Grape leader Jeff Bitter says the California wine industry overall is purring like a well-tuned engine, yet beware of bumps in the road including foreign competition, alternative beverages, and rising input costs.
Bitter’s overall message included more wine industry positives than concerns during his frank message to about 300 grape grower members of Allied Grape Growers (AGG) at its annual meeting in Fresno, Calif. in July. About 150 grower members attended Allied’s second annual meeting in Santa Rosa (450 total).
Among the good news, Bitter said, “There’s more California wine consumed than ever before in the U.S.”
Bitter spent about 30 minutes expounding on today’s issues and short-term forecast for the wine industry. Bitter is AGG’s vice-president who pinch hit for absent AGG President Nat DiBuduo due to illness.
From the get go, Bitter addressed one of the top wine industry questions as the California grape harvest nears - will this year’s production meet or surpass the four-million-ton mark for a third year in a row?
“The answer is debatable,” Bitter said. “I’ve heard estimates from 3.7 million tons to 4.3 million tons for this year’s crop. We’ll see how it comes out.”
Industry chatter suggests tonnage could fall just short of the four million tons. Time will tell.
Bitter calls 4 million tons the new production “normal” in California; acknowledging that 4.5-million-ton crops are likely around the corner due to higher yields and newer vineyards entering commercial stride.
“The California wine industry remains strong – sales are strong,” Bitter said.
On other positives in the wine grape industry, Bitter noted California wines are branded and no stranger to consumer palates around the world. California wine represents about 10 percent of the world’s production.
“We are positioned in the (global) market where people recognize California wine as quality wine, regardless of the price points.”
U.S. consumers purchased about 375 million cases of California wine last year.
“I expect we’ll see 400 million cases sold in the U.S. in a short period of time,” Bitter predicted.
Wine drinkers from the 70-million-strong millennial generation – those 20-37 years of age – will be crucial to increasing wine consumption. Boomers (50-68 years young) comprise the largest group of Americans at 77 million.
While millennials enjoy wine, they also have a taste for other alcohol-based products. Millennials prefer a ‘beverage experience’ and eagerly try new products. They utilize social media to follow the latest beverage trends – as Bitter says, “What’s hip and what’s not.”
Yet a top wine selling point, compared to all other beverages, is that every wine tastes different which is a plus to the millennial generation.
“Wine is not Budweiser or Pepsi which tastes the same every time it is consumed. Drinking wine offers new experiences.”
A third positive for the wine industry is supply. Wine tanks are full after two consecutive record-breaking crops.
AGG predicts wine production will likely match shipments for the foreseeable future, based on industry shipment trends and recent plantings by growers.
“We don’t have a supply problem today so we don’t have to worry as much about imports,” Bitter said. “This gives the wine industry an opportunity to grow.”
Another positive is mid-high priced wines (over $10 per bottle) “are on fire” with consumers and experiencing strong growth. Sales are through the roof – mostly in the double digits.
Bitter cedes that Central Valley wine typically sells for less than $10/bottle. Yet the recession is over in the minds of consumers and buyers are opening up their wallets wider. Bitter suggests the Central Valley seek a place in the $10-plus market as blending material to increase sales and shipments.
On the challenges side of the ledger, foreign competition remains a large blip on California wine’s radar screen – specifically the chase for the under $5-per-bottle market.
Bitter suggests that the California wine industry allow foreign wines to fill the lower end of the market, and for California to focus on higher grape quality and price-point wines.
The Central Valley industry should focus more on marketing grapes, Bitter says, from Lodi to the south for blending into higher price-point wines.
A second struggle facing California is ‘categorical competition’ from other alcohol beverages, especially craft beer and cider. A Gomberg-Fredrikson report issued in January suggests cider shipments increased 67 percent last year, and Moscato wine, previously the hottest wine trend in the industry, only increased 5 percent in shipments.
A comment from a person in the crowd underscored consumer increased acceptance of flavored spirits - noting that bacon-flavored vodka is on the market.
According to the Wine Market Council, ‘high frequency’ wine drinkers (those who drink two or more glasses of wine per week) also enjoy a cold one - beer.
Bitter said, “This (competition) keeps the grape and wine industry on its toes.”
Cider brands, new flavors, and lower alcohol content beverages are especially popular with young women.
The third challenge ahead Bitter discussed was rising production costs industrywide, including scarcity concerns and pricing (water for example) and increasing labor costs.
“The minimum wage in California will increase 25 percent across the board from 2014-2016. Bitter asked, “How do you pass on a 25 percent increase?”
Escalating land costs
Land costs for vineyards continues to escalate – in the $20,000 - $25,000 per acre range overall. Once planted, the total investment jumps to $30,000 - $35,000 per acre.
“Before you even put a drop of water on it, it’s a terribly expensive cost,” Bitter said.
Tested by all these challenges, Bitter says, “The strong will survive and the weak will not in some cases. We have to watch our costs and make sure we are always viable with the product we have to offer.”
Looking specifically at 2014, Bitter was quizzed about the status of the grape concentrate market. Based on buyer inquiries to AGG - a wine grape marketing cooperative, he says the demand for Rubired for red concentrate and wine looks strong.
He briefly discussed demand for other wine varieties, noting that Cabernet Sauvignon, Pinot Grigio, Pinot Noir, Pinot Gris, and Petite Syrah are experiencing strong demand.
Bitter says less demand exists for floral grapes, including Muscat of Alexander, as well as other white grapes including Chardonnay and French Colombard, depending on the actual size of this year’s crop.
The Allied leader says winery tanks are mostly full of wine following two record-breaking crops in a row.
On the white concentrate market, Bitter says it is currently trading for about $10 per gallon while some concentrate from Argentina has sold for $7-$8 per gallon. The white concentrate market (i.e. Thompson seedless) could experience another challenging year, although the crop looks light and the demand from the raisin industry could be much stronger than in 2013.
“It’s been difficult to keep the market buoyant when foreign competition sells at a lower price,” Bitter concluded.
AGG marketed more than $100 million in grape and bulk wine sales in 2013. Its membership includes about 600 growers from Kern County throughout the San Joaquin Valley and five northern counties including Napa, Sonoma, Solano, Modesto, and Lake.