During the last ice-age, a dam on the Canadian border shattered, sending an almost unimaginably huge volume of water tumbling southwards through Washington State and out into the Pacific.
The Missoula Floods redrew the geography of the region. And now, 15,000 years later – taking advantage of the poor, free-draining soils, reliable sunshine and cheap land – there has been a second tidal wave. Of people hoping to redefine Washington’s wine industry.
Growth over the last 30 years has been extraordinary: from 100 wineries to over 1000, from 4,500 hectares of vines to over 20,000 ha today. In terms of area under vine, it’s not far behind Burgundy.
Until recently, this was the sign of an industry in the rudest of health and Walla Walla, the town at the heart of the vineyards was booming.
But there has been a feeling for a while that things have grown too far too fast, with an imbalance between supply and demand.
One insider’s lukewarm defence that “everything sells… eventually” is a sign that growers, at least, are finding things harder now than five years ago.
No grapes please
This was thrown into sharper relief by the recent decision by Ste Michelle Wine Estates (SMWE) – by far Washington State’s largest producer – to reduce its grape supply by 40% over the next five years. The company was quoted in the North-West Wine Report website as saying it felt the measures were "necessary for the ongoing health of our business as well as the health of the overall Washington wine industry."
Sources put the drop in production at a not inconsiderable 2m cases. SMWE has been buying grapes from vineyards covering roughly 12,000ha (30,000 acres) of the state's total of 24,000ha (60,000 acres). There are no obvious alternative buyers.
Time, in other words, to pause for breath and take a long hard look at what is being made, where and how it is being sold and how much money is coming in as a result.
It is no coincidence that the Ste Michelle Wine Estates’ decision comes two years after the company was acquired for $1.2 billion by private equity firm Sycamore Partners. One year earlier, it had posted a $360m loss.
Sycamore Partners have been quick to shed parts of the business they see as non-core, such as selling off SMWE’s stake in Stag’s Leap Wine Cellar in Napa to the Antinori family, in order to focus on their Pacific North-West heartland.
Regionally committed they might be, but there’s no column for sentimentality in their business plan. They’ve already ceased to make wine at their famous Woodinville winery long associated with the brand (while continuing to host concerts and welcome visitors to the tasting room) and, as production is cut back, a lot of growers will be casting around for buyers of their fruit over the next few years.
So is this the end of an unrealistic dream? The bursting of a bubble? Have we, in short, already hit peak Washington State? The answer, many producers hope, is no.
One giant flagship. Many little boats
Washington State’s wine industry has an unusual structure, with one large producer — SMWE is responsible for about half the region’s wine —and a huge number of small wineries with a completely different business model. SMWE. As The Wine Economist, Mike Veseth, pointed out in a Wine Searcher piece by Blake Gray, "Chateau Ste Michelle... prospered making wines that competed very well in the $9 to $11 range." Today, that segment of the market is out of fashion.
On the other hand, roughly 90% of Washington State’s wineries produce less than 5,000 cases a year, much of it retailing at $25 and above. And these super-premium businesses are performing well.
Tellingly, as well as attracting ex-somms, Californians fleeing climate change and professionals with a wine itch to scratch, the state has also seen the arrival of some of the wine world’s biggest names.
Jackson Family, Cakebread, Gallo and Duckhorn have all bought land in the region. Antinori’s Col Solare partnership with Chateau Ste Michelle is one of the stand-out wineries in Red Mountain and Eroica, the collaboration with Ernst Loosen is widely considered to the best Riesling in the US. Riojan heavyweights Valdemar have recently completed an eye-wateringly expensive winery in Walla Walla.
Ste Michelle, in other words, might be rethinking their business model, but it doesn’t mean Washington is a busted flush. There’s no shortage of locals willing to equate 2020 Walla Walla to 1980s Napa; a sleepy agricultural town that’s about to become a global brand.
Time for some brand-building
As Marty Clubb of L’Ecole No 41, one of the region’s most highly-rated and oldest-established wineries with an annual production of 45,000 cases, puts it, "Word is getting out, and I think investment will follow."
Investment is one thing, but commercial growth is another. And arguably Washington State’s biggest challenge is how to build its brand globally. The plethora of small producers and a strong domestic market have kept exports low.
Even in its current period of retrenchment, Ste Michelle is expecting to sell half a million cases to over 100 countries this year. But it’s atypical in having a reasonably sizable presence abroad. Currently, only about 5% of the state’s wine makes it out of the country.
Popular markets, for those who do export, are the Nordics, Japan and South Korea.
"It’s easiest in unestablished markets that don’t have a bias of preferring California and just want the best wine for the money," says Tom Dugan, CEO at DeLille Cellars.
Interestingly, DeLille, at 40,000 cases one of the larger producers, is not in the UK, historically a key target export market.
"It’s like New York," says Dugan. "A market you want to be seen in without expecting to do big volumes. We don’t have to export so we can take our time to find the right partners."
Exports are a low priority
In other words, with a large domestic market, exports are a ‘nice to have’ rather than an essential. It’s a refrain that’s heard a lot in the state. This is not 1980s Australia or 1990s Chile.
The question is whether this could be about to change.
SMWE’s decision to drop volumes will leave a lot of farmers scratching around for buyers, and there is now much talk of lower prices per tonne and the likely need to uproot 10,000 acres (4,000ha) of vines.
These moves could provide a cut-price volume boost for mid-size and smaller wineries and increase their enthusiasm for export.
If so, it would be music to the ears of the Washington State Wine Commission. The generic body has made increasing sales abroad a priority.
Overall, the quality of the region’s wines is certainly good enough to merit further worldwide listings. But two key elements are holding it back.
Lack of a signature wine or variety
Oregon has Pinot Noir, California (Napa) has Cabernet Sauvignon, New Zealand has Sauvignon Blanc, Argentina has Malbec. Washington, however, has no such elevator pitch. Cabernet might be the most planted variety, with about half of red volumes and a quarter of the total crush, but there is little consensus even within the region as to which the three best grapes are.
Looking for a USP
‘Washington grows a lot of different varietals and does them all pretty well,’ says Brad Potter, Global Sales Manager at Airfield Estates, which made its first vintage in 2005 and now produces 40,000 cases. ‘That is great for the consumer when they discover all that Washington has to offer, but the lack of an iconic wine style, a Unique Selling Proposition, makes it harder to sell the region to new customers.’
There are signs that certain areas are becoming more strongly associated with certain varieties. The Rocks District for Syrah, Red Mountain for Cabernet, the Ancient Lakes for Riesling and Chardonnay and the western edges of the Columbia Gorge for cooler Chardonnay and Pinot. But as Potter points out, these are messages for the already convinced; they aren’t going to kick open doors to new markets.
Difficult price strategies
The second problem when it comes to exports is price. Washington producers often say that they make wines that are as good as California, but better value. There is some truth in this but, seen in a global rather than West Coast US context, the prices can still be challenging.
Generally speaking, setting aside SMWE's budget-price history, Washington State is not a place to come looking for wines for the bottom shelf or the first page of the wine list. As DeLille Cellars’ Tom Dugan neatly puts it, “There is great quality-to-price here, but it starts at a higher price.”
Priced for the US market
Wealthy US consumers might not hesitate too much before spending $30 on a bottle, but Europeans are generally more circumspect, particularly for regions or producers they don’t know much about.
Matteo Furlan, head sommelier at the upmarket Dorchester Hotel in London agrees. For him, the only way to sell his customers into Washington State would be to switch across guests who are already looking for something expensive, such as a top-end US wine, and pitch Washington’s versions as a better value alternative.
With small producers and high prices—at least in absolute terms, rather than by comparison to Napa—the state’s wines are inevitably talking to a narrow band of informed/affluent consumers right from the start.
Some of the pricing can be over-optimistic—a region that’s slightly in love with its own hype. But for every disappointing $20 ‘entry level’ wine or charm-free $100 ‘family reserve’ there are bottles around the $30-40 mark that match or outperform starry California wine estates’ wines at twice the price.
“What we have in Washington State right now is equal to the fundamentals—soils and structure—anywhere in the world,” says Chris Upchurch, who was founding winemaker at DeLille and now has his own estate.
“It doesn’t mean we are making better wine than Bordeaux – that would be ridiculous. But it’s a special region and we believe in it.”
Upchurch is making top-class Cabernets on Red Mountain at the kind of prices that Napa left behind 20 years ago. They are not cheap per se, but they are still good value, and there are dozens of other producers like him.
Eagle-eyed somms, collectors and premium retailers the world over can all see a market for wines like this, and with the region needing to reduce its reliance on the domestic market, we can expect to see more of the wines in Washington’s $30-80 sweet spot heading out of the US in the coming years.
But at these prices it will be a trickle not a flood.
- National rank as wine producer in the United States: 2nd
- Wine grape acreage: 24,300+ha (60,000+acres)
- Annual wine production: 17+ million 9l cases
- Record harvest, 2016: 272,000 tons
- Most recent harvest, 2022: 240,000 tons
- Number of licensed wineries: 1,050+
- Number of wine grape growers: 400
- Number of AVAs: 20
- Percent of wineries making less than 5,000 cases per year: 90%
- Varieties produced: 80+