Quantcast

North Bay Business Journal

Monday, March 14, 2011, 4:45 am

Grape Market Insights: Lowest Sonoma Co. chardonnay price in four years calls for marketing savvy

By Brian Clements

Print Friendly Print Friendly    

Share this item

    Brian ClementsBuried in the recently released 2010 California Grape Crush report are important considerations for North Coast winegrape growers this year.

    Wine business fanatics like myself sit hunched over our computers, trying to be the first one to view the “numbers”: overall tonnage, tonnage per variety by district and district average price per variety.

    The 2010 California winegrape crop was 3.58 million tons, a decrease of only 3 percent from 2009 and the third largest crop in California history. The North Coast crop size was down about 5 percent; the Central Coast, up 5 percent; the northern San Joaquin Valley, down 22 percent; and the southern San Joaquin Valley, up 5 percent.

    Let’s start our analysis with chardonnay, the top crop in winegrowing District 3, basically Sonoma County.

    The report shows about 65,500 tons total tons delivered for District 3 chardonnay last year, down 10 percent from 2009. The average price paid per ton for those grapes in 2010 was $1,800, down 8 percent from the year before. Taken together, the total value for Sonoma County chardonnay was $118 million, which is nothing to shake a stick at.

    However, what does that mean to Sonoma County chardonnay growers in 2011? I say, not much, unless the numbers are tracked and dissected.

    District chardonnay tonnage in 2010 was the fourth largest in the last 10 years and up almost 5 percent from the five-year average. The 2009 county chardonnay crop was the second largest crop in the last 14 years, after that of 2005. In regard to price per ton, tracking the numbers would reveal that the 2010 price is the lowest average tonnage price since 2006. All this knowledge should make it all the easier to market 2011 Sonoma County chardonnay grapes, right? No, not really.

    To successfully market 2011 Sonoma chardonnay grapes, the seller (and the buyer) must have a clear understanding of the following market conditions:

    1. The overall condition of the wine industry in the context of the world economy

    2. The overall condition of the luxury wine business

    3. The overall condition of Sonoma County chardonnay wine case sales

    4. Accurate knowledge of the Sonoma County chardonnay spot-market pricing for 2010

    5. The inventory of 2011 Sonoma County chardonnay grapes for sale

    6. The inventory level and price of Sonoma County chardonnay bulk wine by vintage

    7. The percentage of non-bearing Sonoma County chardonnay acreage coming into production in 2011, 2012 and 2013

    Equally important is a clear and honest understanding of the quality range produced in the seller’s vineyard.

    Most of the above information is not publicly available. So most grape marketing occurs at least partially in the dark. A lot of time and money is spent on the “right” piece of land as well as researching and installing the right variety, clone, trellis system, rootstock and irrigation. Of course, a lot of money is spent on farming.

    Very little time and money is allocated for the most important single function, the marketing of the grapes. Usually, the marketing plan is “build it and they will come.”

    In all fairness, this strategy can be successful if the grapes are being sold when the market cycle is in the “acute shortage stage.” But acute shortage has a way of turning into “painful excess.” Those without a long-term marketing plan are left holding the lug box.

    In this long-term business, the goals of growers and wineries are not that different. Both do best when they can find quality partners with efficient operations and make intelligent agreements that can work for both parties throughout wine business cycle changes.

    Unfortunately, the wine business is often governed by greed and panic. Most growers and wineries misread the cycles, entering or delaying contracts at the wrong times.

    Wineries usually go year to year when the spot-market price is at the lowest point. They only offer multiyear contracts when the spot price has shot up and supply is hard to find.

    Growers who are experiencing upward spot-market pricing year after year become convinced their grapes are pure gold nuggets and hold out for prices that are not sustainable for wineries. These growers either end up with no long-term contracts when the market declines or have a fantastic contract with a winery that has trouble paying its bills.

    This can be a vicious and unforgiving cycle.

    Those who understand wine business cycles and have the best grasp of the current market can overcome the dangers of greed and panic and can make profitable, long-term decisions that work for both parties. Sounds simple, right?

    •••

    Brian Clements is vice president and partner of Turrentine Brokerage (www.turrentinebrokerage.com), a Novato-based marketer of winegrapes and bulk wine in California and abroad.

    Copyright © 1988–2014 North Bay Business Journal
    View the policy for linking to website content.

    Print Friendly Print Friendly    

    Comments

    1 Comment

    1. November 11, 2011, 7:19 am

      by David gussmann

      Do you assist buyers of grape producing properities in evaluating financials?


    Submit Your Comments

    Required

    Required, will not be published

    Comments are moderated and generally will be posted if they are on-topic and not abusive. For more information, please see our Comments and Letters Policy. To share this item by email or social media, use the links above.

    Do not use this form to contact people, companies or organizations mentioned in this story. Contact them directly. Private messages left here will be deleted.