Your potential winnings may run into hundreds of millions of dollars. Tickets can be hard to come by right now but when you get the chance, it makes sense to buy them by the ton. You cannot score these precious tickets at Tip Top Liquor Warehouse in Healdsburg or Plaza Liquors in Sonoma or any other store in town.
In this game, which is the real California Lottery, you’re going to need a four-wheel drive vehicle and you’ve got to get your boots muddy. There will be two kinds of mega-winners: Growers who have used this time strategically to build relationships with the best long term homes for their grapes and brand owners who have forged relationships with key growers that will allow them to respond to growing consumer demand with an ample supply of quality wine while maintaining a healthy profit margin.
There are an incredible number of moving parts to this MegaMillions Grape Lottery. It starts with the green not of vineyards but of money. You’ve got to keep lenders and investors — sometimes ill informed and always touchy — mollified in the midst of economic worry.
Then there is Old Ma Nature, who stung us with frost and late rains last year and who has been stingy (until lately) with winter rain this year and who may or may not be planning some further nefarious surprises. There is the all-important consumer and the casegood market, which has improved but is still a concern during the country’s economic convalescence. International competition is always a factor — and the U.S. market is still the prime target for global wine producers. Local competition is a huge consideration.
What are other growers and wineries doing — and why? What does the market for wines in bulk, the best proxy available for the total inventory situation, reveal about current and projected inventories? And then there is the timeless question of time. Brand owners would like to wait for more information — including crucial sales data and post-set crop projections. But what if you wait and the market does not wait for you?
If you have a growing brand, you’ve got to feed the monster somehow. Many growers, on the other hand, would sleep better with a signed contract with a solid buyer at a profitable price. But their sleep is troubled by dreams of prices that continue to soar. No one wants to leave money behind hanging on the trellis. And then there is the tricky question of multiple year contracts — what multiple is the right one? Three years? Five years? Ten years?
What pricing mechanism makes sense for multiple year deals? What is going to happen to farming costs and inflation over the next ten years? What is realistic? What is fair? Is the grape buyer who offers the highest price the best choice for a grower? Or is the very fact that a certain buyer must offer substantially more than his or her competitors a sign of poor planning or other problems?
Not only is the market complicated and time sensitive, but it can seem like growers and wineries are playing completely different games. When the market shifts like it has recently, people often ask how we can represent both growers and wineries. Doesn’t the advice we give wineries conflict with the advice we give growers?
In fact, by far the easiest negotiations we have are negotiations between growers and wineries that are both good clients. These folks are usually smart players who recognize the realities of the current market, who know their own strengths and weaknesses, and who also know the value of long-term relationships with quality oriented, well-managed business partners. It is a pleasure for us to craft win/win agreements between growers and wineries both of whom understand the dynamics of the wine business and appreciate their own long-term dependence on reliable partners.
It is hard for us, on the other hand, to work with growers and wineries whose goal is to soak the other party when they can and who inevitably must face getting soaked themselves when the market changes, as it always does. Positioning your company for success around the violent supply cycles of the wine business is absolutely necessary for success for both growers and wineries. Taking unfair advantage of either customers or of critical suppliers can be profitable in the short term but is disastrous in the long term. And if anything is a long term proposition, it’s the wine business.
So think long-term, pick your lucky numbers and jump into the MegaGrape lottery. If you want an insurance policy against the possibility of big mistakes in a complicated, fast moving market, call our North Coast grape broker, Audra Cooper. Prepare to get your boots muddy — and to win big. May the grape lottery be with you.
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. The company produces proprietary data on global markets, bearing and nonbearing acres, projected tonnage for the next five years, bulk wine inventories, spot market grape prices and collateral value trends.
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