Napa Valley foreclosures rise in ‘new normal’

Napa Valley.pngFurther evidence that the West is moving into a ‘new normal’ can be seen in the rising number of Napa Valley wineries facing foreclosures.

The concept, adopted by the blog for its recent 2010 Outlook White Paper, suggests that the ‘conspicuous consumption’ seen in the West during the 2003-7 Boom is being replaced by more budget-conscious consumers, and slower growth.

Napa Valley, long the most expensive of US wines, provides strong evidence in favour of the theory. According to Bloomberg, “2010 may be a vintage year for foreclosures in the Valley, as a result of falling land values and a consumer shift to cheaper brands“.

Land values have already fallen 15% since the 2007 peak. Whilst last year saw a 15% fall in the sales of $30/bottle wine, and a 10% fall for $15/bottle product. Even some former high-rollers are cutting back from $750/bottle wine to $40/bottle.

The main problem causing foreclosure is excess leverage. As buyers pay less for wine, so a vineyard’s land is worth less. And those who bought at the peak, when average prices jumped above $200k/acre for top properties, are now finding the banks are unwilling to refinance.

Experts suggest that winners from the shakeout will be those who “don’t compromise quality, and manage their wines and land better” than competitors. Meanwhile, Napa’s problems do mean that those of us in the chemical industry will find it cheaper to “drown our sorrows” with wine.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. Paul is also an invited member of the World Economic Forum’s Global Agenda Council. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such as oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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