For Washington winemakers, 2020 was a very good year — to pivot

WHEN IT COMES to wine, as with most things in life, perhaps the most desired characteristic is balance.

Washington’s wine industry prides itself on the forces of nature that help produce some of the most balanced wines on the planet.

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What’s in the glass is not the problem. In the past two years, seven Washington wines have made the top 100 list of Wine Spectator, the world’s leading wine publication. Last year, the state saw seven bottlings earn their way on the magazine’s Top 100 Values list.

The biggest issue facing the Washington wine industry is one shared worldwide: supply vs. demand. The state has grown woefully out of balance to the extent of 2.3 million cases per year of unsold wine.

Some wineries in Washington, including acclaimed JM Cellars in Woodinville, have managed to do their part in the face of the changing market, the obstacles created by the pandemic and a downturn in the economy. 

“Mother Nature has thrown just about everything at us this year,” says owner/winemaker John Bigelow, who helped spearhead a new complex in Maltby called The Vault, home to six wineries — including JM Cellars — and a distiller.

ESTIMATES FOR THE 2020 vintage note that the crop will be down 25%, primarily because of early freeze damage that vines suffered in October 2019 and less-than-prime growing conditions this year at critical points of spring and early summer.

The timing of the reduced crop comes on the heels of a presentation made by economist Chris Bitter during the Washington Winegrowers Association’s annual meeting, which highlighted the problem.

“In Washington, we had been growing so rapidly, and it was projected to continue,” says Bitter, who spent seven years as an assistant professor at the University of Washington’s Runstad Center for Real Estate Studies before launching Vintage Economics.

However, expectations did not match the changing market. Bitter points out two obvious but extreme ways to address the glut of wine from the state’s 59,000 acres, a landscape that makes it the second-largest in the country but well behind California.

“I didn’t necessarily say that we needed to eliminate 8,500 acres, but I pointed out that you can reduce the supply if we had 8,500 fewer acres,” Bitter says. “The other way to address the imbalance would be to see demand grow by 2.3 million cases.”

Reduced demand for wine is a national trend that began several years ago.

“Oversupply of grapes and wine is a global problem, not a Washington problem,” says Vicky Scharlau, executive director of the Washington Winegrowers Association. “The issue is not unique to us. The Allied Grape Growers in California had already announced the need to pull out about 30,000 acres there.”

As it turns out, Bitter’s presentation came just as the COVID-19 pandemic was about to sweep across the nation. Days later, the Washington Wine Commission announced the cancellation of Taste Washington in Seattle, the largest consumer event of its kind in the country. Statewide shutdowns and shelter-in-place orders also prompted a change in buying habits for wine consumers.

A SEPT. 8 REPORT prepared this summer by Agri-Business Consultants for the Washington Winegrowers Association, the Washington Wine Commission and the Washington Wine Institute noted that wine shipments from the state’s wineries fell 18.8% from March to June. 

Beyond that, the report estimated grape production for the 2020 vintage could be down as much as 25%. The recent five-year average for wine grape sales in the state was $284.7 million, which means sales could be off by $71 million.

Production from last year’s crop will result in 12.59 million cases of wine.

“Regarding the 2019 vintage, there was a 23% decrease in tons crushed compared to 2018,” says Steve Warner, president of the Washington Wine Commission. “Many winemakers and growers had already picked most or all of their fruit before the series of frost events in early to mid-October, but for sites carrying higher yields, there was a good amount of fruit left unpicked due to concerns about frost damage.”

Bitter used his data to suggest the state wine industry reset the vineyard acreage back to 2013. That’s when 50,000 acres of vines yielded 210,000 tons, which were harvested by 564 wineries. There are nearly double that number of wineries now. 

The biggest growth of Washington vineyards came in 2016, when the state amassed a record-setting 270,000 tons of wine grapes. Two years later, there were 261,000 tons brought into cellars. 

“We should have seen this coming four years ago,” says Dick Boushey, who owns acclaimed Boushey Vineyard in Grandview and manages several of the state’s top sites. “In 2016 and 2017, there was a lot of fruit that didn’t get picked, and people just proceeded to plant more. As growers, you’ve got to look out for yourself. Know the market. Read the Nielsen reports. You’ve got too much invested to rely on only a few customers.”

One of the state’s visionaries is Mike Sauer. He began planting wine grapes at his family’s Red Willow Vineyard near Wapato in 1971. He and his sons have been removing blocks of cabernet sauvignon, cabernet franc and riesling from their historic portfolio. Some vines suffered from the gradual drain of leaf roll, but not all of them.

“These are definitely tough times,” Sauer says. “We’ve taken out not quite 10% of our vineyards. It’s hard to see some of these real old vineyards coming out — and not just ours.”

As Warner at the wine commission referenced, last year, there were just 201,000 tons harvested. But Bitter estimates that growers ripened 270,000 tons of grapes. About 30% of the fruit was not picked because of economic decisions or the unusually early hard freeze on Oct. 10-11 that resulted in something rarely reported in Washington — frost taint. Producers cited fears of wines with off-aromas such as rose hips or vinyl as reasons for rejecting post-freeze grapes.

“It got ugly at the end with the frost and fruit not getting picked,” Boushey says. “Then some places couldn’t get people to help harvest.”

This year, some top winemakers are finding it more competitive to buy grapes from top growers.

“Honestly, nobody has reduced the price that I pay for my grapes,” Bigelow says.

There also is an expected increase in demand for Washington grapes and wine as a result of the wildfires plaguing California and Oregon.

ROB GRIFFIN, THE DEAN of Washington state winemakers, has seen it all since he arrived in 1977, not long after graduating from the famed winemaking program at University of California-Davis. 

During the course of his 44 vintages, most of them at Barnard Griffin Winery in Richland, Washington has become an international player in the wine industry. Chateau Ste. Michelle Winery and its parent company, Ste. Michelle Wine Estates, lead the way in terms of quality and quantity.

“Whenever the Chateau catches a bit of a cold, it affects things in this state pretty dramatically,” Griffin says. 

Ste. Michelle Wine Estates is owned by Altria, a publicly traded company that acquired the Northwest’s largest producer as part of its 2008 purchase of U.S. Tobacco Co. In 2018, Altria hired Jim Mortensen to replace Ted Baseler, who spent 17 years as Ste. Michelle’s CEO. A company official declined to answer questions for this story.

“We’re focused on bringing in this year’s harvest, keeping our teams safe and healthy, and moving our business — and the Washington industry — forward,” Ryan Pennington, senior director of communications and corporate affairs at Ste. Michelle, wrote in an email.

Last spring, Altria recorded a $292 million wine inventory write-off and $100 million for losses on future noncancelable grape purchases. In an interview with Shanken News Daily, an industry-insider publication of Wine Spectator, Mortensen said Ste. Michelle accepted a share of the responsibility for the wine glut in Washington.

“Some years ago, there were ambitious plans and prospects on volumes,” Mortensen told Shanken. “We grow only about 10% of our grapes, so 90% of our supply comes from our growers. We asked them to add vineyard acreage, and they did. Our projections didn’t materialize, and so inventory levels built up over a number of years.”

Historically, Ste. Michelle’s production has represented about two-thirds of Washington state’s production, and Scharlau, of the Washington Winegrowers Association, says myriad issues were at play when it comes to the glut.

“Factors were compounded by the overall market slowdown for wine — both prior to and as a result of COVID-19 — as well as new competitive products like hard seltzers,” she says. “Growers and wineries depend on one another. This is not a ‘grower problem’ or a ‘winery problem,’ but is a problem for growers and wineries to address as partners, which we have done and continue to do — and quite well, I think.”

Griffin, whose daughter Megan Hughes makes wine at Barnard Griffin, says, “People love to blame the millennials, but that’s neither correct nor fair. There’s just been a change in focus in the wine industry, so as a small, family winery, there was already a challenge. And then came the lockdown.”

FROM A PRODUCTION standpoint, the pandemic has prompted changes that can be seen during harvest at DeLille Cellars in Woodinville, says Jason Gorski, director of winemaking and viticulture.

“We have completely isolated the winemaking team from the rest of the business,” he says. “We do not enter any parts of the building other than the winery space, and all other employees refrain from entering the winery. We health-screen all winemaking team members before they enter, wear masks at all times, stay apart as much as possible, sanitize frequently and try not to share equipment. 

“There have been a couple of picks where we have slowed down processing so we could maintain our standards with people sorting, all while maintaining appropriate distance.”

DeLille and Sparkman Cellars have taken over the former home of Redhook Brewery. DeLille staged the ribbon-cutting for its three-story tasting gallery on Feb. 27. Gov. Jay Inslee handed down his Stay Home, Stay Healthy emergency order on March 23.

“Our new space was specifically designed to allow our guests access to our winemaking operations,” Gorski says. “We look forward to the day when we can safely share the experience.”

IT’S NOT EASY to carve out a niche in the Washington wine industry these days, but Fiona Mak has achieved that with SMAK Wines and her deliciously dry versions of rosé. The 34-year-old sommelier-turned-winemaker grew up in Hong Kong and graduated from Syracuse University in hospitality management. She left the restaurant industry for Walla Walla Community College’s famed winemaking school.

With its singular focus on rosé, SMAK draws steady business even in these slow times. “Our wines are $18 a bottle,” Mak says. The grocery store business model doesn’t fit SMAK, which has entered the export market. And Mak has rolled out new digital strategies, and offered local delivery around Walla Walla and free shipping during the early stages of the pandemic. Shipping a case of wine that retails for $108 all the way to the East Coast can run $57. It was a hardship, Mak says, “But we want to make sure that people can get our wines.”

SMAK Wines began with a production of 875 cases from the 2018 vintage. Mak bumped it up to 1,200 cases from the 2019 vintage, but production will return to 875 cases for the 2020 crush.

“We lost out on some of the growth, but that’s OK,” Mak says.

Perhaps the biggest challenge faced by the wine industry in the United States is the perception among younger consumers — like many of Mak’s friends.

“They don’t want to feel stupid going into a wine store, asking a question and getting laughed at,” she says. “There needs to be a movement to make it not so serious and complicated.”

THE PANDEMIC SHIFTED the way many consumers have gotten their hands on wine. Large companies that had carved out positions on the shelves at grocery stores have fared better than those who relied on restaurants and tasting rooms for sales.

Precept Wine in Seattle, founded in 2003, has been among the former. It is the largest privately owned wine company based in the Pacific Northwest, and its 1 million cases rank it among the top 15 producers in the country.

“Our reaction to all discussions surrounding oversupply in Washington is to keep selling,” says Alexandra Evans, Precept’s chief marketing officer. “As the mix has shifted over the last six months, our leading Washington brands, like Browne Family Vineyards, Waterbrook, Canoe Ridge, Sagelands, Washington Hills and Pendulum, continue to perform well off-premise.” 

As a privately owned company, Precept’s business model differs significantly from that of Ste. Michelle. Precept’s portfolio includes 2,300 acres of vineyards in Washington that grow the grapes for wineries such as Waterbrook, the fourth-oldest brand in the Walla Walla Valley. Its control of vineyards has allowed it to manage inventory and adjust to market fluctuations, consumer demand and forces of nature such as last year’s early frost.

SOME PRODUCERS WERE better positioned to pivot, and saw a potential change in the landscape. Bigelow at JM Cellars credits his wife, Peggy, with realizing what the sizable new parking lot could do for customers who wanted to visit The Vault.  

“She saw the potential of moving service outside coming down the road, went to an event supplier and asked if they have any tents available,” Bigelow says. “She got a deal all the way to the end of September. Two weeks after she did that, you couldn’t find an available tent anywhere.”

For JM Cellars, the Bigelows’ 1,500 club members — some dating to the winery’s launch in 1998 — came rushing to the rescue. 

“We developed a survival plan in March, and I thought we were going to lose 30-40% of our wine club due to the economy,” Bigelow says. “Instead, we’ve gained 100 new wine club members since March.”

In 2016, JM Cellars produced 5,000 cases, employed 19 people and sold 95% of its wine directly to the consumer (DTC). In 2020, the Bigelows employ 32 people, sell 97% DTC and will crush the equivalent of 7,000 cases. They credit government approval to allow home delivery of wine as a contributing factor, not only for maintaining sales but also for developing a closer relationship with homebound customers. 

“It’s been unbelievable, and it’s allowed me to add more fruit to the list that I buy from growers,” says Bigelow, a former IBM executive. “This year, I’m bringing in 140 tons, 10 more than last year.” 

Bitter, the economist, says, “The well-established wineries with a big customer base; they already have that customer list and have been selling to them. The stronger are getting stronger and the weaker getting weaker.”

Unlike JM Cellars, DeLille Cellars doesn’t plan to make any significant changes in production levels. However, Griffin and his family are bringing in fewer grapes.

“We are cutting back due to COVID and market conditions,” Griffin says. “I’m guessing we’ll crush about 500 tons, half of what we’ve done in some years. It’s kind of a catch-up year for us.”

However, Barnard Griffin is entering a new market. Across the Columbia River from Portland, Vancouver has seen a rush of Washington wineries open tasting rooms in the wake of a $1.5 billion waterfront development project. Among those is Barnard Griffin.

“We had originally hoped for October, but everything got slowed down,” Griffin says. “We have signed things. It is definitely happening.”

Bigelow monitors the economic landscape in California, where his son, Tommy, is a winemaker, and sees Washington in an advantageous position in the long term. 

“First, I don’t like the thought of uprooting any vines, because those are living things,” Bigelow says. “Our state is just getting known in the world of wine for our quality. And every extra grape we grow up here will go to California at some point. It costs $1 million for a new acre down there, and that will not be for the best selected sites. In the Walla Walla Valley, you can still get an acre for $35,000.”