The Best of Vintages, the Worst of Times

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By Hon. Lee R. Bogdanoff (Ret.)

Wine has been a side passion for many years. I try to focus on what's in the glass but am naturally drawn to the business side. Sadly, this is an industry facing significant disruption. Restructuring professionals undoubtedly are watching or already engaged.

First the good news. Reviews of the 2023 Napa wines are overwhelmingly favorable. 2022 is often described as a challenging vintage, though I have found the cabernets delicious. There is little controversy about the vintage that followed or preceded. 2023 appears destined to be celebrated as great, just like 2021.

Napa could use good news. Wine consumption overall continues to decline, and unfavorable demographic trends pose serious long-term challenges. The concern is that, for a variety of reasons, the product itself may be misaligned with the preferences, rhythms, and patience of younger consumers (though sales of lower priced sparkling wines are holding up). The problem is not just Gen Z. People traditionally transition to wine in their 30s and 40s, but that cohort is not large enough to offset the tapering off of Baby Boomers who are aging out of peak consumption. Yet during a visit to Napa a couple of years ago I noticed that we were on the younger side of the visitor demographic. I just turned 65. Wine tourism is down overall. I now receive calls and texts from winery representatives who previously would not give me the time of day. There is marketplace evidence of high end excess production being rebottled and discounted under labels that obscure the producer. Owners of top-tier boutique wineries such as Shafer and Schrader who sold before all of this unfolded look very smart.

A great Napa vintage may help at the margins, but that is about it. Bordeaux has enjoyed a string of excellent vintages but prices remain depressed, reflecting thin demand. A representative at one boutique winery we visited on our most recent Napa trip told me that sales are just fine, but their non-reserve cabernet retails for $70 to $80, well below what higher-end wineries charge even for their second wines. If that price point is the new sweet spot in Napa, high-end producers are in trouble. Consumers in turn may find bargains.

People think of Napa as the center of California's wine world but it represents less than a third of California wine sales by volume. The struggles in the state's other regions are reportedly severe. Wine grape vines are being removed as production goes unsold. There is concern about overleverage. It is reasonable to expect liquidations, cutbacks, bankruptcies, and consolidation ahead. This is a giant wine headache and a reminder that not every economic dislocation these days is attributable to AI. Folks in the restructuring industry may want to leave their cards when they visit.

There is an old joke that to make a small fortune in the wine business you need to start with a large one. That may be wishful thinking these days. Cheers.

Hon. Lee R. Bogdanoff (Ret.) joined JAMS after a distinguished career as a judicial officer in probate and, before that, as a nationally recognized practitioner in bankruptcy, reorganization and business/commercial disputes.