Best practices in tough times
Avoid heavy debt load, but don't touch grape quality.
Paul Champoux has expanded Champoux Vineyards slowly while building a solid customer base.
The stock market has plummeted, the national debt is skyrocketing, financial firms around the world are vaporizing, and the housing market cowers at the bottom of a trough.
But wine grape growers in Washington remain calm. Those who have weathered economic storms in the past say they are confident the wine grape industry will survive this one intact. And they have brought along a few safety nets, including diversified client lists, strong contracts, and cash positions that allow them to avoid heavy debt burdens.
Cash management is a top priority for many growers as they negotiate the current financial storm. "You've got to have a good banker," said Bud Mercer, "and never, ever try to fool him."
Mercer planted blocks of grapes in 1972, 1975, and 1978, surviving the downturns of both the mid 1970s and the early 1980s, before he left wine grapes to expand his row crops like carrots. He returned to grapes in 1997 when he invested in Destiny Ridge Vineyard. In 2005, he partnered with Mike Hogue to plant Mercer Estates. They released their first vintages in 2008.
But lessons learned during the 1980s, when Mercer was expanding his carrot operation, carry over today to the wine business, he said. "We didn't buy anything new that we didn't have to. We didn't buy any new tractors for ten or twelve years." Now, Mercer explains he'll evaluate any expenditure in terms of productivity, looking to control the costs of labor, management, and equipment. "We won't do anything experimental or aimed at research."
Today, Mercer's earliest vineyard is known as Champoux Vineyard. Paul Champoux bought the property in 1989, after a decade working as a vineyard manager. Champoux said the business plan that got him started—careful growth and solid clients—is the one that will get him through.
Since he bought the land, Champoux has expanded from 110 acres to 180 acres. His client list includes about 25 wineries, all with good cash positions and sales. "I always make sure the vineyard pays for my expansions," he said. "I have grown slowly but surely. My philosophy has always been to stay out of the banks as much as I can, and be able to handle a two-year recession."
To do that, Champoux is carefully scrutinizing his costs. "We're always paying attention to the price of chemicals and nutrients," he said. "But I'm sitting on my wallet a little bit, doing what I have to do to plan for the short term. Instead of buying two wind machines now, I'll buy one this year and one next year."
Other growers see the recession as a good reason to invest in machinery. Labor has always been a significant part of a vineyard's cost equation, points out Mike Miller, owner of Airfield Estates. Washington State law, in tying the minimum wage to the consumer price index, he points out, means that labor costs will always go up, never down.
"The recession is not addressed by the state's minimum wage bill," said Miller. "If there's an opportunity to do something by machine that you used to do by hand, you'll look real hard at that." Miller added that investments in new technologies like chlorophyll-sensing sprayers that target chemical applications have helped him save as much as 25 percent of his materials.
Scott Williams of Kiona Vineyards echoes that approach. "Labor is very expensive, and we've been forced to mechanize wherever we can," he said. "Machines are cheaper than people. Wherever we see an opportunity to buy a machine instead of doing something by hand, we'll do it, especially in this economy."
Vertical integration provides security for many Washington grape growers. Rick Small planted his vineyard in 1981, and devotes all his grapes to his Woodward Canyon wines. Consumption remains strong, although he's seeing people "notch down" their price point.
"If long-term trends continue, the United States is going to be the largest wine-consuming country in the world in another year or so," he said.
Small is prepared to expand his acreage as soon as he can locate the right plants, but in the meantime he'll maintain his focus on quality over quantity, reducing tonnage in some places.
His terraced vineyard climbing the hills surrounding Walla Walla demands a lot of hand labor. That cost is difficult to contain, but Small said he's found some savings by maximizing the efficiency of his work force. His cellar crew, he explains, all started their careers in the vineyard. He's using them there again this winter during the downtime in the cellar.
Don't touch quality
None of the growers interviewed were willing to make any adjustments that might affect quality. "Producing highest quality grapes is labor intensive and labor is expensive, but I believe that moving away from quality at any time is a poor business decision," said Norm McKibben of Pepper Bridge Winery. "Quality comes from the vineyard, and vineyards that are producing quality grapes will be able to maintain a price level that keeps them in business."
Both Small and Williams said sales have remained steady, and the first few months of 2009 have been strong. "Some of that is creative marketing," Small said. "We have some special wines that we released a little early in order to inspire sales."
Williams said he plans to cut back somewhat on red wine production over the next year or so because of market conditions. "But, we're still out there planting grapes," he said, adding that he wants to be ready with more fruit in three or four years, when the economy rebounds.
In the Horse Heaven Hills, Champoux is also looking to the future. "I planted twenty two acres last year," he said. "I'm doing that because I'm totally confident that I will have to help supply the market after the recession."