Not surprisingly, the state of the California wine industry session at the Unified Wine and Grape Symposium in Sacramento attracted a standing-room-only crowd of 1,500 to a hotel ballroom.
However, there was no dancing and singing, only a quartet warbling one sad country song after another.
Words and phrases like — comatose economy, brutal, ugly, shocking, oversupply, under-demand and brave new world permeated the presentations by:
• Nat DiBuduo, president, Allied Grape Growers, the state’s largest wine marketing cooperative.
• Banker/economist Jim Anderson of SVB Analytics.
• Erudite wine analyst Jon Fredrikson of Gomberg-Fredrikson and Associates.
• Glenn Proctor, wine broker, Ciatti Co.
Anderson recited a litany of governmental financial fiascos that have resulted in a “comatose” U. S. economy. After he predicted it will likely take a “long, long” time for the U.S. financial situation to come back to life, DiBuduo added an exclamation point that the last thing the California wine industry needs in 2010 is another large crop.
It was a cautiously optimistic DiBuduo who said last year that going into 2009 supply and demand was mostly “balanced.” Several things happened since then. The 2009 wine crop will tally out as huge — 3.5 million tons, DiBuduo predicted, second only to the massive 3.76 million ton 2005 crop.
The economy was floundering this time last year, and wine experts were predicting a sharp decline in premium wine sales. However, as a result, many were looking for a boost in value-priced, inexpensive wine sales.
Unfortunately, the economy went DOA, which more severely affected segments of the industry than expected. Wine inventories backed up at all levels and slowed cash flows. This trickled down to all growers and many small to medium sized vintners. DiBuduo said wine grape buyers disappeared at harvest last season.
Instead of buying lower cost grapes for the upside sales of value priced wine, they were likely at the ports unloading the bulk-wine equivalent of 25 million cases of wine California wineries imported last year. It was brought in by California wineries either to bottle in the state and label and market as imported wine or blend with California inventories or sell as “American” wine. That is legal with up to 25 percent of the wine in the container imported. Either way, it took away markets for California value price point wine grapes.
Fredrikson said overall almost 33 percent of the 323-million-case U.S. market was imported wine in 2009.
“Welcome to the brave new world,” said Proctor. Ciatti has 21 wine brokers stationed in eight countries. “California is no longer isolated.”
If California grape growers and small vintners did not know that before, they do now. Imports have played a significant role during recent individual years, but all the speakers at the Unified agreed market influence imports have become the new paradigm in the California grape business.
“It is no longer enough to know what is happening just in California,” he said. Other countries are planting varietals familiar in the U.S., so they can import them for Americans to drink.
While overall U.S wine consumption continued to increase (up 2.1 percent) last year, it was at a slower pace. However, California-produced wine shipments fell by nearly 4 million cases, almost 4 percent. It was the first decline in California wine shipments in 16 years. Napa Valley warehouse shipments were off 20 percent from the previous.
However, the seven largest wineries in the state – Gallo, Wine Group, Constellation, Bronco, Trinchero, Fosters and Delicato – increased case sales by 4.4 percent last year. Those seven control 75 percent of the wine shipments from California. Imports contributed to at least some of that growth.
The U.S. is the largest single wine market target globally because of its population and the fact annual consumption is only 2.5 gallons per capita. By comparison Australia’s per capita consumption is 6.5 gallons per capita. The U.S. market is also attractive since only about a third of the U.S. population of 308 million even drink wine.
Growers understand the new paradigm as is reflected in recent grapevine orders. A couple of years ago, industry experts were warning that California acreage would soon be insufficient to supply a growing U.S. wine market. Not much was said about a looming short wine grape supply this year at Unified.
In a survey of major nurseries conducted by Allied, plants have been ordered to plant only 18,000 to 20,000 acres of new vineyards with crops destined for the crusher.
This represents less than 4 percent of the statewide bearing wine grape acreage. And, Rubired (for concentrate) accounted for 9 percent of the total, DiBuduo pointed out.
For growers aching to plant, DiBuduo’s message has not changed; don’t do it without a contract.
Uncontracted grapes have been left hanging for lack of a home over the past few seasons.
By variety, DiBuduo recommends:
• Chardonnay: Okay to plant with contract in most areas of state. Avoid speculative planting for now.
• Pinot Grigio: Inventory is increasing; by 2011 there will be 25 percent more bearing acres than 2009. Avoid any speculative planting until impact of new acres is known. Market is very limited at higher price points.
• Sauvignon Blanc: Don’t plant. Market soft statewide.
• Cabernet Sauvignon: “If you cannot control itch,” consider Cabernet Sauvignon but only with contract. Demand for lower priced Cabernet is strong while higher-end weakened in 2009.
• Merlot: Don’t plant, but if you have viable Merlot vineyard, farm it.
• Pinot Noir: Don’t plant on coast due to future production increases. Supply will grow at all price points through 2012. He does not suggest planting Pinot Noir at lower price points due to long term viability.
• Syrah: Don’t plant Syrah, especially on the coast. Many wineries no longer make Syrah as a varietal. Demand is coming from use as blender.
• Zinfandel: Don’t plant white or red unless winery contract offered. Leave “old Zin” in the ground if vineyard is economically viable.
Not all was doom and gloom, just most of it. The economist offered that a few recently disseminated statistics indicate a slight economic turnaround may be at hand.
Fredrikson suggested not every small or medium size winery tanked in 2009. Some with “nimble” and creative sales efforts survived. His other points:
Wine sales continue to grow. “Wine sales have not fallen off the cliff like the auto industry” in the current recession, he points out.
Wine drinkers are looking for value and bargains. However, if and when the economy recovers, they may stay in the $7 to $10 price range.
“The consumer likes his $20 bottle of wine better than the $10 bottle he is now drinking, but not twice as much,” Fredrikson noted.
2007 was a good vintage and as those wines reach the market; they could boost sales, even in the troubled economy.
Look for deep discounts this spring to work off California wine inventories. This could spur consumer demand.
With the recent legalization for winery-direct sales to consumers in many states, small to medium size wineries are capitalizing there. It’s very competitive, however.
There has been proliferation of discount wine Web sites offering bargains, spurring consumption and reducing burdensome inventories.
Toward the end of 2009, food store sales took a “good blip” upward.
“If we can get through another year, the outlook looks more positive in 2011,” added Fredrikson.
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