OREGON WINE CLUSTER:

WINE INDUSTRY IN USA

INTERNATION BUSINESS - B

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Wine in Oregon
Wine has been produced in Oregon territory even before the state was established residents
started planting grapes as early as 1840 however the significance of wine making has gathered
steam in early 1960s only.
The first cultivation of grapes was started by Henderson Luelling, a horticulture in 1847.He and
his son in law won a medal at California State Fair in 1859 for a wine made from Isabelle grape ,
a Labrusca X Vinifera.
By 1850s, Peter Britt a well-known music festival organizer, is known to have grown wine
grapes as his Valley View Vineyard. A census of 1860 reveals the statistic that Oregon's wine
production was some 11,800 liters (2,600 gallons), but not every wine was Vitis vinifera.
In the Willamette Valley, Ernest Reuter had built the reputation by 1880s for his Klevner wines;
Reuter is purported to have won a gold medal at the St Louis World's Fair of 1904. Reuter's
grapes were planted on Wine Hill, also known as David Hill, west of Forest Grove in
Washington County, at the present site of the David Hill Winery.
Wine in Modern Era
The Oregon wine industry started with small scale producers trying to produce wine of superior
quality. The above effort is unique with different set of patterns and structure for the Oregon
wine industry than other major producers of wine in US. The California industry started by
producing very cheap wine for domestic use by the missions and immigrants .The California
wine industry has gone through several boom and bust periods during the said time.it is now a
dominant source of domestic wine in all the price categories by volume in all of the United
States. The state of Washingtons industry was established primarily by bridging the market gap
of competitive mid-priced wine and was boosted significantly by both large direct investment
and conversion from mid-scale to large scale agribusiness. California, New York and
Washington all have substantial Economic Impact of Oregon State - non-wine grape industries,
unlike Oregon. States such as Virginia and Missouri are almost fully dependent on local market
and are dependent on small scale wine production.

Although Oregon has witnessed dramatic growth in both production and value, the industry is
still primarily small to medium sized production based primarily in Oregon. The largest three
wine producers in Oregon would rank 52nd, 53rd and 76th in California. As the majority
production is held by small scale industry and the production is high, Oregon is unable to supply
majority of the wine consumed in the United States.
Oregons unique positioning has been successful as it can be seen by both increase in acreage
and number of wineries. In 1970 there were just five bonded wineries and 35 recorded acres. The
winery count by 2013 had risen to 605 (including using custom-crush facilities), and there were
nearly 24,000 acres planted in wine grapes.
Winegrowing Regions in Oregon
Oregon contains several distinct regions for winegrowing, which differ in climate, soils and
topography. The northwest portion of Oregon is best known for its cool-climate grape In early
2005, the Southern Oregon appellation was federally authorized as a larger viticultural area.
Willamette Valley
Willamette Valley is located south of Portland, and bordered by hills to the south and west and
mountains to the east, the Willamette River is the central feature of this 100-mile long, 60-mile
wide valley. The majority of Oregons wineries are established in this area, as they try to
capitalize on both the international fame of its Pinot noir and the easy access to Portland. the
Willamette Valley's climate is perfectly suited to certain grape varieties that dont demand strong
sun and heat to ripen, typically varieties originating in Northern Europe such as Pinot Noir and
Chardonnay (of French Burgundy fame); Riesling and Gewurztraminer (from Germany and
Alsace) and Pinot Blanc and Pinot Gris (prominent in Alsace and Alpine Italy) as it has coolest
temperature in the wine region.
Willamette Valley is also very famous for it wine tourism in Oregon as it has easy access to the
urban population and travel destination of Portland ,Oregon.

Umpqua Valley Region

Umpqua valley has a number of valleys and undulating hills. The climate of this region is drier
and warmer than the Willamette valley wine region to the north but cooler than the Rogue and
Applegate wine regions to the south .In short it has features of both the regions. Therefore this
valley is cool enough to produce classic Oregon varieties like Pinot noir, the leading varieties
and it is also warn enough to grow Bordeux verities like Merlot and Cabaret Sauvignon . Some
wineries have pioneered the cultivation of Southern French and Spanish varieties such as
Tempranillo etc. with great and promising results.
Rogue Valley and Applegate Valley
The overall region is warmer and dryer than the Willamette Valley, especially in the east. This
climate has encouraged plantings of Cabernet, Merlot, Syrah and Viognier, but it is still an
important source of Pinot noir and Pinot Gris. This area is known for its diversity in wine
production. This area is also a critical source for Pinot Noir and Pinot Gris used in blends
representing the overall Oregon appellation due to its higher yields and reliable ripening. There
is a good amount of tourists visit in the southern area from Medford and Ashland area.
Columbia Gorge
The Columbia river valley has an increasingly warm climate as one goes upriver and some
vineyards benefit from the "Banana Belt" effect of west-facing valleys protected from cold
winds. The Columbia Gorge appellation is located on both the Oregon and Washington sides of
the Columbia River, Pinot noir, Pinot Gris, and Chardonnay are important in the Columbia
Gorge, but it also produces Cabernet and Syrah due to the influence of Washington D.C. Apart
from above Wines it has also found recent success in Walla Walla appellation for red Rhone and
Bordeux varieties again due to its close proximity with Washington D.C. . Although it uses both
bulk wine from other regions as well as Oregon, substantial investment has been made in
production and tourist facilities in the region.
Portland Metro Area and Urban Wineries
Urban wineries are new emerging trends of the industry. Their sale is mostly direct, and most of
them have bar, cafe, food and pub facilities. First winery was opened in 2001 but now the city

boasts over 12 different wineries. As Portland has no vineyards, the grapes are shipped in from
across Oregon and Washington and processed within city limits.
Distribution of Acreage in Oregon
Region

North

# of wineries

Willamette 545

Acreage

Main produce

15259

Pinot

Noir,

Chardonnay,

Pinot

Valley

Gris, Riesling
South

Willamette 102

1978

Pinot

Noir,

Pinot

Noir,

Pinot

Gris

Valley
Rogue/Applegate

140

2582

Pinot

Gris, Syrah,

Valleys

Cabernet Sauvignon,
Merlot
Columbia

Valley 94

1754

Pinot Gris, Syrah,

Cabernet Sauvignon,

and other

Pinot Noir, Merlot,

Riesling
Umpqua Valley

70

2382

Pinot
Gris,

Noir,

Pinot

Riesling,

Tempranillo

Political
Wine industry is important from the point of view of political scenario as it contributes $63
million in tax and licensing revenues from the state government. Apart from that $64.9 million
comes from local property taxes.
Therefore government has set up Oregon Wine Board that promotes the development of wine
industry. It also coordinates the exports with other countries.

Apart from that there are regulations to ensure the quality of the wine, sales and distribution.
Economic
Economic growth of the country is highly dependent on the wine industry. To prove it we have
some following facts as per the data in 2013:

605 Oregon wineries or wine companies bottled 2,780,237 nine-liter cases of wine.

Revenues from the industry were over $363 million from the sale of packaged wine.
Exports to other states/countries generated $127 mn excluding direct to consumer
shipment which was around $52 mn

Retail sales of wine in Oregon from all sources were $816.6 million in 2013.

It also helped other industries such as tourism, wine related tourism contributed to $207.5
million in revenues to the Oregon economy.

Social
The Oregon wine and wine grape industries contribute an estimated $11.3 million annually to
charities.
Direct employment support 9,837 jobs within the state of Oregon and generate nearly $225
million in gross payroll.
Technological
Wine industry is capital-intensive industry. In 2013, companies in Oregon have spent around $7
million on purchasing new equipment or maintaining the existing one. But most of this
equipment is not manufactured in the state because of which they have to import which in turn
affects the economy.
Environmental
The substantial portion of industry is adopting number of sustainable and organic methods of
production that reduces the carbon footprint and also decreases the inputs that require nonrenewable energy.

Also these methods help in decreasing pollution from chemical/oil resources in production of
synthetic pesticides, fertilizers and fungicides.
Wine in the Economy
The wine is a consumer product, produced capital intensive and requires a wide range of work
and services to reach consumers. This impact is reflected in wages, income, taxes and spending
on technology and agricultural supplies and production. Associated industries such as
distribution, tourism and retail sectors benefit greatly from the Oregon wine industry. There is
also the multiplier effect created by purchases by industry suppliers and service companies, as
well as the expense of wages paid by industry in the economy of Oregon. As a final consumer
product, wine normally adds more value and retains more of its profit into the state's economy
than many other agricultural products. Most agricultural products are exported from the region of
production or sold to processors in its raw form. Many of the processors in turn sell their
products in international markets in bulk, which tend to be highly competitive with low margins.
The final products can pass through many entities and brands out of state before reaching the
consumer. As a result, a relatively small amount of the profits remain in the local economy. The
Oregon winemakers retain more of their income stream locally. They crush the grapes and
produce wine, but also do the packing, marketing and sales to wholesalers and foreign importers.
In addition, the wine maintains the highest margins in the distribution system than most other
foods and beverages. Some of the channels of distribution (fine wine shops, restaurants,
wholesalers specialists on site) are labor intensive. Note that the wine consumed in the state of
Oregon (not only wine produced in the state) provides income from which restaurants and retail
shops owners and their employees are paid. Wine distribution producer level through the layer
wholesale retail / restaurant level offers additional wages and employment. Each layer also
contributes taxes. The romance and appeal of wineries and vineyards wine regions make a strong
attraction for tourists. The demographics of luxury wine consumption in ensuring that many
tourists came spend more than the average visitor, increasing revenues of restaurants and hotels
in the wine regions.

Foreign investment
Success and Oregon fundamental qualities have not gone unnoticed, and a number of major
companies in the wine industry have invested or increased their stakes in Oregon in recent years.
The following are the most prominent examples:
Kendall Jackson: Great purchased Moraine, vineyards Zena Corona in January 2013; Kendall
Jackson winery Solena bought in May 2013;
Precept Yamhela vineyard wines purchased in May 2013; Kendall Jackson bought Maple
Grove vineyard in May 2013;
Louis Jadot bought Resonance Vineyard in August 2013;
Domaine Drouhin bought Roserock vineyard in December 2013;
Foley Family Wines bought the brand and vineyards Four Thank March 2014;
.. Ch Ste Michelle Willakia bought the vineyard in March 2014; and Mo-Camuzet bought the
winery Bishop Creek in September 2014.
The positive effects of this trend may include additional investment in equipment wine making;
renovations or improvements of facilities and equipment; Additional staffing of the winery and
vineyards; expanded distribution outside Oregon Oregon wines and newcomers to leverage their
distribution networks and sales force; and possible reinvestment of proceeds from the sale by
local or state owners. All this is captured in this report for 2013, but not 2014. The potential
negative effects of purchases include the repatriation of profits out of state owners previously
reinvested in the state, and the possible transfer of administrative and sales / marketing and
management positions elsewhere. So far there have been few signs of economic benefits
transferred out of state. The money invested in the vineyards will not be profitable making wine
for a couple of years due to production lead time. Vineyards purchases by domestic firms were
largely intended to provide additional grapes Oregon wineries, while the Burgundians (MeoCamuzet, Jadot, Drouhin) are developing all the different brands of Oregon.

Economic Impact vs. Revenue vs Profitability

While profitability and return on investment of vineyards and wineries are outside the scope of
this analysis, the differences between them and the economic impact should be clarified.
Delivery time and capital-intensive nature of the wine industry long gives significant economic
impact in relation to sales revenues. However, these factors may also limit the profitability and
return on investment. The analysis of Tony Correia (The Correia Company) and Nat DiBuduo
(Allied Grape Growers) found that many wineries and vineyards do not earn an operating
reasonable risk-adjusted return on real estate or transaction typical asset's record capital prices.1
open companies in the wine sector is generally poor and these companies often end up going
back into private hands. Although yields have increased recently, Tony Correia pointed out that
this is in large part due to the low interest rates that allow leverage of equity investors, but the
rates of return of the company in general are low. 1 Some of the factors to consider when
evaluating profitability and revenue in the wine business include:
The difference between the economic impact (which is the sum of all spending and investment)
and benefits (which is the difference between costs and revenues). It is possible that an industry
with high economic impact and growing (typically a growth industry) have fairly low, current
profitability and net cash flow and investment in production and the ability to move ahead of the
income.
There is a weak relationship between bottle price and profitability. In addition to higher
production costs, higher prices mean lower volume bottles and therefore less total revenue to
support fixed costs. Expensive wines competing in a highly fragmented market in which there
winery achieved high market share.
The economic impact accumulates like wine travels through the distribution system. However,
different levels of profitability are the industry tends to vary independently of each other. The
low prices of grapes can be bad for farmers, but increase the margins of the winery. Oversupply
of wine from other states or countries can increase wholesalers and importers of sales and
margins, but sales weaken Oregon winery. In the last recession, they increased sales and profits
for many retailers offsite while restaurants suffered significant declines in traffic and trading in
wine sales.

 The wine industry holds a very long supply chain - it takes five years for a vineyard to achieve
mature yields and wine normally spend 1-3 years aging in the inventory. So wineries have very
high inventory costs compared to many agricultural products. In addition, the grape industry and
wine production have their own something independent of economic cycles and business cycles,
since the supply and demand balance change.
Warehouses are capital intensive, partly because much of their specialized equipment obtained
a single use or just a few laps a year, unlike breweries, distilleries, or most food companies.
Similarly, the vineyards give one crop a year, in contrast to market crop rotation or table.
How does it fit into Oregon?
The Oregon wine industry originated with small producers with the aim of producing high
quality wines. This is unique and has established a pattern and different structure for the industry
Oregon other major wine-producing states. California industry originated in the supply of cheap
wines for local use by missions and immigrants and has gone through several periods of boom
and bust. Now it is the dominant source of domestic wine overall volume in the United States,
competing in all price categories. The state of the industry in Washington was established
primarily by providing competitive wine average price and was boosted significantly by both
business investment and conversion of large-scale agribusiness. California, New York and
Washington all have substantial
grape wine industries, unlike Oregon. States like Virginia and Missouri, although they tend to
wine production on a small scale, depend almost entirely on the local market. Despite the
spectacular growth in the production of wine from Oregon and value, the industry is still largely
in the hands of small to medium-sized producers, mainly based in Oregon. The three largest
producers of wine in Oregon would classify 52a, 53a and 76a in California. The predominance of
small production and property, as well as high production costs, Oregon media can not provide
most of the wine consumed by the state. Unique positioning of Oregon has been a success,
stimulating growth, both on the surface and the number of wineries. In 1970 there were only five
recorded bonded warehouses and 35 acres. This had grown to 34 wineries and 1,100 hectares of
1980. By 2005, the number had increased to 247 wineries and plantations reached 13,700
hectares. Counting the cellar in 2013 it had increased to 605 (including the use of facilities
tailored crush), and there were about 24,000 acres planted in wine Grapes2. The Oregon wine

sales increased from 1.29 million and $ 157 million in revenue winery cases in 2004, to 2.68
million cases and $ 362 million in revenue in 2013.
Porters Diamond

1. Factor Condition

In contrast to other types of crops, grapes can be grown in diverse climates and soils.
The French concept of terroir states that the composition of grapes produced in a specific
growing region will be influenced by the local environment, which will carry through to the
wines of the area. This concept also includes as an element minimal intervention in modification
of the growing environment so that the terroir may be evident. Thus, in contrast to other
agricultural commodities, wine is marketed by the geographical location of production, and
quality is associated with minimal vineyard inputs or manipulation.

The California wine cluster is endowed with large parcels of relatively flat land that rely
more on capital-intensive operations to produce large quantities of wine at low production costs
despite relatively high land prices, ranging from $8,000 to $150,000 per acre.
Science and technology played a vital role in bridging the quality gap between European and
California winemakers. Traditionally, European vintners had relied heavily on feel and timetested practices. California winemakers of the 1960s and 1970s began using quantitative analysis
and new techniques to produce higher quality, more consistent wines. Innovations flowed rapidly
among the states vintners, especially in Napa, where most of the major wineries were located
side-by-side along State Highway 29 and its eastern parallel, the Silverado Trail. Though much
of the innovation took place at the wineries themselves, U.C. Davis helped introduce several new
technologies such as mechanical harvesting, drip irrigation, and field grafting.
2. Demand Conditions
The continued growth of the U.S. wine industry faces increasing challenges as retail
sales and wholesale channels continue to consolidate and foreign wine producers target U.S.
markets with growing inventories, government support, and saturated home markets. Per capita
U.S. wine consumption ranks 38th in the world. Imports of wine to the U.S. market have risen
consistently over the last decade. The share of U.S. wine market represented by wines made in
the U.S. declined from 81.6 percent in 1998 to 73 percent in 2005.
Imports now represent more than 27 percent of wine consumer in the U.S. to regain its
share of a growing market. Continuing investment in quality and value as well as further
opportunities to access the consumer market are need by the American wine industry. Attracting
and retaining consumer attention in this extremely fragmented market demands expensive and
specialized marketing and merchandising skills. Wines in all segments of the market face pricing
pressures and price erosion even as winemakers and growers face relentless pressure to improve
quality and distinctiveness.
Alcoholic beverages are the only industry in America with their own constitutional
amendment. The 21st amendment, which signaled the end of prohibition in the U.S., led to a
series of complex regulations and structures which vary by state for the sale of wine, wineries to
sell to licensed distributor which ten sell to retail and restaurant outlets. The vast majority of

wineries in the U.S. sell most of their wine directly from winery to consumers, wither tourists
visiting a tasting room, festival or farmers market, or to members of their wine clubs and mailing
lists. Many wineries lacking distributor also market their own wines directly to local retailers and
restaurants. Maintaining winery direct-to-consumer and self-distribution is critical to the survival
of Americas small wineries and to the efforts to revitalize many struggling rural communities.
3. Related and supporting industries
According to Michael Porter, this determinant spotlights the value of how internationally
competitive home-based suppliers create advantages in downstream industries in several ways.
First, they deliver the most cost-effective inputs in an efficient early, rapid, and sometimes
preferential way. In the case of industries based in natural resources tend to agglomerate in
certain areas because of the cost advantages given by the natural resource endowment.
From a winery perspective, both the wine and tourism industries suffer from a lack of
sectoral linkages that has resulted in a lack of cohesion and inter-organizational co-operation. On
the other hand, the barriers to the wine industry may stem from a lack of experience and
entrepreneurial skill regarding tourism, particularly amongst smaller wineries and that tourism is
often seen as a secondary or tertiary activity in the wine industry. Conversely, these barriers can
be seen in relation to the tourism industry that has a lack of understanding of viticulture practices
and the demands of winemaking and, on occasion, a conflicting demand for scarce resources.
The difficulty in developing relationships between the wine and tourism industries is most likely
the consequence of a number of factors specific to these industries rather than how they manifest
in regional settings. It is important to note that differences between these industries include
structure, their breadth, degree of collaborative behavior and the level of innovation and
knowledge sharing. These cluster pre-conditions are important when considering their impact on
cluster behavior, both passive and active.
Clusters in wine-tourism bring with them the intricacies of these different industries and
cluster types and provide insight into the interaction between clusters in distinct industries that
often geographically overlap.
Innovation in wine industry products and processes can be better achieved if
improvements are also made in other areas impacting the wine cluster. To better compete

globally, wine industry stakeholders need to invest in R&D and devote particular attention to
adding diversification and value to the wine industry value chain. The creation of national
awards recognizing quality and innovation in the industry value chain will enhance the overall
visibility of the industry.

4. Firm strategy, structure and rivalry

According to Porter, the context for firm strategy and rivalry refers to the rules,
incentives, and norms governing the type and intensity of local rivalry. Economies with low
productivity demonstrate little local rivalry. Most competition comes from imports.
Even the wine production can be considered as a light industry; the competitiveness
of this industry oblige to all the stakeholders involved in the production reach a high level of
professionalism. In that sense, it is important to flourish the human resources capacity involved
in the wine industry, making it more competitive and comprehensive according to the new
demand and complexity that they should come up with.
In that sense, the industrial force regarding the wine industry is expressed in the three key
levels of the workforce; the management, oenologist/production managers and field
workers.
The creation of management studies and specific training courses in strategic and
international management are indispensable to promote the ideal mix between competition and
cooperation, essential to internationalization. On the other hand, specific industrial and chemical
training is essential to improve oenologist, production and management knowledge that will
allow the improvement of quality and differentiation of the wine, but also the development of
healthy and environmentally clean products.
Future
Currently, Oregon is the No. 3 wine grapeproducing state in the country. The focus right now, is
on growing lesser-known grapes for the interested buyers, marketing bottles of wine beyond
Oregon state boundaries, and promoting Oregon as a quality producer of higher-priced wines. In
Oregon, wine manufacturing, shipping, and sales support 11,000 workers, with most of the jobs

being centered around Willamette Valley. According to the Oregon Craft Beverage Council,
Oregon Breweries make up 6,500 jobs, Oregon Distilleries make up 350 jobs, and Oregon
Wineries make up 13,500 jobs.
Anne Root, founder of EdenVale Winery in Medford says Our wine industry is growing and
making a contribution to our region with higher-paying jobs and a different agricultural product
that enhances pears and other fruits businesses here. Future success according to her, depended
on a statewide effort to promote the already respected Oregon brand, rather than on the Rogue
Valley Region. There is already a lot of good traction for Oregon wine overall she says.
For new producers, or entrants into the business, the focus stays on the bottom line. Also, they
want to hear more about grape varieties that are economically viable, and not necessarily the
well-known types. Little known grapes that ripen consistently are finding a place in the market
too. Smaller vineyard producing better grapes are also being encouraged. With increasing
awareness, growers are focusing more on grape types that can be sold to wineries, or sold in their
own tasting rooms, rather on grapes that the owners themselves like.
Currently, UCC has embarked on an educational program that will blend the wine industry and
community involvement into an opportunity for regional economic growth. According to an
economic impact study, Southern Oregon has the potential to realize a ten year growth factor of
5000 additional wine cluster related jobs and $115 million in added income to the labor market.
According to Lee Paterson, President of the UCC Foundation Board, An investment in the
Southern Oregon Wine Institute is an investment in the future of the region. SOWI will be the
catalyst that accelerates the growth of an exciting industry capable of transforming the economic
fortunes of communities throughout Southern Oregon.
With the competitive nature of the global wine market increasing, U.S. wineries will have a
greater challenge competing in both the domestic and export markets. The formulation of the
"WineVision" initiative was for the purpose of helping US wineries address export market
related strategic issues. A large number of wineries and winery associations support WineVision.
It is developing an approach thatll help non-exporting wineries to become exporters while
improving the effectiveness of the ones that are currently exporting. Additionally, it has also
managed to identify the lack of urgency on the part of said wineries, about the threat posed by
globalization and other competitive forces.

Thus, there are critical issues that still exist regarding the success of Wine Visions involvement
in causing a renewed commitment on the part of present US wineries. Top individuals in such
organizations, are facing the challenge of determining how to most effectively influence the
overall US wine industry, and whether they should focus on just raising awareness about
competitive forces, while serving as a feeder ground for information regarding expertise,
innovation, and connections.
References
1. http://www.cityofroseburg.org/files/4913/0869/2983/SOUTHERNOREGONWINEINSTI
TUTE.pdf
2. http://www.mailtribune.com/apps/pbcs.dll/article?AID=/20130824/BIZ/308240301
3. https://en.wikipedia.org/wiki/History_of_Oregon_wine
4. http://www.capitalpress.com/Oregon/20150305/oregons-wine-industry-emerges-as-anoutsized-ag-force
5. http://www.northwest-wine.com/Oregon-Wine-history.php
6. http://oregon-wine.com/wp-content/uploads/2015/02/full-glass-wine-economic-impactoregon-1-2015.pdf
7. http://www.statesmanjournal.com/story/life/food/victor-panichkul/2015/01/26/oregonswine-industry-packs-growing-economic-punch/22385391/
8. https://en.wikipedia.org/wiki/Oregon_wine
9. http://liveinc.org/