When restaurant owner Victor Ciulla revamped his wine list in January, it wasn’t to include the latest California cult Cabernets.
In fact, a number of California wines slipped off the list, as vintages from Australia, New Zealand and Italy were added. The reason? Simple economics: The imports were a better value.
“California wines used to be great and affordable,” says Ciulla, managing partner of Twin Palms, a trendy tent-topped bistro in Pasadena. But increasingly, he finds them overpriced.
“It’s like they’re trying to compete with expensive French wines,” Ciulla says.
For California’s $13.4 billion wine industry, the sentiment expressed by Ciulla — and echoed by other restaurateurs — represents a troubling new reality: At the lower end of the market, California vintners are being undercut by inexpensive rivals from overseas, especially Down Under.
And at the higher end, they are now bumping up against some of the most legendary names in wine.
“Why should I pay Bryant (Family Vineyard of Napa) $150 for their wine as opposed to a Lafite Rothschild, which has a century behind it and is the same price?” asks Frank Delzio, who owns Josie in Santa Monica with his wife, Josie Le Balch.
Says George Cossette, sommelier at Campanile in Los Angeles: California “can compete up to $100, then after that, the Old World starts pulling ahead.”
In all, the restaurant business accounts for about 20 percent to 30 percent of California wine sales, according to analysts. Exact figures on how much this segment of the wine market might have fallen off aren’t available.
But anecdotally, at least, a pattern seems to be emerging: More restaurants are nudging off wines from Napa, Sonoma and elsewhere in the Golden State in favor of imports of similar quality.
They include national chains including Morton’s of Chicago as well as a range of independent restaurants that are stocking more imports because they can enjoy higher mark-ups. “I see many people (in the restaurant industry) switching to lower-priced imports that deliver equal quality to California wines at sometimes significant discounts,” says Ronn Wiegand, publisher of Napa-based Restaurant Wine guide.
For California vintners, the most immediate threat on the low end is coming from the Australians, who make much of the same varietal wines but at lower cost, thanks to
less expensive land and a currency that trades at about 59 cents to the U.S. dollar. The volume of Australian wine imported to the United States last year surged 51 percent to 29.4 million gallons, according to consulting firm Gomberg, Fredrikson & Associates. That knocked France out of the top import spot for the first time.
“I marvel that we have been able to keep our share of the market as strong as it has been,” says John De Luca, president of the San Francisco-based Wine Institute, which represents the interests of California’s wine industry. To compete in the years ahead, De Luca says, wine makers in the state must continue to make strides in their quality and turn to more environmentally friendly growing methods, which they can then use as a selling point.
But restaurant owners, sommeliers and others argue that the solution is much simpler: After a decade of inflation, California wineries are going to have to dial back their prices if they want to boost sales.
They are “having a bit of a comeuppance,” Wiegand says. “Prices are too high and they have been too high for three or four years. I think by the end of the year, you’ll see an avalanche of discounts.”
Indeed, Rick Boyer of Jekel Vineyards in Monterey County acknowledges that the escalating prices of California wine have “opened the door for a lot of foreign competition,” which in turn has hurt his sales to restaurants. “You have all these entities that are new, and they are lower-cost producers than ourselves. That is where our big issue is.”
Yet Jekel and other vintners would prefer to focus on improving quality rather than lowering prices, for fear of cheapening their image.
“Let everyone else go down (in price),” says Michael Mondavi, chairman of Oakville-based Robert Mondavi Corp. Even with his winery’s restaurant sales down about 5 percent this year over last, “we’re not dumping our price. We don’t think it’s good for the health of the brand long term.”
Instead, Mondavi has started advertising and has hit the road, visiting restaurant and retail customers in as many as four cities a week to persuade them to stock his wines and help sell their customers on them. He might be too late at some restaurants. At Twin Palms, for example, Ciulla has dropped Mondavi’s Coastal selection and replaced it with a greater variety of Australian and Italian imports.
Certainly, Mondavi, Kendall-Jackson and other U.S. brands still constitute the bulk of the wine list at many restaurants. And some California vintners insist that although imports might have cut into their sales, the addition of brands from overseas also has helped broaden the market for some types of wines, such as Sauvignon Blanc.
Yet on the whole, the growth of imports at restaurants has come at the expense of California wineries, which can ill afford to lose more business at a time when many are struggling with the slow economy.
At Morton’s, imports now make up 25 percent of the wine list, up from 20 percent just a couple of years ago, says Tylor Field, beverage director at the 65-restaurant chain.
“Our biggest growth category over the last two years has been Australian red wines,” Field says.
In many cases, he says, “You are getting the same quality wine for about half the price,” and some of them have “tremendous amounts of flavors.”
In fact, Field says that he anticipates his wine list becoming even more diverse as more regions throughout the world make better wine.
“We’re starting to see some really good wine coming out of South Africa.”