Over the past few weeks, the weather has turned cool and the leaves are all but gone from the deciduous trees and grape vines. While nature is in repose, signs advertising the services of realtors have multiplied in the Okanagan Valley. Choice vineyard properties are festooned with FOR SALE signs like rarely seen before.
If I stand on my deck here in Penticton facing northwest at the southern end of the Naramata Bench, I can see three or four parcels growing grapes and looking for new owners. As a winery and vineyard consultant I need to know why. After all, somebody reading this may be my next client.
Why now? The quick answer may be a knee jerk reaction. It would be easy to say it's because of the recession. While that reason is probably a big contributor on a macro scale, closer to home there are a number of other contributing factors.
Taking a look at fiscal cycles and lending institution practices, it doesn't take too long to determine that some of the owners are in a little tight. They need to divest themselves of properties that may not be as attractive as they were one, two or three years ago. Now that it's time to re-write the mortgage, it may be a better time to sell. But at what price?
Prices are down. Just around the corner is a property with fruit trees, a shade under 10 acres, three homes (not palaces by any stretch) and much work needed but potentially a great vineyard location. They're asking about $75,000 an acre. I doubt they'll get that much given the work needed to get the property in shape. Two years ago that property would have been closer to $90,000 an acre and would have been scooped up quickly. Now, it's been hanging out there for a few months.
This next point needs a little background.
The wine business is good but changing. Most of the 130 or so wineries grow varying percentages of the grapes they need. Some buy 90% of what they require. Others are self-sufficient, needing no other growers to supply them with grapes. Before you've been in the wine making business long, you realize the advantages of controlling the production of the grapes you'll need. More and more wineries over the years have started growing more of their crop
requirement. As an example, when I started with Township 7, the two locations managed to grow about 10% or less of the crop for a 3800 case winery. Next year we anticipate growing close to 30% ourselves and our production is in the 8500 case territory. On a large scale, Vincor's massive plantings in the Oliver - Osoyoos area are reaching maturity. If you used to grow grapes for the makers of Jackson Triggs and such, you may be looking at being cut loose soon.
More background.
Over the past four years we've seen unprecedented expansion in the planting of speculative vineyards. These are properties not tied to any particular winery by ownership or contract. The idea was to plant great grapes and then sell the fruit for the best price each harvest. This has worked for a couple years: prices have been high, tonnages have been lowish due to two hard winters in a row and the consumers have participated by buying up everything.
Here's the point: While land prices are down and wine quality is up, winery inventories are also up. I've heard rumour of some wineries thinking of making only the MINIMUM amount of wine necessary over the next harvest period. The consumer is looking for deals and is no longer co-operating like they did in the boom years. If you own a speculative vineyard, there's no guarantee you'll sell your crop or get the price per ton your banker expects you to earn. The 2010 harvest should be the largest ever recorded in the 'modern'* era.
Owners of vineyards know this and are doing what they can to ensure viability. For some it means sell. It means sell the land and get out. For others, it means locking in commitments from wineries. One of Township 7's best growers was around this week just to pose this question: Are we still on for next year? For my personal brand, Black Cloud, I've already locked in my supply of top end Pinot Noir. I can't afford not to. Which leads me to the next point.
If you're planning on owning a vineyard, be diligent about these items.
- Quality: your grapes must be the best that can be grown. Make sure the site/variety selection is as close to perfect as possible. High quality grapes are the only way to increase or sustain your value in the market place. You need to set the benchmark for your peers.
- Commitment: Lock in your customer's loyalty. Grape sales contracts are not worth much but a friendly, productive relationship with the winery buying your grapes is gold.
- Passion: Cripes, what an overworked term. But you do need to surround yourself with people who have the drive and enthusiasm for the job at hand. People who sit on their hands and are happy with the way things are have no place on your team. That goes for the winery you sell to or your banker or the kid who comes in to cut the grass once a week.
- Timing: I can't tell you when it's right for you. Yes, change is here in the marketplace. But I see more turmoil ahead as independent grape growers scramble to find a place for their 2010 crop. This may lead to lower vineyard properties but probably not. Land prices are sustained by other factors here in the Okanagan. What we may see is well-run wineries being in a position to acquire more real estate.
I have several clients and acquaintances actively looking for vineyard property. I'd be happy to assist you if you have questions about this post or the Okanagan wine/vine business in general. Drop me a line. Let's kick it around.
*The modern era dates from 1988-90 when most inferior grape varietals were uprooted in favour of traditional wine grapes in a government-sponsored re-plant program.
