Central Coast growers seek consolidation benefits

Wines & Vines, May, 2005 by Kathy Marcks Hardesty

With the spotlight on consolidation during the 10th Annual Central Coast Insights Seminar, held in San Luis Obispo Mar. 10, vintners and marketers discussed the uncertainties and, more importantly, the long-term benefits gained from being sheltered under the umbrella of a corporation. But key speakers representing Central Coast growers, three of the four professionals with more than two decades of experience, expressed no fear, even when pointing out that consolidation means fewer grape buyers.

Over the past 14 months, the costs of vineyard management and development have escalated, and for several years vineyards have been ripped out and not replanted. The growers' panel frequently went back to an earlier discussion on winery consolidation, when speakers recommended collaborating with growers. Not surprisingly, the panel welcomed the idea; most believe it will benefit the entire industry.

The viticulture seminar titled, "Real Issues for Growers in the Central Coast--Strategies and Opportunities," included panelists Tony Stephen, director of wine marketing at Scheid Vineyards in Monterey County; Dave Wineman, viticulturist at Hampton Farming Company in Santa Maria; Richard Smith, president of Valley Farm Management and founder of Paraiso Vineyards in Monterey County and John Crossland, president of Vineyard Professional Services, Inc. in Templeton. Far from being concerned about winery acquisitions by giant drinks corporations, throughout their seminar the growers pointed out opportunities to become more viable by working together.

During the opening session on winery consolidation, which featured David Hayman, vice president of West Coast operations for Constellation Wines U.S. (a division of Constellation Brands) and Steve Spadarotto, vice president of wine operations for Diageo, both said their companies want to attract quality vineyards through long-term contracts and a commitment to quality standards.

The Insights workbook featured Constellation's outline of strategies to build stronger relationships with Central Coast growers, stating: "We're in this together." In the section on quality, it said many U.S. wine companies are offering more rewards and incentives, focusing on education and business planning and developing growers' advisory groups.

Spadarotto, who was with Kendall-Jackson for seven years before joining Diageo in 2004, called the fine wine division "Diageo's beauty mark," but admitted it accounts for only 5% of Diageo's business. Spadarotto, hired to oversee winemaking and wine quality initiatives including grower relations, vineyard management and the development of emerging brands, explained: "We felt future growth for Diageo had to go outside. We're trying to lock up quality fruit with growers that will last long term." Nevertheless, it was clear that global businesses have been slow in establishing such relationships with growers.

"I was pleased to see in the workbook that Constellation is putting together grower advisory groups," Crossland said affably in beginning his discussion. But he grew serious while citing bigger issues growers are now facing: steel prices have doubled and drip irrigation costs jumped 60% over the past 14 months, and his fuel prices doubled, now costing him $100,000 a month. Crossland admitted he had expected to see the positive effects of consolidation begin sooner.

Smith, who said one-third of his company's contracts are being rewritten, spoke of consolidation as the new regime. He said there are only three to five name players and a lot of niche players. "Consolidation is all around us. Gallo made a big difference for Mirassou," Smith said. "Consolidation is good stimulus for sales and strengthens Central Coast brands, and most of the Salinas Valley is already consolidated."

Wineman, discussing the Santa Maria/Los Alamos regions in the northern half of Santa Barbara County, said vineyard acreage is dropping. In 2004, total plantings were 18,780 acres, down from 19,300 acres. Hampton Farming pulled 800-plus acres in the last three to four years, with old vineyard blocks being pulled and not replanted. Wineman said there's more need for mechanization in dealing with large growers, explaining it's not just a cost issue.

"We're trying to adapt. Because of the cool growing area, we do a lot more leaf removal and pre-pruning mechanically," he explained. "We're also hedging to increase efficiency--it helps yields and improves quality. Hedging also reduces costs and aids pest and disease control."

"The potential to develop vineyards is not there without contracts so we can achieve and maintain profitability," Crossland advised the audience. "That's the long-term challenge for the Central Coast." Throughout the seminar, the growers held a positive outlook, and no one mentioned any misgivings they might harbor. But Crossland brought up Paso Robles' challenge on selling overall tonnage profitably, noting that Cabernet Sauvignon and Syrah are particularly out of balance. On the other hand, he said Paso Robles offers tremendous variability in winery opportunities, with its wide range of both small and large producers.