The 2014 grape harvest is well underway, and expectations are for a strong crop after two terrific harvests in 2012 and 2013.
While the Southern Hemisphere is projecting mixed results in supply, the Northern Hemisphere is geared for another plentiful, though not exceptional, crop. Although the grape yield looks to be strong once more, winegrowers are confronted with new challenges in the changing consumer base and the growing world-wide competition in wine production.
Last year, the United States overtook the United Kingdom as the largest wine import market in the world. A key part of this is the trend of the baby boomer consumer base giving way toward a wine-craving millennial base in the wine industry. This shift is forcing wine companies to innovate and develop new strategies for attracting a consumer base with shifting demands and needs. Many successful wine companies are investing in understanding their consumers to adequately meet their wine purchasing desires.
Distributors such as Amazon have developed marketing strategies based on the new generation's need to contribute to social movements and progressivism. Amazon created a new line of wine products, offering multiple varietals that each corresponds to a different charitable cause or organization. Companies in accordance with this approach are proving successful in capitalizing on the younger generation's social activist aptitude.
The new, younger consumer base has also shown a great deal of interest in contributing to the winemaking process. Naked Wines has developed a crowd-funding platform that works to partially satisfy this customer desire. The system has the consumers pay for a portion of their order in advance so that Naked Wines can invest in smaller, independent winemakers.
Not only are these consumers attracted to the affordable prices, the involvement gives the consumers the satisfaction of more actively partaking in the winemaking experience. Fractional-share wineries, a concept mostly shelved during the recession, are again under consideration by some producers to appeal to consumers that want more direct involvement. Much like a timeshare, the consumer gets the feel of ownership with a minimal cost of entry.
Changing consumer palate preferences create another challenge that wine companies must respond to. In order to better captivate their clientele bases Constellation Brands introduced new product lines to captivate the shifting tastes. Their new varietal line, Naked Grape, was introduced to appeal to customers who prefer wines with less oak. The company also capitalized on opportunities in the growing boxed wine market. Constellation Brands' new Black Box is a boxed wine that puts emphasis on quality, while remaining an affordable option.
The traditional identity of the wine drinker is changing on a global scale. The evolution in the global consumer landscape is becoming both an opportunity and risk for global wine companies looking to obtain more market share and pricing power. To this end, it is becoming clear that a more attuned, bold and progressive approach is necessary to win in this dynamic global landscape.Harvest forecast
2014 grape harvest (expected and actual) and first quarter sales outcomes are as follows:California
In California, the recent drought remains problematic, but new acreage is expected to offset negative impacts in supply. As it stands today, the 2014 harvest in the United States is expected to be large but not as large as the previous two. Wine companies have a lingering robust supply after the past two exceptional harvests, with a third strong on the way.
In California, this wine surplus is driving down prices. The increase in supply has propelled first quarter export volume by a respectable 3.2 percent, as value also grew by 1.9 percent. Consequently, bottled table wine dropped 8 percent in volume, while bulk wine shot up 17 percent in volume.Europe
In Europe, the crop yield is set to normalize barring unforeseen weather events with production in Italy and Spain coming down slightly from previous year's large crops. France's production should improve from the prior year's numbers which were primarily impacted by weather.
Sales-wise, sparkling wine continues to explode in Italy with volume up 38 percent and value up 35 percent. Champagne volume in France shot up 5 percent and 7 percent in value, following the trend for strong sparkling wine demand growth.
Spain's exceptional growth was due to the increase in exports of bulk wine, which grew by 30 percent due to a 33.7 percent price decline.New Zealand and Australia
New Zealand's harvest is expected to set a record level 445,000 tons. They are the fastest growing exporter of wine with a 26.5 percent increase in volume and a 25.3 percent increase in the value.
Australia's yield suggests a weaker level than 2013. The stubbornly high Australian dollar is setting upward pressure on average prices, making gains more difficult to achieve for the wine suppliers. South America
In Chile, a hard freeze in the spring and high temperatures suggest a significant decline in the country's wine production. Despite the decline, Chile's commitment to diversify its consumer markets resulted in significant growth in shipments of bottled wines.
Argentina had a fairly normal-sized crop, although about 8 percent smaller than in 2013. The Argentine peso is significantly declining, which should actually help export growth moving forward.South Africa
South Africa's hard frost led to a minor reduction in the crop level. Bulk wine exports dropped 3.5 percent while bottled wine exports increased by 3.3 percent, largely due to Australian inventories being cut back in 2013 to lure stronger international demand....
Charles Day is senior vice president and area manager of the North Coast Food & Agriculture group of Rabobank, NA.
