This Red's Bouquet Not Fragrant to Wine Industry

In the wake of last month's life-altering events, you would think Americans would find solace in a good glass of Chardonnay -- if not something harder. Au contraire.

All over the country, wine-related businesses have experienced a "significant" downturn in restaurant, hotel and other sales over the past several weeks, according to a survey by Wine Market Report, an industry newsletter. The majority of the 258 respondents said they don't expect sales volumes to return to preattack levels until at least the spring of 2002.

More than one-third of the businesses polled predict their sales will be down 20% to 30% in the fourth quarter, compared with the same period a year ago. Another 40% said sales would be flat, or either slightly up or down. Before Sept. 11, many of the same respondents hoped for a 20% sales gain.

But, in an indication that consumers aren't willing to swear off booze all together, wine sales for home consumption actually rose 8% in the week ended Sept. 22, according to ACNielsen/Adams Partners. Hotel and restaurant sales, however, are typically more profitable for the producers.

For example, at Gallagher's Steak House, a midtown Manhattan institution known as much for its fun-loving crowd as for the slabs of beef hanging in its windows, the atmosphere has turned from boisterous to brooding. "I don't think people are in the mood to get drunk after what's happened," said Bryan Reidy, general manager at Gallagher's, where he's worked for 14 years.

Reidy said business is down 30% to 40% from where it was this time last year. And while Gallagher's typically exhausts its liquor inventory within a week and a half, it didn't purchase anything between Sept. 10 and Oct. 1. According to the Commerce Department, bar and restaurant sales were down 5.1% in September.

Some New York liquor stores received a brief pop in sales during the week immediately following the Sept. 11 attacks. "People were stressed out, and they came in to buy," said Roger Kelly, a cashier at First Avenue Wines & Spirits. "Nobody could believe what happened; customers were stunned."

As the days wore on, however, the city's thirst wore off. "Sales came down after that week," said Kelly. "A lot of our customers go away on the weekends. I think they've returned to the country." Kelly said he spoke to one wine-seller, who said sales were down 40% to 60% since the disaster.

In the weeks since the terrorist attacks, shares of Robert Mondavi (MOND), a producer of table wines, are down 27% to $30.91. Breweries seem to be faring a little better. Anheuser-Busch (BUD), the largest brewer of beer, is down only 8% to $40.60 since Sept. 10.

"While a softening economy may be unfavorable for beer consumption as whole, Anheuser's skewing toward the mid-to-lower priced segment enables the company to capitalize in tougher economic conditions," wrote Michael Branca, an analyst at Lehman Brothers in a research note.

As for wine businesses, they're adjusting to a drier climate. "Wine businesses are dramatically restructuring holiday promotional discounts, allocations and marketing programs in an effort to avert a precipitous drop in fourth-quarter revenues following the Sept. 11 terrorist attack," the Wine Market Report said.

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