Could falling sales at California's wine auctions and a downturn in sales of restaurant wines point to a more serious downturn in the US wine market? Larry Walker talks to the industry to discover where the worries lie.

The Napa Valley Wine Auction is not a reality-based index of how healthy the wine market is. It's a lifestyle carnival that has about as much to do with the real value of the wine as the top bidder's astrological sign. Maybe less. But it is worth noting that after 20 consecutive years of annual increases in the total take, the 21st annual charity event was off this year for the first time ever. And not just by a few thousand. It posted a $7.5m gross, $2m below the 2000 auction results.

Could it be that Wall Street jitters and dot-com failures led to a more cautious approach to raising the paddle? Could be.

A slowdown in wine sales actually started in 2000 and has continued into this year, according to 1Q figures
But there are other and perhaps more reliable signs.

Jon Fredrikson, a leading California wine analyst, said a slowdown in wine sales actually started in 2000 and has continued into this year, according to first quarter figures. He pointed out that the 1% increase in sales of California wine were generated by exports. (There are concerns that the strong dollar and price increases by California wineries could hurt export sales by the end of the year.)

"I think much of the problem we are seeing is related to the impact of a down economy, especially in certain markets, like the San Francisco Bay Area and Seattle and some other high tech markets. There is no doubt those markets are suffering." He added that the high tech downturn has cut into growth levels.

He noted declines of 18% to 21% in supermarket sales in the first quarter of 2001 in key high tech markets. He said there are also signs that restaurant expense account sales were suffering.

Even in areas of growth, Fredrikson said the rate of growth was slowing. "Last year, Chardonnay was growing at a 14% rate. It's still growing but now it's at 7%."

"Kaleidoscope 2000" Auction
Poster by Dale Chihuly
Fredrikson said that the big crush in 2000 and a flood of inexpensive imports were also having a strong impact on the market.

"This is really more of a normal situation," he said, making an interesting point. "Any agricultural business tends to have more supply than demand. The last half of the 1990s was really an extraordinary situation. In 1996, supply was so short that we were bringing in bulk wine. Now, we are back to a more nearly normal market. The question remains of how much more the market will drop."

Even growers are starting to take a gloomy look at the economy. Karen Ross, president of the California Association of Winegrape Growers, said economic uncertainty, the energy crisis and rising fuel costs will affect the bottom line for growers.

Nick Frey, executive director of the Sonoma County Grape Growers Association, said growers should not expect the upward spiral of prices of the last few years to continue. The Sonoma group is strongly urging growers not to plant new vineyards unless they have a contract in place for the grapes.

Probably good advice, but is anyone listening? Sonoma County growers are moving right along with new plantings, with about 2000 acres of new vines scheduled to go in this year.

There could well be some second thoughts on those new plantings if there is another record harvest this fall, as many expect. One key player in California's bulk wine market, who spoke on the condition was not named, said he expected many growers in California's Central Valley to take vineyards out of production after harvest.

"But it isn't just the Central Valley that's hurting," he added, "there's a problem everywhere in the state with over production, especially in the face of a slump in demand."