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Wine

How is the squeeze of Consolidation forcing adaptive innovation in Suisun Valley?

In any business course worth its salt, you eventually get to the chapter on The Economic Environment: Factors and Trends. This is where the concepts of perfect competition, monopolistic competition, oligopoly, and monopoly are discussed at great length.

Few industries operate as an oligopoly. The wine industry has moved into that category, and it’s happened at a rapid rate. Not confined to the US market, it’s a global race to see who can swiftly acquire as many wine companies as possible.

An oligopoly occurs when there are a small number of firms (usually large in size) dominating an industry. The race to acquire wineries has become global. Everyone in the wine industry is keeping a vigilant eye to see where it’s all going.

When oligopolies rule, firms have a lot of freedom to set prices. They keep a very close eye on their competitors, setting prices in a very similar fashion. And, innovation is much less important than their bottom line. Sometimes we watch those companies file Chapter 11; e.g., United Airlines, Delta, etc. It’s now happening the wine business, too.

What is this wine industry consolidation doing to the little guys?

1) Oligopolies are acquiring vineyards; therefore, growers who once had long-standing buyer contracts no longer do.

2) Their fruit is purchased only to be put into bulk wine. With growing plans for quality throughout the season, this makes all of that fastidious work of little consequence. This forces the quantity over the quality concept that some of these growers find unconscionable, and not the way of their future.

3) They can’t possibly survive this economic turmoil without completely changing all that they know and practice.

4) They either begin to innovate, or they get out of the business and reinvest in a safer haven.

5) What was once a quality of life choice becomes a sinking ship, as their feet are held to the fire.

This is something that’s happened over-and-over in many industries. It’s just democratic fruition.

What’s happening in Suisun Valley is a modern-day, evolutionary case study in innovation. It will eventually set those who dared to become the leading pioneers into eventual, broadly recognized prominence, in much the same way that Joe Rochioli Jr. dared to plant Pinot Noir in Russian River Valley in 1968, and is now recognized as one of Russian River Valley’s preeminent Pinot leader. That move began with more than a hope and a prayer. It began with daring originality and a gut feeling that there was only one way to go. It was a “kill it or cure it” situation.

The following are basic endeavors that growers are taking that define innovation:

– Focusing on growing niche fruit to complement a specific varietal

– Focusing on growing artisan varietals in small quantities

– Growing outstanding quality fruit to serve super premium to luxury wine categories, in order to provide the best quality to value ratio

– Dropping fruit, cutting leaves, hand-holding each vine in his possession

– Finding buyers from outside of California; e.g., Ohio, upstate New York, etc.

– Identifying “home winemakers”

Growers in Suisun Valley are breaking away from historical sustainable demands, due to diminished pricing at this new commodity level. That’s creating non sustainable operations, and thus reconfiguring small on quality, in order to customized their ultra premium ‘spice rack’ demand.

As Suisun Valley growers wonder if this entrepreneurial spirit and far-to-the-left strategy will work, they may be losing precious moments in their ability for future success. A few early adopters, like the Frisbie family of Ledgewood Creek Winery, Roger King, Ron Lanza of Wooden Valley Winery, and Stephen Tenbrink are proving to be fearless leaders. Some growers have already begun to pull up familiar vines, and are planting in this new approach. Others have pulled out vines and have left town.

Suisun Valley has an opportunity to become the industry’s spice rack, and some recognize that. Others are also beginning to think that way, and following a gut feeling that tells them to innovate or risk losing the race to survive.

The Suisun Valley AVA will eventually be recognized as a great North Coast quality-to-value-ratio appellation in which to do business, and all the early strategy and growing pains will be written in a history book as just that… history. For now, it’s in the making.

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