Stories in this reportApril 18 forum of experts to tackle shrinking supply, globalization, financeThe supply puzzle: Experts weigh in on how a shortage will impact industryNavigating the global markets: Plan on a long-term commitmentWinegrape shortage could last six to eight years
Wine consumption is growing worldwide and particularly in the world's new largest wine market, the U.S. Trouble is, shocks to the global economy and to the wine business in particular over the past several years along with tough growing seasons have dramatically limited the supply of grapes and wine sold in bulk to supply the thirst.
Hugh Reimers, executive vice president and chief operating officer at Jackson Family Wines with a background in winemaking in Australia, cautioned a recent gathering of wine industry professionals recently not to expect significant relief from shortages internationally.
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“The grape supply is in balance globally,” he said at a Wine Industry Financial Roundtable hosted in Napa by accounting firm Moss Adams LLP in February. Jackson owns wineries and vineyards in coastal California and owns producers and imports wines from Italy, France, Chile and Australia.
But he noted that plantings worldwide have been minimal. Twenty percent of vines were nonbearing in 1999, compared to only 4 percent today, he said. Exacerbating the need for more supply, wine consumption is expected to grow from today’s 2.5 gallons per capita to 3.8 gallons in 2025, requiring more wine and grapes.[poll id="8"]
The Business Journal asked members of the 2012 Wine Industry Conference panel on grape and wine supply panel at the about some of the hotly discussed topics in the wine business in California. Panel members at the April 18 conference include Joe Ciatti of Zepponi & Company; Mark Couchman of Silverado Premium Properties; Jeffrey O'Neill of O'Neill Vintners & Distillers; Bill Pauli of Pauli Ranch Winery, Yakayo Wine Co. and current president of the California Association of Winegrape Growers; and Steve Smit of Constellation Wines U.S.How are prices and availability of bulk wine and grapes affecting operations?
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Jeffrey O'Neill: An industrywide shortage of inventory is affecting virtually everyone's business. We have gone from a "cascading excess” to "will anyone notice if I put Bulgarian merlot in my Napa label."
For the past five years, many brand owners have been pushing surplus inventory down to second- and third-tier labels. In less than 18 months, that surplus is gone, and vendors are now facing significantly higher prices and a grape supply that has not kept pace with industry growth.
Many of the second-tier labels that relied on surplus inventory will now have to seek sourcing from lower-cost districts or countries, or simply be discontinued.
The higher costs of grapes will ultimately be passed through to the consumer, but retailers will be resistant, particularly in their disbelief that the industry could have gone from a long position to a short position in a matter of 18 months. It is possible the increase in pricing could put a damper on the growth of California wines, only to be fulfilled by low-cost imports.
Bill Pauli: Growers are very cautious about signing new, or extended, contracts, not knowing where pricing per ton is going to peak.
The bulk wine market is more limited in Mendocino and Lake counties by supply -- fewer wineries and appellations. In our case, we are seeing a strong appetite for reds led by cabernet sauvignon and merlot. No one has any zinfandel or pinot noir available. Pricing is $10.50-$14.00 a gallon on merlot and $12-$16 on cab. There are some exceptions, up and down, for very small lots, depending on quality.