The weak dollar has uncorked robust international sales of American wines, and Northern California wineries are the life of the party.
The surge in California wine exports has come none too soon for the state's wineries, whose margins were squeezed by a recent gusher of high-quality grapes that pushed the price of even many acclaimed bottles under $10. Compounding the supply issue were years of recession and economic uncertainty that left many wineries with faltering sales and an uncertain future.
Now, with the American dollar down in the last year 20 percent against the Euro, 15 percent against the pound and 10 percent against the Japanese yen, California wines suddenly enjoy a price advantage in overseas markets. What's more, other "New World wine" producers like Chile, who have traditionally been able to underprice the United States, have also seen their currencies rise against the dollar, in Chile's case by 21 percent over the last year.
Michael Houlihan, CEO of Santa Rosa, Calif.-based Grape Links Inc. which produces the Barefoot Wine brand, said his export sales are up 500 percent in the last year, or by roughly $500,000. That's still just 3 percent to 4 percent of Grape Links' total sales, which Houlihan put in the ballpark of $15 million last year, but it was key in helping the company post modest dollar sales growth. The company shipped 20 percent more cases, but continued price competition keeps all of that from going to the bottom line.
Houlihan has been traveling to the London International Wine & Spirits Fair and the Vinexpo in Bordeaux, France for the last five years. Only on his most recent visits, last spring and summer, was he really able to crack the foreign markets.
"We were able to attract a U.K. distributor, an Irish distributor and supermarket, a Russian distributor and supermarket and a Japanese distributor," Houlihan said. "They know us, they've seen us before, and now we have a price that can't be beat."
Export sales are up at other wineries as well, said Eileen Fredrikson, partner at Woodside wine industry consulting firm Gomberg, Fredrickson & Associates. Many California vintners only started looking at the export market after prices began to fall domestically in recent years, she said, but are now likely to retain a global presence even if the dollar rebounds.
"It really has become a global business," she said. "The scramble abroad began when wineries suddenly found themselves with more contracted grapes than it was obvious the recessionary economy and rush in imports from abroad could handle in the domestic market, and suddenly they were setting up trips abroad.
"What we have all learned from that is it is important to have a sustained presence in broader markets to mitigate these fluctuations."
For now, the export market is giving wineries plenty to toast. Fredrickson cites Commerce Department statistics showing U.S. exports of bottled wine, with California making up about 90 percent of the market, were up 19 percent in sales and 28 percent in volume for the 10 months through October, compared with the first 10 months of the prior year.
While companies like Gallo, the largest American exporter of wine, are surely benefiting from that increase, Fredrickson said, smaller wineries are benefiting as well.
In addition to Grape Links, Ironstone Vineyards in Lodi and Murphys, Calif., has reported strong export growth, with export sales rising 36 percent last year to about a third of overall sales. Brad Coughlin, the company's vice president of sales and marketing, said the company has been pursuing international sales for a decade now, led by a directive from the Kautz family, which owns the winery, and from current co-owner Joan Kautz-Meier, who heads up international distribution out of offices in Toronto, Canada.
Export growth has really been ramping up in the last three or four months, Coughlin said, due to the exhcange rate. The company's global sales have included both its core Ironstone brand and a new lower-priced brand, Leaping Horse, which was launched in February and has seen 30 percent of its sales through December come from outside the U.S.
Coughlin said American wines still often have to cut their margins to compete internationally against wines from countries like Australia and Chile.
"It's a difficult market to penetrate because of the retail price points," he said. "Internationally, things are so low in markets like the U.K., for a California winery to compete, the cost of entry is pretty dear."
Rodney Strong, the $60-million-a-year vineyard in Healdsburg, Calif., saw wine exports rise 130 percent to 5 percent of total sales last year, its best year ever.
Vice President of Marketing Dan Wildermuth thinks the company could have seen even stronger growth if it had discounted its products to reflect the lower tax and marketing costs associated with international distribution and competition from other wine-producing countries. But the company, Wildermuth said, wanted to maintain its price and brand image.
"The U.K. is a huge market, but most of the business is done at a price point where most California wineries cannot make money," he said. "You look at a Canada or a Japan or a Switzerland and you can get priced well and get good advertising, good sales and make some money."
Both Wildermuth and Coughlin said they have received word that wineries from the major importing counties have adjusted their prices and reset their sales forecasts but neither has seen the price increases show up in stores yet. When that happens, they said, American wineries should benefit further.
Even some global wine industry players are looking to get in on the action. A spokesman for the Healdsburg, Calif.-based U.S. wine operations of Allied Domecq, the Bristol, England, spirits company, said that while the company has not significantly increased the exports of its California brands, including Clos du Bois, within the last year, it has recently committed new resources to targeting the export market for those wines. California wines can now compete well against Australian wines in particular, the spokesman said, in markets like the U.K.