Wine regions to vote on grape commissions

Two more major California wine growing regions are considering the formation of mandatory marketing commissions to promote their areas as premier wine producing brands.

Sonoma and Mendocino counties both have initiatives on the table modeled after the only other commission in California, the Lodi-Woodbridge Winegrape Commission and the Washington Wine Commission.

“We need to step up to the plate if we're going to continue to compete,” says John Enquist, executive director of the Mendocino Winegrowers Alliance. “Under the current status as a volunteer organization, we don't have sufficient resources to adequately promote our product.”

The reasoning behind the Sonoma county effort is essentially the same. “Building the brand” is no longer a luxury, it's a matter of necessity, according to Nick Frey, executive director of the Sonoma County Grape Growers Association.

“The competitive landscape is changing among wine regions leaving those with smaller marketing budgets at a severe disadvantage to aggressive promoters — both domestically and internationally, he says. “Many wine regions are outspending SCGGA by nearly ten-fold.”

The current SCGGA budget is $400,000. By contrast, Napa Valley Vintners Association has a budget of $4 million, while Paso Robles Vintners and Growers Association and the Washington Wine Commission both have $1.4 million. Other regional wine growing areas are also outspending Sonoma at a phenomenal rate, according to Frey. Promotional dollars from foreign competitors is also daunting and one reason imported wines have claimed a significant chunk of the domestic market, according to those favoring the formation of a commission. Imports now account for 28 percent of U.S. wine sales, a 10-point increase since 1999. Much of this is from new world wine growing areas, particularly Australia. Last year wine sales in the U.S. grew by about 4 percent. Three percent of that was imports.

U.S. inroads

“I think there are several reasons why we've seen imports gain market share in the U.S.,” Enquist says. “Consolidation has been a factor. It's streamlined the distribution channel and made it easier for foreign competitors to gain ground in the U.S. market. But more than anything, our foreign competitors have pretty darn good marketing programs that have been very effective at making a significant impression on the U.S. consumer.”

Sonoma's most lucrative market niche has traditionally been the bottle that sells above $15. “We have the second highest bottle price in California,” Frey says. “But other regions within the state as well as the world are coming after that market segment. We can't compete very effectively spending roughly $150,000 a year on promotion when they are spending a million dollars or more a year. Since 2001, Sonoma grape prices have dropped 13 percent. We'll soon be facing even tougher in-state competition from regions such as Paso Robles which has already initiated a nationwide advertising campaign with its $1.4 million annual budget.”

In addition to promotional dollars, the proposed commissions in Sonoma and Mendocino would include budgets for production research and local issues funding that are currently covered under fees from voluntary membership in each association. If the voters approve the marketing commissions those budget items and responsibilities would be rolled into the new organizations.

Proposal differences

Sonoma's proposed commission only includes growers while Mendocino's proposal would bring vintners into the fold as well. Mendocino's wine industry is comprised of approximately 250 growers and 62 wineries, representing a significantly smaller pool of resources to fund a commission than Sonoma.

Mendocino County's proposal would assess growers and vintners on a two-tiered scale. An annual set fee would be assessed based on tonnage grown or processed. That fee would range from $100 for growers producing up to 20 tons to $750 for growers producing more than 3,000 tons. An additional per ton fee would be assessed on a sliding scale starting at $10 per ton for production totaling 0-20 tons and decreasing incrementally as tonnage increases. A similar structure would be used to assess wineries based on processing.

“We believe we will have a much stronger marketing tool in Mendocino if we include the vintners in the commission,” Enquist says. “We need both growers and vintners if we are going to hit our $750,000 budget target.”

Growers only

Sonoma's grower list alone exceeds 800, which would raise an estimated $1.2 million annually for the Sonoma commission under the proposed .05 percent per ton assessment rate, according to Frey. “The wineries will collect the assessments and pay them to the commission within 30 days,” he says. “Grower checks will be 99.5 percent of gross sales.

The growers only proposal would amount to considerable dollars regardless of winery participation, but the decision to exclude wineries in the proposal is more about politics than dollars.

“The wineries were excluded because growers created the state's enabling legislation after the statewide joint grower/winery marketing order failed,” Frey says. “The wineries defeated that program and thus the growers excluded the wineries in order to reduce opposition to the legislation.”

Even so, what's good for the growers will ultimately benefit the wineries, according to Duff Bevill owner of Bevill Vineyard Managers and president of the Winegrowers of Dry Creek Valley. “It appears that the vintners are either neutral or see it as positive,” he says. “If the commission is as successful as we expect it to be, and the consumer demand increases for wines made from Sonoma County grapes, the vintner must see that he wins as well. It is their Sonoma County labeled wines that the consumer will be asking for. They can only see this as a winning proposition for them as well as us.”

If the measure passes, preliminary budget recommendations would increase the current expenditures for marketing from $142,000 per year to $750,000 or more. Production research expenditures including integrated pest management (IPM), sustainable agriculture and community outreach would increase from $137,000 up to $340,000 if needed. Approximately $110,000 would be earmarked for operations and facilities.

Would afford clout

“Forming a commission would give Sonoma growers the resources and the clout to be serious players in domestic and international markets,” Frey says. “It would help us develop the Sonoma County brand and provide support for our premium grape prices at all levels of the marketing chain from the grape buyer to the ultimate consumer.”

Some would argue that the Sonoma name is already so well established, it makes little sense to spend shrinking profit margins on mandatory assessments. Not the case, says Bevill.

“Sonoma County wines and wine grapes have had the good fortune of a reputation of excellence for decades,” he acknowledges. “In fact, many would argue this reputation extends for more than a century. However, we are not telling this story well enough anymore. As growers, we must spend the time and money to compete with the rest of the world's grape marketing dollars.”

It's a move that has worked well for some wine growing areas. Mandatory assessment dollars have proven very effective in promoting some regions such as the Washington Wine Commission and the Lodi-Woodbridge Wine Commission.

“Washington State is the fifth largest supplier of U.S. wine with just over 30,000 acres,” Frey says.

The Washington Wine Commission includes both growers and wineries, according to commission executive assistant Kim Abello. The commission represents approximately 350 growers and more than 400 wineries and is considered the second largest premium wine producer in the U.S. The region's primary market is wine selling for $8 a bottle or more.

Prime example

The Lodi-Woodbridge Winegrape Commission was formed in 1991 and is often touted as a premier example of what can be accomplished with mandatory assessments. The commission operates on an annual budget of approximately $1 million, representing almost 800 wine grape growers farming nearly 80,000 acres of wine grapes. Over the past 10 years the acreage of wine grapes has nearly doubled while the crop value has quadrupled.

The Lodi-Woodbridge Winegrape Commission only includes growers, a strategy that was considered prudent for passage when the commission was originally formed, according to Stuart Spencer, program manager. “Due to the failure of the statewide commission in the early 1980s, growers here felt that including the wineries in the commission would create a conflict of interest and make it more challenging,” he says.

“Historically, growers and wineries have competing agendas. Growers want to sell their grapes for the highest price they can get and wineries want to buy grapes at the lowest price they have to offer.”

Much of the success of the Lodi-Woodbridge Winegrape Commission has come from aggressively promoting name recognition in the marketplace, according to wine broker Dwayne Schockley, president and CEO of Select Brands in New Orleans. “The Lodi name has become a much more marketable California brand in recent years,” he says. “I would put it right behind Napa and Sonoma in terms of name recognition. They're producing some very good labels that stand on their own merits, but it's the promotion of the region as a whole that has helped build the perception they needed among consumers to create widespread demand.”

Other wine growing regions in California are taking a different tack, or at least a “wait and see” approach. The Paso Robles Vintners and Growers Association is a voluntary, member-funded organization representing wineries, wine grape growers and business associate members.

“We have 75 percent participation from our industry in our voluntary organization, so at this time Paso Robles is not pursuing a commission with mandatory assessments,” says director Stacie Jacob. “We are watching the other regions and learning from their successes and failures in case we are faced with this structure in the future.”

Barra support

Charlie Barra, owner of Redwood Valley Vineyards and partner in Redwood Valley Cellars in northern Mendocino County supports the formation of a commission. Barra understands the upside potential, having been one of the founders of the North Coast Grape Growers Association in 1963.

“We started that association to level the playing field between the wineries and the growers,” he says. “In those days, a handful of large wineries were calling the shots and making it difficult for the growers. We brought parity into the situation, and it was good for the industry.”

Now that both entities within the industry are more balanced economically, Barra says it's time for growers to contribute their share to the promotion of the region.

“The North Coast is one of the premier grape growing areas in the world,” he says. “Our problem is that we've had it too good here for too long. The economics have been very good since the 1970s, and acreage has expanded significantly. That's good for the consumer because it gives them a better value. However, we're going to have to make an investment in our future and promote our region as a brand if we're going to continue to remain competitive and profitable. I think the Mendocino Winegrape Commission has a good chance of being approved. It makes sense for everyone involved.”

Mailed ballots

Mendocino's ballots were scheduled to be mailed March 15, according to Enquist. “The initial voting period is 30 days,” he says. “If we get 40 percent participation we are there. If not, we can extend the voting period another 30 days. We should know the results within 10 days of the end of the vote.”

The Sonoma vote will be held in May or June and supporters are optimistic. “We have been very active over the past six months working at communicating the need for a commission,” Bevill says. “Virtually all opposition that was present prior to our grower meetings has disappeared since we shared the facts and concerns with them. The vast majority of growers here in the county are very progressive in their thinking. They quickly understand the challenges we face, and recognize solutions are needed.”

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