Forecast: Wine, grape prices to rise in 2012

SACRAMENTO -- The prices of wine on U.S. store shelves could start rising this year because of an "emerging shortage" of winegrapes and wine plus a sales and marketing "blitz" last year, according to experts speaking at a major wine industry trade event this morning.

Sales of wine in the U.S. had roughly double the growth last year compared with the previous few years, but California winegrape production isn't keeping pace now or expected to in the next few years.

Wine shipments to U.S. markets increased last year by an estimated 15.4 million 9-liter cases, or 4.5 percent, to 345 million cases from 2010, according to preliminary federal and industry figures through November analyzed by Jon Fredrikson of Gomberg Fredikson & Associates.

"It has been a marketing free for all in the market last year," the Woodside-based industry consultant told an audience of several hundred professionals at the Unified Wine & Grape Symposium in Sacramento.

The U.S. Trade & Tax Bureau last year approved about 120,000 new wine labels, he noted. Now more than 7,000 wine producers are funneling through 675 distributors, with 10 distributors handling 60 percent of volume.

Domestic shipments of California wine through November increased 4.9 percent, or by 10.3 million cases, to 209.5 million cases from 2010, according to Mr. Fredrikson's preliminary analysis. All U.S. wine shipments increased 4.7 percent to 235.6 million.

Sales of wine for on-premise consumption may have increased 1 percent to 2 percent last year, based on the National Restaurant Association's recent survey of patron traffic and a recent estimate by Rob Sands of Constellation Brands, Mr. Fredrikson noted.

But successful restaurant efforts in the past three years to change how they buy and sell wine -- adding more high-end wine by the glass and buying in larger volumes such as 26-liter casks -- suggest on-premise wine sales grew at a higher rate, he said.

Imports grew 3.9 percent to 109.8 million cases. The equivalent of roughly 25 million cases of wine shipped to domestic markets is figured to be contributed by imported bulk wine, Mr. Fredrikson said. Including bulk wine, imports grew to more than 115 million cases last year and account for 32 percent of the volume of wine sold in the U.S.

Exports of California wine soared 23 percent to $1.16 billion through November of last year over 2010, with shipments to Canada and Asia up sharply, Mr. Fredrikson estimated. Bulk-wine exports slipped 2 percent, but bottled shipments increased 12 percent.

The supply of California winegrapes isn't keeping pace with sales of finished wine and likely won't for three years, said Nat DiBuduo, president of the Allied Grape Growers marketing group.

"There will never be a glut in the near future," he told the symposium audience.

His organization estimates that California growers harvested 3.25 million tons of winegrapes last year, nearly to the 2007 level. The state will release its first estimate of the 2011 crush on Feb. 10.

Sales of California wine would require 3.61 million tons of grapes to be harvested in 2012, 3.68 million in 2013 and 3.75 million in 2014, according to Mr. DiBuduo. Estimates of statewide winegrape acreage, vine nursery sales and historical yields suggest up to 3.64 million tons could be harvested this year, 3.77 million next year and 3.91 million in 2014.

As the shortage became clear late last year, wineries sought to make up as much as possible with purchases of wine in bulk from domestic and foreign producers, according to Steve Fredericks, president of Turrentine Brokerage of Novato. A similar prognosis for bulk-wine sales was presented in Santa Rosa on Thursday.

"Strong high-end brands were back in the market to buy grapes this year," he said.

After a decade of oversupply of grapes and wine, the global wine business is short on both for a variety of reasons. That puts the business firmly in the third phase of Turrentine's four-stage "wheel" of industry cycles. This "emerging shortage" cycle will affect how wineries buy grapes and bulk wine, and this around the change is "drastic," favoring producers that control supply and maintain consistent quality, Mr. Fredricks said.

For the North Coast, Allies Grape Growers estimated the 2011 harvest brought 385,000 tons, a 15.2 percent decrease from 2010. The Central Coast was harder hit by a similarly wet, long season, reducing tonnage by 34.3 percent last year.

Growers around the state started irrigating vines in early January after little winter rain raised fears of frost damage if soil moisture were too low, according to Bill Paulli, a Mendocino County grower and 2012 president of the California Association of Winegrape Growers.

There's also concern that the early budding and long season is leading to weaker vine bud development this year, possibly leading to lower yield per acre, Mr DiBuduo said.

In other news from the symposium, Mr. Fredrikson named Napa-based DFV Wines, owned by the Indelicato family, his pick for top wine company of 2011. The company had 39 percent growth in packaged wine sales, up 1.3 million cases, including 56 percent growth for its Twisted brand. DFV produces more than 12 million cases a year, including a number of brands for other companies.

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