Wines From Down Under Turn Up More on Restaurants’ Lists

When restaurant owner Victor Ciulla revamped his wine list last month, it wasn’t to include the latest California cult Cabernets.

In fact, a number of California wines slipped off the list as vintages from Australia, New Zealand and Italy were added. The reason? Simple economics: The imports were a better value.

“California wines used to be great and affordable,” says Ciulla, managing partner of Twin Palms, a trendy tent-topped bistro in Pasadena. But increasingly, he finds them overpriced.

“It’s like they’re trying to compete with expensive French wines,” Ciulla says.

For California’s $13.4-billion wine industry, the sentiment expressed by Ciulla -- and echoed by other restaurateurs -- represents a troubling new reality: At the lower end of the market, California vintners are being undercut by cheap rivals from overseas, especially Down Under. And at the higher end, they are now bumping up against some of the most legendary names in wine.

“Why should I pay Bryant [Family Vineyard of Napa] $150 for their wine ... as opposed to a Lafite Rothschild, which has a century behind it and is the same price?” asks Frank Delzio, who owns Josie in Santa Monica with his wife, Josie Le Balch.

In all, the restaurant business accounts for about 20% to 30% of California wine sales, according to analysts. Exact figures on how much this segment of the wine market may have fallen off aren’t available. But anecdotally, at least, a pattern seems to be emerging: More restaurants are nudging off wines from Napa, Sonoma and elsewhere in the Golden State in favor of imports of similar quality.

Among those turning up their noses at California wines are national chains such as Morton’s of Chicago. Many people in the restaurant industry are “switching to lower-priced imports that deliver equal quality to California wines at sometimes significant discounts,” says Ronn Wiegand, publisher of the Napa-based Restaurant Wine guide.

For California vintners, the most immediate threat on the low end is coming from the Australians, who make much of the same varietal wines but at lower cost, thanks in part to cheaper land. The volume of Australian wine imported to the U.S. last year surged 51% to 29.4 million gallons, according to consulting firm Gomberg, Fredrikson & Associates. That knocked France out of the top import spot for the first time.

“I marvel that we have been able to keep our share of the market as strong as it has been,” says John De Luca, president of the San Francisco-based Wine Institute, which represents California vintners.

To compete in the years ahead, De Luca contends, wine makers in the state will have to continue to make strides in their quality and turn to more environmentally friendly growing methods, which they can then use as a selling point.

But restaurant owners, sommeliers and others argue that the solution is much simpler: After a decade of inflation, California wineries are going to have to dial back their prices if they want to boost sales.

They are “having a bit of a comeuppance,” Wiegand says. “Prices are too high and they have been too high for three or four years. I think by the end of the year, you’ll see an avalanche of discounts.”

Indeed, Rick Boyer of Jekel Vineyards in Monterey County acknowledges that the escalating prices of California wine have “opened the door for a lot of foreign competition,” which in turn has hurt his sales to restaurants. The industry is facing a slew of new rivals, “and they are lower-cost producers than ourselves,” he says. “That is where our big issue is.”

Still, Jekel and other vintners would prefer to focus on improving quality -- rather than tussling over price -- for fear of cheapening their image.

“Let everyone else go down” in price, says Michael Mondavi, chairman of Oakville-based Robert Mondavi Corp. Even with his winery’s restaurant sales down about 5% this year over last, “we’re not dumping our price. We don’t think it’s good for the health of the brand long-term.”

Instead, Mondavi has started advertising and has hit the road, visiting restaurant customers in as many as four cities a week to persuade them to stock his wines and tout them to diners.

He may be too late at some restaurants, however. At Twin Palms, for example, Ciulla has dropped Mondavi’s Coastal selection.

In some cases, eateries are replacing their California wines not because the foreign competition is necessarily cheaper, but because the restaurants are having a tough time marking up the price to patrons.

The reason: Customers have become familiar with many California brands and are thus sensitive to the premiums that restaurants tack on. By comparison, some restaurant owners say, many overseas wines remain relatively unknown, and it’s easier to get away with a higher markup on them.

Certainly, Mondavi, Kendall-Jackson and other U.S. brands still constitute the bulk of the wine list at many restaurants. And some California vintners insist that though imports may have cut into their sales, the addition of brands from overseas also has helped broaden the market for some types of wines, such as Sauvignon Blanc.

Yet on the whole, executives and analysts say, the growth of imports at restaurants has come at the expense of California wineries, which can ill afford to lose more business at a time when many are struggling with a slow economy and a glut of grapes.

At Morton’s, imports now make up 25% of the wine list, up from 20% just a couple of years ago, according to Tylor Field, beverage director at the 65-restaurant chain. “Our biggest growth category over the last two years has been Australian red wines,” Field notes.

In many cases, “you are getting the same quality wine for about half the price,” he says, adding that some of the Australian brands have “tremendous amounts of flavor.”

Field says he anticipates his wine list becoming even more diverse as other regions throughout the world add to the competition for California vintners. Now, he says, “we’re starting to see some really good wine coming out of South Africa.”