subscribe: Posts | Comments      Facebook      Email Steve

So are wine prices going up, down, or what?

10 comments

For the last week or so, ever since Silicon Valley Bank came out predicting a dire shortage of grapes,  there’s been a burst of stories that wine prices are spiraling upward, and will be for years to come. It’s become the standard narrative.

The news first surfaced in Silicon Valley, as you’d expect. Then it hit the Internet, spreading like an epidemic to the national stage, with this alarming if hyperbolic (so what else is new?) headline from TIME: Panic! Wine Prices Due to Rise

It even reached around the world; here’s a Reuters report published in the Times of Malta.

I haven’t seen this much press given to a wine story in a long, long time, maybe not since The French Paradox episode on 60 Minutes, 22 years ago. I found myself wondering how it grew so big, so fast. After all, there are studies on wine prices released about once a week. How did this one go so viral?

Then, yesterday, I came across this account, originally published in The Drinks Business, and picked up by Wine Industry Insight’s News Fetch, that called the whole “Panic! Prices Spiraling!” thing into question, basically for two reasons: first, there’s wine pouring into the U.S. from all over the world, not just California, so that, as John Gillespie, from Wine Opinions, was quoted, “There is enough wine.”

This was confirmed, in the Drinks Business article, by my old pal, Wilfred Wong, from Beverages, and More!, who told the reporter he hasn’t yet seen prices rising. If they were, trust me, Wilfred would be the first to know.

The second reason prices may not be going up is because the consumer remains cash-strapped. Even if a grape shortage (the result of short vintages) is real, that only affects supply. The other half of the eternal equation, demand, means that growers won’t feel able to increase their prices, because buyers (brokers, wineries, consumers) will tell them firmly that a hike in cost simply won’t fly at this delicate time in the recovery (if, in fact, there is a recovery).

To get the proper perspective on this, we have to understand that we’re talking about inexpensive, common, mass produced wines in this discussion of prices. I mean, the kind you buy at the supermarket or the big box store. Ultrapremium wines will not be affected by any grape shortage, one way or the other.

I’ve been around this business long enough to have seen several predictions that the sky is falling, only to have them turn out to be false. If you remember the phylloxera episode in California, everybody was saying it would destroy the wine biz. It didn’t. Similarly, in the early 1990s there was a wave of consolidation. People worried that pretty soon there would be no more small family wineries left. That was about 3,000 wineries ago, in California alone!

So I’m pretty sanguine that prices aren’t going through the roof. The higher they go, the less people drink, putting greater pressure on prices and forcing them downward. That self-correcting mechanism is built into the marketplace. It’s why wine prices will look pretty much a year from now like they do today.

  1. I agree with you on this Steve. There are few wineries that have tried to raise prices to some of my retailers and they no longer have inventories of these wines. I asked about one the other day that does about 50,000 cases and was using a score you gave it help it sell. They asked for a $1.00 more per bottled. This retailer sold 3000 cases of it last year. It’s winery is now out of that retailer!

    In Paso Robles I can buy all the grapes that I want, some folks have tried to raise their price but still have “for sale” signs up or are posting them online. Growers that lowered their prices the last couple years are now signing longer term contracts.

  2. Almost everything is more expensive, at some point wine will too. Last year I bought a bottle of Seghesio Sonoma 2008 Zinfandel for $15.20, this year it was $18.69 (Still a very good price); anecdotal, I know, but I’ve seen this sort of price increase with a number of mid-priced wines. Now for the cause, fuel for certain, I live in NH, but there are other economic forces at play, taxes among others. Certainly I’m not an economist, but that forgotten tool called logic plays a role as well.

  3. Dennis, I did a quick Google on the Seghesio 2010 Zinfandel (’08 is no longer considered the current release) and found it listed between $15-$20 around the country.

  4. Kurt Burris says:

    Steve: I am a salesman in the Sacramento area and there have been some wineries increasing prices a little. And only the ones who actually were selling all their inventory in 12 months. But there are also an equal number of post offs to move back stock. An example would be a prominent Napa producer that makes a very popular Chardonnay (and might have a connection to a cookbook) has cut the wholesale price on their Cabernet $15 a bottle. But no one advertises that. Unless you want to tick off your customers that paid full price!

  5. Steve,
    Like the old telephone game, the original story starts to lose the intended flavor as it’s repeated over and over. Far from a dire shortage or a spiraling up of prices, this is what we said:

    Domestic wine inventories evolving into shortage. Will last for some time.
    Increasing prices for grapes and bulk juice
    Modest retail bottle price increases
    Imports gain a larger market share
    The U.S. economy will gradually positively evolve with more middle class consumers jumping on the moving train
    2012 sales growth rates of 7-11 percent, a slight drop from the prior year

    :Increasing difficulty for third-party marketers who’ve sold with a culture of discounting
    The 5th Column is a viable and improving channel.
    The wealth divide is really more of a demographic divide.
    Millennials are the future. Gen-X is now. Boomers largest but will start to decline
    The euro will enter a weakening trend versus the U.S. dollar
    Imports gain a larger market share
    The U.S. economy will gradually positively evolve with more middle class consumers jumping on the moving train
    2012 sales growth rates of 7-11 percent, a slight drop from the prior year

    “Modest retail price increases” is hardly spiraling up, and “domestic wine inventories evolving to shortage” isn’t really a dire forecast either. But if you read many of the other stories that came from the report, that is something you might come away with.

    To your other point on the scope and buzz of the report: The industry is largely private and informed discussions are a little harder to find than many other industries. We spend probably too much time on this report each year and as a consequence, its been growing each year on both media coverage and expectations. This year I understand there were over 6,000 report downloads in just the first few days. Knowing the report is respected is the payment we receive for the effort. We also are all too aware that the story will always get moved around in the press over time.

    Hope you enjoyed the report and the humor along the way. Thanks for covering it here.

    Rob McMillan
    EVP & Founder
    Silicon Valley Bank Wine Division
    rmcmillan@svb.com

  6. Sorry, but I have to disagree. I think some of this reaction is in response to anticipation. Yes, there are more imported grapes coming in and yes, retailers are still resisting price increases. But overall, demand is trending upward, supplies are down, new (both domestic and foreign) wine drinkers are entering the market and wineries are reacting to those drivers. I think the trend will be increased grape prices and eventually, slow, modest increases in bottle prices. No doubt that second labels, value wines, and sale concessions will continue, but I don’t think this is an overreaction by any stretch of the imagination.

  7. …..sorry for the messy reply. I tried to sort down the predictions to the relevent ones you commented on and somehow messed that up.

  8. Thanks Rob for your valuable background info.

  9. jonathan r bates wine broker chatsworth ca says:

    Steve, excellent post! I could not agree with you more! I have 43 years in wine business and lots have changed! Great post, good show!
    Jonathan R Bates
    Wine Broker
    Chatsworth, CA

  10. Steve Hare says:

    It’s all about supply and demand. Wineries that now have an inventory shortage will raise prices (in the 4th quarter) while others that have a generous supply will either keep the prices the same or lower them. It remains a great mystery as to how the consumers will react to this…i assume it will all depend on what specific wine we are talking about.

    There is a whole lot of noise about the recession being over and folks spending again. That may be true for some but the vast majority of Americans are still in pretty rough shape finacially.

Leave a Reply

*

Recent Comments

Recent Posts

Categories

Archives