High Wages and High Prices in Napa
Grapegrowers hear from experts about playing up the valley's assets
St. Helena, Calif.—The Napa Valley Grapegrowers association has an unparalleled educational program to help growers farm better grapes, but occasionally it steps back from viticulture to take a longer view. This Wednesday the group held the 2017 Ahead of the Curve seminar to do just that.
In this half-day seminar at Brasswood Estate near St. Helena, observers and experts, some from outside the wine business, offered concentrated insights into issues ranging from farmworker benefits to investing for the future.
The session was moderated by sommelier Kelli White, author of Napa Valley, Then & Now, who also set the stage for the speakers.
What workers are paid
Dr. Giovanni Peri, professor of economics at the University of California, Davis, gave the first talk about wages and benefits. He reported on the latest annual surveys of the wages and benefits offered Napa farmworkers.
Not surprisingly, he found that Napa Valley growers and wineries (60% of grapegrower members are in fact wineries) are at the top of the pay scale for agricultural workers in California. He noted that the average starting wage is $14.10 per hour, well above the minimum wage and close to the $15 minimum wage mandated in the future for California employees.
In spite of high wages, Peri found that 60% of firms in Napa County have experienced shortages of help, and 70% (including management companies) have skipped activities due to shortages.
He also noted that there has been a massive move to mechanization in agriculture, but less in vineyards and little in Napa Valley.
He doesn’t think that Napa growers will be affected much by higher minimum wages but might arrive there with present trends anyway. He also believes that growers can compensate for higher wages and ameliorate shortages with better use of technology including mechanization.
Peri doesn’t believe the higher wages seriously impact profits in Napa Valley due to the high prices the region attracts for its grapes and wine. “Napa is in a good position,” he said.
The second speaker, Maisie Ganzler, chief strategy and brand officer for Bon Appetít Management Co., related how the food-preparation company found that being sustainable and sensitive to workers has helped its business grow. “As consumers become increasingly interested in where their food (and wine) is coming from, sharing information about the services that are offered for farmworkers and supported by Napa Valley growers could set area vintners apart from the rest of the wine industry.
She added that Napa Valley is not currently using this information to market Napa wines, but such a move could be beneficial. It should be noted that Sonoma County growers are already doing this aggressively.
Climate change by region
One of the most fascinating talks was by Dr. Orley Ashenfelter, professor of economics at Princeton University and a long-time student of grapegrowing. Using data from Bordeaux, he demonstrated that the driest and warmest vintages from 1952 to 1980 were the best, with 1961 generally regarded as the vintage of the century, the warmest and driest. It was described as ripe and concentrated by critic Robert Parker Jr.
Interestingly, Bordeaux’s 1961 rain and temperature pattern of a dry summer and wet winter were similar to an average year in Napa Valley. Since 1980, however, Bordeaux has been warmer and generally has had more favorable vintages.
Ashenfelter also explained how growers in the Germany’s Mosel utilize aspect to allow growing in the high latitude: Their vineyards are planted on very steep slopes (up to 45°) facing south for maximum solar radiation. “They’re solar panels,” he observed.
A warmer climate also has allowed Germany to average seven good vintages each decade rather than the three common in the past.
Finally, Ashenfelter claimed that much of California isn’t suitable for growing the highest quality grapes, and the state has gotten warmer in past decades, though not as dramatically as Bordeaux; coastal areas like Napa and Sonoma have seen relatively little change in climate. Fortunately, he noted, “Grapevines have the lowest solar efficiency of common fruits,” so they are relatively tolerant to temperature changes.
Valley recognition
Shannon Staglin, president of Staglin Family Vineyard, talked about her family’s strategy including its exceptional philanthropy that helps connect with consumers; then Gillian Ballance, the national education manager at Treasury Wine Estates, discussed the power of the Napa Valley brand among changing trends and demographics.
Ballance summarized Napa Valley in four phrases:
• Highly awarded wines
• Luxury and sophistication
• Center of food and wine culture in the United States
• Endowed by nature
She noted that Napa Valley produces only 4% of California’s wine but generates 25% of California wine revenue. And consumers are primarily aware of three appellations: California (82%), Napa (77%) and Sonoma (53%), with even the famed Stags Leap District only known to 10%.
She warned, however, that Napa Valley had a challenge to make consumers feel the exclusivity without seeming unapproachable. She also felt that wineries adding experiences like yoga and bicycling might make people regard it more as a Disneyland.
Another speaker warned Napa that it could price itself out of the market.
Peter Granoff, the co-owner of Ferry Plaza Wine Merchant and Oxbow Wine & Cheese Merchant, related that his locations basically stopped selling Bordeaux wines 15 years ago because they pushed prices so high.
“We don’t sell with scores and third-party endorsements; collectors buy these expensive wines based on prices and scores. There’s no way for a wine merchant to add value.”
He added, “Consumers buying on scores have no loyalty,” quoting another wine merchant who said, “If it scores more than 90 I can’t buy it, and if it scores less than 90, I can’t sell it.”
Granoff warned, “You’re at risk of saturating the market for Napa Valley Cabernet Sauvignon. Customers drop off dramatically when prices go above $50. Our customers buy the wines to drink, not collect.”
He warned that the competition for wines that cost more than $100 is “furious.”
The relative quality above that price is not that big of a difference, he said, and one reason people pay more is for the experience. He added that people bombarded by claims crave something that feels solid. The more specific your site, the better. “Your strongest story is that your kids and dogs run through the vineyard where you live.”
He added that fantastic wines are being made all over the world, and even Bordeaux has accepted that it needs to connect better with consumers and had increased tourism emphasis in the city of Bordeaux. “Don’t count them out.”
Balancing the budget
Finally, John Conover, managing partner at PlumpJack, Cade and Odette Estate, talked about investing in Napa Valley and illustrated why newer land buyers need to charge so much for their wines.
His group has invested more than $200 million in buying 200 acres partly to assure grape supply, including those properties and its newest acquisition, 100 acres of Ladera Vineyards on Howell Mountain. They paid $400,000 per acre for the latter. “We put 40% down and financed the rest with Silicon Valley Bank,” Conover explained.
He said that Joe Harbison, who has a small vineyard and home next to Screaming Eagle, told him he paid $1 million per acre.
The PlumpJack companies also buy about 200 acres’ worth of grapes from growers.
In addition to these acquisition costs including debt, he jokes, “We make wine in the least cost-effective way,” with low yields and expensive processes and materials.
Conover quoted that PlumpJack paid $5,000 per ton for grapes from vines that yielded 5 tons per acre in 1995, but it now pays $13,000 for grapes from vines that yield 2.5 tons per acre.
The group’s mainstay, Napa Valley Cabernet, sells for a relatively modest $56 per bottle, with 30% direct and 70% through the three-tier system. “We get half the revenue if we sell through distributors, $28 per bottle. But by a popular ratio, that means we should pay $2,800 per ton for grapes, obviously far less than we do. Even if we sold all of the wine direct, we should charge $65 per bottle.”
Yet they make a 15% profit. His partner, and the group’s primary source of capital, is Gordon Getty, who says the PlumpJack Group is the most profitable company he owns. Conover added that you can also make a good profit on Sauvignon Blanc with 7 to 9 tons per acre.
As attendees digested the talk, Peter Granoff best summarized the seminar—and Napa Valley’s situation: “Napa has a huge strength. Don’t squander it.”
