2012 could bring more grape contracts, vineyard sales

NORTH BAY -- Unless the global and U.S. economies weaken, wine industry experts predict 2012 could be the year of the vineyard, considering a number of fine wine producers have worked through ample inventories, wine sales continue to grow and few new vines are going into the ground.

Six to eight months ago, wine producers began actively looking for bulk wine to buy when it started to become clear that the 2011 harvest would be the second-straight year of smaller-than-expected California winegrape crops, according to Glenn Proctor, a partner a broker for San Rafael-based wine and grape brokerage Ciatti Co.

"It happened a little quicker than we would have imagined," he said.

The supply of 2010 red wines to purchase in bulk started dwindling surprisingly quickly late that year, and now relatively little is available, according to Mr. Ciatti. This year, cabernet sauvignon and zinfandel wines from the 2011 harvest are still in malolactic fermentation, and already buyers are looking for samples.

This shortage is changing how much negociants and producers of private and control labels can sell, and rapidly increasing prices for wine purchased in bulk, according to Joe Ciatti, former Ciatti president and now a partner with wine mergers-and-acquisitions advisory Zepponi & Company.

"A different mentality is going to drive the market," he said. "Sales probably will flatten out because they do not have enough wine to meet demand in the U.S."

After the deep economic recession took hold in 2008, producers of fine wine faced increasing inventories and slower sales, and common strategies of reducing inventory included pruning purchases of grapes and moving cases of wine via programming and other strategies. It's gotten to the point where those efforts appear to be working too well, according to Rob McMillan, founder of Silicon Valley Bank's St. Helena-based premium wine division.

"It will be one of those rare times inventories are in balance or, in some cases, short both in the Central Valley and the North Coast at the same time," he said. "Usually, they're short in one when they're long in the other."

The fourth quarter is shaping up to be a "decent" quarter for wine sales, and the fine-wine side of the business likely will enjoy the 11 percent to 15 percent 2011 sales growth the bank forecast in April, Mr. McMillan said. Sales growth of California wine overall are in the range of 6 percent to 7 percent.

"One of the biggest wine and liquor wholesalers in the country told me that the best year ever for the company was 2011," said Robert Nicholson of Healdsburg-based industry strategic consulting firm International Wine Associates.

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