Dead cat bounce for wineries?
Just when we thought the U.S. had rounded the corner of the recession, there are renewed fears of the notorious “double dip” (or, more colorfully, the “dead cat bounce”) of the economy’s performance. The Dow Jones stock index has fallen more than 1,000 points since April, triggering a new mood of gloom. Financial problems in Europe seem to be the proximate cause of the problem. Not being an economist, I’m not in a position to analyze what’s going on; not even the economists agree on the causes. But “recovery,” whatever that is, does seem agonizingly slow. Not only is the stock market in trouble, unemployment remains stubbornly high. Banks still aren’t lending; people still aren’t spending. It all adds up to what Thomas Friedman, in the New York Times this past weekend, calls “the new pessimism” in America.
Friedman casts his gaze over the economic landscape and perceives some pretty dire things. Consumer prices continue to fall, leading to the prospects of deflation. I used to think deflation was a pretty cool thing, as it would make the things I want more affordable. But no; Friedman calls deflation “really bad news” because it “tends to perpetuate an economic slump, because it encourages people to hoard cash rather than spend, which keeps the economy depressed, which leads to more deflation.”
This isn’t particularly good news for the wine industry. I sometimes look back over the last twenty years here in California in total wonderment. How have these thousands of wineries all have managed to survive? Somebody should write a book about it. The top-of-the-head answer is that the 1990s was a time of such economic boom that almost any winery owner, no matter how lame, could make money simply by riding the expanding economic bubble.
But just behind the shiny surface of that bubble, there always lurked a troubling spectre: debt. Winery owners are no different from the rest of us. They have debt; the only way they can pay their bills is to sell product at a profit. So what happens when “people…hoard cash rather than spend”?
Krugman himself doesn’t have an answer. He suggests he’s in favor of Stimulus II, but acknowledges it “would have no chance of getting through a Congress that has been spooked by the deficit hawks.” Short of that, all he can come up with is “hope [which] is not a plan.”
I doubt if many California wineries have a plan, either, to ride out the next several years, which Friedman says could resemble Japan’s infamous “Lost Decade” of the 1990s. Many are hoping that the Internet and direct shipping will come to their rescue, but of course, it won’t. Others play the old game of reshuffling their sales and marketing teams, but that increasingly seems like re-arranging the deck chairs on the Titanic. Some strike off in the direction of new varieties they hope will excite consumers: Nebbiolo, Trebbiano, Pinotage. Others place their hopes on labels that jump off the shelf, or cute proprietary names. Winemakers travel more than they used to, schlepping from city to city to meet with clients, trying to persuade them to buy a case or two. If it’s Wednesday, we must be in Cleveland! P.R. agents court writers like Romeo crooning to Juliet on her balcony. Stores try to figure out how to position wines so they sell, what names to call the aisles, what to put in the window to lure shoppers in. The big wine companies are bringing in experts from other industries with a proven track record of sales. Everybody’s trying to game the market. It’s crazy.
It’s tempting to predict that, if anyone survives, it will be the big wine companies like Gallo, Bronco and Constellation, because in the past, they always have. That’s probably true, especially with private companies, which don’t have to satisfy shareholders and thus can steer a more controlled course. But we’ve seen big companies hit the ropes. (Hello, Foster’s! And does anyone remember Heublein?) Then I think of the thousands of small family wineries, from Temecula to Placerville, Salinas Valley to Mendocino, Lodi to Lompoc, and I really have to wonder if they’re going to make it through America’s Lost Decade. I hate to sound gloomy, but I am. There are also lots and lots of really nice wines from foreign countries that cost much less than even mediocre California wines that tend to be high-priced. Why would anybody pay more for less? There’s nothing deader than a dead cat bounce.