By the numbers, 2020 was not a particularly good year for Washington State wines. Shipments tumbled to 12.1 million cases from 12.6 million cases in 2019—and far from 2016’s peak of 13.4 million. The top ten brands collectively declined by 7.1% in 2020, according to Impact Databank. But the top-line numbers don’t tell the full story. While Washington wine consumption was down last year, the bulk of the decline came from Ste. Michelle Wine Estates, which dominates the market. The Woodinville, Washington-based company owns four of the top five brands, and six of the top ten. Five of those six declined in 2020—four at double-digit rates.
The company embarked on a “strategic reset” a few years ago. The strategy, as outlined by former president and CEO Jim Mortensen to Market Watch sister publication Shanken News Daily in early 2020, came in conjunction with a $292 million wine inventory write-off and $100 million for losses on future non-cancellable grape purchases. The reset involved a “more disciplined” pricing strategy and approach to marketing expenditures, as well as culling some smaller labels. Further shaking up the company, Mortensen retired on November 1, 2020, and industry veteran David Dearie, who had previous stints at Treasury Wine Estates and Brown-Forman Corp., took the helm.
The company was in transition when the pandemic hit. “Once we were thrown into the pandemic, we obviously had to shift again,” says Ste. Michelle Wine Estates vice president of strategy, analytics, and insights Jen Bell, noting the unique task of navigating a long-term strategy shift with a short-term market upheaval thrown into the mix. “We definitely found ourselves in a challenging situation.”
Ste. Michelle Wine Estates’ direct-to-consumer (DTC) and restaurant sales took a big hit last year. “Not having customers walking into our shops, not being able to do concerts and tastings definitely impacted the sales in the DTC channel,” Bell says. “Same thing in on-premise with restaurants being down—and we do over-index in on-premise versus the rest of the industry.” She adds that the company saw “exceptional growth” in grocery retail but “it just wasn’t enough to make up that loss in on-premise.”
The market has also seen a new major player enter the Washington wine scene. Officially launched in June 2020, Aquilini Brands USA has been aggressive in off-premise expansion with the on-premise to follow for select brands as restaurants begin to reopen. CEO Robert Chin says he is bullish for 2021. “We believe we’re already among the top 20 wineries from Washington State, and expect to be among the top ten in the next year,” he says. “Our longer-term goal is to be a respected player in the industry, and among the top five Washington suppliers.”
Still, Ste. Michelle Wine Estates accounts for well over half of all Washington wines sold in the United States, so rumblings from within the company are felt throughout the industry. “Ste. Michelle did have a difficult time, but they’ve got good leadership, they’ve got great wines, and they’re finding their way again,” says Andrew Browne, CEO of Precept Wine. “Because of their size, if they’re having a good year the perception is Washington is having a good year and if they’re having a bad year, then Washington is having a bad year or a bad period. That’s really unfortunate, because overall most wineries have been very resilient over the Covid-19 time period.” Precept Wine also has a big volume presence with Washington wines, occupying three spots within the top ten. Those brands, as well as some of Precept’s smaller-volume Washington labels, posted strong gains in 2020.
Charles Bieler, proprietor of Bieler Wines, agrees that the challenges encountered by Ste. Michelle have skewed perceptions of the Washington wine sector performance. “It’s certainly true that many small, DTC wineries that had developed that aspect of their business have done well, and the $10-and-above category has also done pretty well,” he says. “The opportunity with some of the bigger lower-priced brands in Washington in a temporary slump is that there are great opportunities to work with amazing fruit that we might not otherwise get.”
On-Premise Impact
For Bieler Wines, the pandemic and resulting closures of restaurants and bars hit hard. “Charles & Charles certainly did have a nice lift at retail, but we’ve also spent a lot of time over the years focusing on the on-premise,” Bieler says. “More than 30% of our sales were on-premise historically, so that was a big hit, and the retail gains didn’t quite match the on-premise losses.”
For some, growth in retail and DTC sales made up for the hit taken in the on-premise. “As a company, we did extremely well in off-premise, specifically in grocery and club in 2020,” says Anna Mosier, president of House of Smith, the newly named home for wines from Charles Smith, who partners with Bieler on the Charles & Charles brand. “We also saw tremendous growth in e-commerce. These two channels combined more than offset losses in our on-premise and tasting room businesses.”
Others, like the iconic Quilceda Creek brand, continued to see demand exceed supply despite the disruption in the on-premise. “We have quite a loyal following from our private membership, so year in and year out there’s always more demand than supply,” says general manager Scott Lloyd. “Last year we were lucky because our private members were drinking a lot of wine.”
That loyalty led to a record-breaking year, according to Lloyd, as consumers turned to retail for their favorite brands. “With restaurants being shuttered or closing, we saw a lot of requests for wine in the retail arena, where we really weren’t present before,” Lloyd notes. “We simply shifted wine that was in restaurants into retail. We were pretty fortunate in how we were able to navigate. People went with brands they trust, and our customers have been with us for a very long time.”
That consumer sentiment, however, can be detrimental for brands that aren’t as well known. Precept’s Browne says the combination of on-premise closures and consumer retrenchment into more well-known brands hit some Washington players hard. “If you look at the places where Washington wines tend to sell—Washington, Oregon, California—those are the places that were more aggressive with closures, while in other places like Florida, Texas, and Arizona, restaurants were allowed to function,” he notes.
Browne adds that there was a resurrection of some mainly California wine brands that are “a little long in the tooth” because consumers flocked to familiar brands available in supermarkets and big box stores. “That ends up being really challenging for Washington and Oregon, where most of the wine producers are pretty small,” he says, noting that such producers are usually working with independent wine shops and restaurants.
Shifting Demand
Doug Charles, co-owner and co-founder of Compass Wines in Anacortes, Washington, experienced that sudden trend firsthand shortly after the pandemic hit, despite the fact that his store has a strong Washington wine focus. “Once Covid-19 hit we saw a dramatic shift in what we were selling,” he says. “Our customers just decided they didn’t care where the wine was coming from; they were in panic mode to stockpile really inexpensive wines, kind of like toilet paper hoarding. People were hoarding $150 cases of wine and they didn’t care where they came from. That went on for three months, then it started to moderate and eventually our old customers came back.”
A more permanent shift, Charles says, seems to be the popular price bands for Washington wines. “The sub-$15 wines have continued to grow dramatically and the super upper-tier category has continued to grow,” he says. “But that $30-$50 tier has dropped everywhere, and so many Washington wines fall into that price category.” Charles says his customer base is split into two unique groups, one purchasing based on price and the other seeking experiences. “When it comes to Washington wine, consumers who wanted experience-based products are now looking for the more dynamic and exciting and more adventuresome producers, focusing on different varietals, different appellations, different wine making technique—and they’re willing to pay for it,” he says. “The other group—those who were into $30-$50 Washington Cabernet Sauvignon and nothing else—are trending down in terms of what they’re spending per bottle.”
Jeff Cox, the wine, beer, and spirits merchandiser at PCC Community Markets, a chain of 15 stores in the Seattle area, says the $12-$15 band is resonating with consumers, although he notes that $20-$30 wines are also doing well. PCC has notable success with some of the smaller-volume producers in the $12-$15 band, including CMS Red from Hedges Family Estate, the Board Track Racer line from Mark Ryan Winery, and Airfield Estates Winery.
Varietal Dominance
The Washington wine sector is also seeing subtle shifts in varietal dominance. In red wines, Washington was first known for Merlot, but more recently red blends and Cabernet Sauvignon have taken the spotlight. Washington Riesling was once center stage but its position has done an about-face as American consumers shift away from that varietal. Now, more producers are making Sauvignon Blanc, Pinot Grigio, and Chardonnay.
But Riesling is still getting attention from the state’s largest producer. “We’ve seen declining trends for the last three, four, or five years for Riesling, but I think that the varietal really does meet a consumer need that we’re seeing right now and our job as the No.-1 Riesling producer is to deliver a style, package, and product that gets the consumer excited about Riesling again,” says Bell of Ste. Michelle Wine Estates. She notes that the company is also investing in Sauvignon Blanc, most recently with the launch of Liquid Light ($15 a 750-ml.). “It hits on the health and wellness trend with 105 calories per glass and less than one gram of sugar,” Bell says.
Among red wines, Cabernet Sauvignon is currently dominant. “My first pick for Washington would be Cabernet,” says Precept’s Browne. “We still make incredible blends with Shiraz and Merlot, and Cabernet Franc is wonderful. But Cabernet has really stood out for me as something we can really talk about.”
At the luxury tier, Quilceda Creek focuses on Cabernet Sauvignon as the only single-varietal wines it produces. Both the 2018 Columbia Valley Cabernet Sauvignon and the 2017 Galitzine Vineyard Cabernet Sauvignon retail for $200 a 750-ml. While the winery also produces two red blends, Cabernet Sauvignon will remain its only varietal for the foreseeable future, according to Lloyd. “We’re looking at some evolution of our label, looking at Cabernet clonal selections and potentially vineyard designates,” he says.
At House of Smith, Cabernet Sauvignon is front and center, but the company is also exploring the potential for other varietals, including Pinot Noir. “Our largest brand, Substance, is anchored in the $15-$20 Cabernet Sauvignon category and is seeing tremendous growth,” says Mosier. “We focus on appellated wines and the premium price segment and above, both of which are growing.”
In the last two years, House of Smith has launched Substance Chardonnay ($17 a 750-ml.) as a partner to Substance Cabernet Sauvignon, as well as Popup ($17), a single-vineyard sparkling Chardonnay, and Golden West Pinot Noir ($20). Owner Charles Smith is particularly eager to showcase the state’s Pinot Noir. “We’re extremely excited and focused on Golden West Pinot Noir and one of the newest AVAs in Washington, Royal Slope,” he says. “There’s been this false belief that you can’t grow great pinot noir in Washington. Golden West Pinot Noir began with the idea that where great Chardonnay grows, so does Pinot Noir.”
Aaron Wood-Snyderman, wine director for Metropolitan Grill in Seattle, has seen the evolution in varietal demand. His restaurant carries more than 3,000 wine labels, and wines from Washington comprise more than 50% of wine sales. “While Bordeaux varietals and blends were the first red wines out of Washington to gain national and international awareness, it is really the Rhône varietals that are making waves right now,” he says. “Syrah and Grenache grow exceptionally well across the whole state, and both—but particularly Syrah—have found a unique and extraordinary growing home in Walla Walla.”
Less common varietals are also performing well at Metropolitan Grill. “I am seeing a huge growth in wineries producing exceptional versions of lesser-known varietals like Grüner Veltliner, Gamay, Tannat, Cinsault, etc.,” Wood-Snyderman says. “One of the things I have always been impressed with by the growers in Washington is a true sense of stewardship of the land. This has put Washington in a great position to ride the wave of ethically grown grapes that are turned in to minimal intervention wines, which is something the market has taken a great interest in.”
Stylistic Shifts
Winemaking styles are also in evolution. “We’re seeing more experimentation in terms of how people are handling alcohol, how they’re handling oak, and in terms of monitoring alcohol levels and ripeness,” says Charles of Compass Wines. “Many wineries are advertising that they’re using less new oak, they’re not picking as ripe, they’re picking earlier, they’re cropping at an earlier level to bring concentrations down, because for a while there was a trend to make the biggest, boldest, most California-style wine you can make in Washington. We’re seeing a trend away from that, toward more elegant, European-style moderate alcohol levels, moderate extract, less oak—plus natural winemaking, organic, biodynamic, and interest in spontaneous fermentation as opposed to aggressive fermentation.”
Some are also capitalizing on new appellations, or American Viticultural Areas (AVAs). The most recent designation was at Candy Mountain last September, the 16th AVA in Washington. Royal Slope preceded Candy Mountain by a few weeks. “We’re thrilled about Royal Slope being designated an AVA in 2020 because we’ve invested in the area for years,” says Smith, noting that several House of Smith labels hail from the area.
But not everyone is enthused about the move toward more appellations. “The push for new appellations to me is counterproductive,” says Charles of Compass Wines. “I see that it’s productive from a marketing standpoint, but I think we need to be very careful about defining ourselves by new appellations that really aren’t very different other than in name only. Customers looks specifically for the big three: They look for Walla, Walla, they look for Red Mountain, they look for Columbia Valley.”
Cox of PCC Community Markets agrees. “Outside of Red Mountain and Walla Walla and to a growing degree the Columbia Gorge, I see people greeting AVAs with a shoulder shrug, by and large,” he says, also noting the ongoing prominence of Columbia Valley wines.
Praise For 2020 Vintage
Throughout the state, marketers are reporting a small but high-quality 2020 vintage. Paul Golitzin, president and director of winemaking for Quilceda Creek, calls 2020 a “heck of a vintage.” He recalls that the massive wildfires in California and into Oregon last fall created a stressful situation due to the potential of fire or smoke impacting grape quality. “We watched it hourly—just constantly we were looking at the smoke levels,” he says. In the end, though, the smoke had no negative impact.
Bieler agrees. “There were scary moments as the fires threatened and the smoke from the Oregon fires blew north but in the end 2020 was a fantastic vintage for us,” he says. “We were concerned that the smoke blowing up from the Oregon fires might impact the fruit but, at least for us, it didn’t at all. We did lose about ten days of ripening from the dense smoke period, but the weather that followed was perfect and we were able to pick when the grapes were right where we wanted them to be.”
The good reports bode well for Washington wine’s future. “In terms of Washington we are supremely confident that the best is yet to come,” says Cox. “We’re sort of on the cusp of a generational change right now, and there are some absolutely brilliant people out there doing things that really highlight individual terroirs and climates. While that first generation got Washington a foothold, what we’re going to see over the next decade and a half is going to be really amazing and thoroughly delicious.”