‘World of California wine is entering its own storm’
In recent weeks, the East Coast has endured a surprising earthquake and a hurricane. In the meantime, things are also shaking in the West Coast wine business.
The world of California wine, in fact, is entering its own storm. This storm is not really a surprise — we have long predicted it. And it is not a so-called “perfect storm,” because there are moderating factors, especially a wobbly economy.
Nevertheless, four supply and demand factors have more or less lined up to produce a sea change in the grape and wine markets.
Demand is growing strongly for wines priced below $15 per bottle. Demand has rebounded somewhat for more expensive wines. Most of the brand owners and marketers we have talked to — and that’s a lot of them — are still pretty bullish on the prospects for long-term demand for wine, based on the strong interest among the Millennial generation and a broad-based and growing fascination with quality food. The latter continues to influence beverage decisions.
The long-term supply storm, on the other hand, has been developing for quite some time, but the weak economy has obscured its importance. In the last few years, with demand for grapes low and access to capital all but impossible, there have been very few acres planted in the North Coast or most other areas of the state. The short-term supply has been reduced by rain during bloom in North Coast and other areas and by frost in the Central Coast.
Since 2006, the economic meteorologists at Turrentine Brokerage have continued to issue storm warnings of coming supply constraints for all North Coast varieties. It seems that 2011 may be the turning point, where demand surpasses supply. One of the key tools we use in making predictions is our proprietary determination of bulk-wine supply. This data is the best proxy available anywhere for the total supply position in the wine business. As you can see from the graph, this barometer is falling.
As the graph demonstrates, we have about 5 million gallons of wine listed for sale in bulk compared to about 12 million gallons last year at this time. The economy may be troubled with weakness in the housing sector, high unemployment and Greek debt problems, but inventories are getting tight for the world’s most important item of commerce — grapes and wine. And consumers are still buying.
Needless to say, the North Coast grape market is very active, with several varieties moving into shortage. Most wineries and growers agree that the crop for all varieties in the North Coast will be down at least 10 percent from “normal.” So far, most sparkling producers are reporting the pinot noir crop to be down at least 20 percent. In regards to pricing, some varieties in certain areas of the North Coast are experiencing a 60 percent increase over last year.
So, the North Coast wine business is sailing into a storm. It may not be a “perfect storm,” but it is definitely time to batten down the hatches and get the best information available to successfully navigate the quickly changing seas. For those with foresight, it is not only a time of danger but also of opportunity.
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.
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