Some industry leaders also believe the move highlights a wider shift in wine consumption in the US.
‘As we have an oversupply of grapes, these steps are necessary to bring the business into balance,’ said a representative from SMWE, which is owned by private equity group Sycamore Partners.
‘We have started conversations with our grower partners in Eastern Washington to adjust our grape supply to better align with demand and enable us to focus on crafting the highest quality premium wines from Washington.
‘Our long-term relationships with our growers are extremely important to us, and while this is a difficult process, these proactive measures are necessary for the ongoing health of our business as well as the health of the overall Washington wine industry.’
SMWE farms 12,140.5 hectares (30,000 acres) of vineyards in Washington, Oregon, and California, 10,926.5 hectares (27,000 acres) of which are in Washington State alone.
Out of that total acreage, the producer owns 971 hectares (2,400 acres) in Washington and 77 hectares (190 acres) in Oregon, confirmed the SMWE representative.
Vicky Scharlau, executive director of the Washington Winegrowers Association, said: ‘We’re encouraging growers to review each vineyard block carefully and critically to remove vineyards with diseased vines, planted in suboptimal areas, or with marginal production.
‘Unless the wine category rebounds magically reducing the inventory backlog of wine and bulk wine, our acreage needs a reduction of about 10,000 acres.’
Moves to reduce supply will not only affect growers but other aspects of the Washington industry, such as marketing and promotions.
Kristina Kelley, executive director of the Washington State Wine Commission, said: ‘The Washington State Wine Commission is funded through grape and wine assessments, and therefore our budget changes alongside industry and market shifts every year.’
She added: ‘We have experience adjusting our budget and will remain agile to prioritise work that drives the growth of Washington wine.’
A broader industry problem
Many think SMWE’s announcement signifies some of the challenges facing the wine industry on a broader level.
‘This isn’t an SMWE problem, this is a wine industry challenge,’ said Scharlau. ‘The wine market is changing. Wine drinkers are changing. Competition is more than the wine category. The channels are shrinking. This is supply and demand up close.’
Kerry Shiels, winemaker and the second generation of Côte Bonneville, said, ‘Ste. Michelle’s troubles are indicative of larger trends – older wine drinkers are enjoying the cellars they’ve built over decades, and younger consumers are drinking less in general and more intentionally.
‘So it gets very competitive at lower price points where Ste. Michelle has a lot of volume.’
What the future might hold
Despite SMWE’s announcement and current industry headwinds, there is optimism for the future.
‘The challenge for volume producers is that Washington is much more suitable for quality production than quantity,’ said Shiels.
‘Compared to places like the Central Valley of California or lower elevations in Argentina, we just can’t get the high yields to compete at those price points.
‘The opportunity for Washington growers and winemakers is to make more site-specific wines that show the personality of a vineyard or region. Although the transition may be painful, the wines will be more interesting going forward.’
Rob McMillan, founder of Silicon Valley Bank’s wine division and long-standing industry analyst, said, ‘It’s just a guess, but I expect Sycamore Partners will invest more in winemaking and rebrand their wines into higher-priced wine categories that are growing.’
He added, ‘The grape quality is there to pull it off. If Sycamore Partners can leverage its consumer branding and marketing expertise, tomorrow Washington’s wine and grape growing community will benefit along with the other industries that have expanded with Ste. Michelle over the years.’
