subscribe: Posts | Comments      Facebook      Email Steve

Global wine shortage could be good news for struggling wineries

13 comments

The shortage of California wine is rippling through the system, causing serious if not quite catastrophic consequences.

Winery principles tell me that when their sales forces fan out across the country, buyers are unhappy at the lack of supply and in some cases are personally blaming the winery!

I’m sure that distributors as well as retailers both on and off premise find themselves in an uncomfortable position when wines they’ve sold for years are suddenly unavailable. Of course, the rational part of them knows that no one at the winery is responsible for short crops: Mother Nature is.

But there’s a vein of paranoia that runs through the end users of the three-tiered distribution system like a low-grade infection, and sometimes these buyers can’t be sure if the winery really is low on supply, or is just cutting them out and pretending to be short.

It’s bad for the winery. If buyers feel the winery is shorting them, they might turn to someone else they can get product from, thus terminating what might have been a long relationship.

We’ve all been reading about a wine shortage, for instance here and here, which cites BofA Merrill Lynch that “Global supplies appear to be tightening simultaneously,” with government policies in Europe and Australia deliberately discouraging production, while bad weather in South America had the same effect.

The problem is exacerbated by increasing demand from China for U.S. and particularly California wineries, some of whom are selling a surprisingly high percentage of their top wines there.

Several highly placed producers have openly fretted to me about the shortage, wondering what their companies are going to do. But the truth is, they have few options. They can’t turn to Oregon because crops there run so short due to natural circumstances. Washington has huge, fertile spaces in the east, but that state’s frequent hard winter freezes intimidate California producers, who aren’t used to having entire vineyards wiped out in a single night.

The 2012 vintage, California’s biggest ever, threw the industry a lifejacket, throwing it into temporary balance, but it probably won’t be enough to overcome the result of prior years of below-average crops, coupled with increasing demand. As Gomberg Fredrickson’s Jon Fredrickson told the Unified Wine & Grape Symposium earlier this year, “California ran out of wine.”

The result? Higher prices. The trend is especially notable at restaurants, where by-the-pour prices are inching up. It’s curious that all this is happening just as the country (and world) seems to be emerging from the Great Recession, putting a little more money into the average consumer’s pocket. Are consumers willing to dig deeper for their daily Pinot Grigio and Merlot? I expect they are–and that’s good news for wineries that have gone through the hell of the past five years, and survived.

  1. hi, steve. i grew up with my dad farming grapes for a living and now we make wine. all told, we’ve been in this business forty years. if you actually have to live by what you make as a farmer and winemaker, as opposed to doing it for fun, it’s tough more often than it’s easy. these days, i wish i had more wine to sell. oh, well. i’ll live and so will the people who want to buy it.

    shortage means higher prices and higher prices are good. yeah, they mean i can change the spark plugs in my car, but they also mean i can pay the people who work for me more.

    finally, some few people, trade and public alike, will always complain about the price of your wine, no matter what it is. if people don’t like the price of the wine, they can do their best to live without it and i’ll do my best to live without them. i cannot change the way i do things or i’m out of business aesthetically and ethically. then i might as well be trading stocks or robbing liquor stores.

    there is decent wine and there is good wine. good wine costs more – at least partly – because it’s better. it also costs more to bring into the world.

  2. Judi Levens says:

    you need to correct the 2nd to last paragraph to say the 2012 vintage, since 2013 is still a mystery!

  3. STEVE!
    Simple typo, but in the penultimate paragraph you mean the “2012 vintage.” Unless you’re a soothsayer. Go ahead, say sooth.

    As to the restaurant trend in higher BTG prices, let’s not forget that many restaurants barely survived the lean years only recently behind us. In order to make up ground, restaurants often start taking a larger markup on BTG wines because it’s easier, and more acceptable to their customers, than marking up entree prices. Wine BTG is a cash cow for restaurants. So I wouldn’t assume that a shortage of wine (isn’t there a shortage every ten years or so?) is the genuine reason for the rise in BTG prices.

  4. He might be a soothsayer, preliminary indications are that the 2013 crop is going to be big again, and early.

    At this (very early) point we appear to be two weeks to one month early in degree days and flowering.

    Anything can happen, and your mileage may vary.

  5. Bill Haydon says:

    So, let me get this straight. A small and poor vintage: gotta raise prices because of scarcity! A subsequent huge but decent quality vintage: gotta raise prices because of quality! At the same time, an increasingly strong dollar is making the competition from Europe and South America for those glass pour slots at best cheaper and at worst holding steady.

    For all of California’s admittedly great universities, hasn’t anyone in the wine industry ever taken even an introductory course in economics or international trade theory? Meanwhile back at the farm, imports as a share of the total US wine market are up to 35% (from 18% in 1999) and projected, at current trends to hit 50% by decade’s end.

    All the while, California winemakers are eerily reminiscent of the refugees in Casablanca…..staring longingly at the 5:15 container ship to Shanghai and dreaming of one day being on it.

  6. Good point, Hosemaster. And yes, there do seem to be shortages every ten years or so. However, they’re not manufactured shortages–Mother Nature does it herself.

  7. To everyone who pointed out my vintage typo: Thank you for having my back!

  8. Dear Jake, thanks for weighing in. It’s always great to hear things from a winemaker’s point of view.

  9. Carlos T says:

    It’s curious that all this is happening just as the country (and world) seems to be emerging from the Great Recession.

    Really? Sorry, Steve, but i’ve just come back from Europa and if that’s a recovery what i saw, let’s pack everything and go to another planet. Anyone can read the news, but when you see a line of unemployed dudes going round and round a block, you can understand better the situation. Every single family in Spain has at least one person out of job, numbers-wise. I won’t even mention Greece and cohorts.

    As P. Krugman says, “it may not be a recession (it IS now), but it feels like one”.

    Mediterranean europe is in deep ‘mud’ and with no perspective in sight of recovery. Profound problems that will get worse before any silver lining. Eastern europe doesn’t fare much better and will sink along. Germany/Holland and the scandinavians are on another league and for a while will escape unscathed from all this. It’s sad.

    Don’t let the good news from stock market fool you.

    KW.

  10. Silicon Valley Bank has an interesting wine blog (http://svbwine.blogspot.com/2012/08/how-much-do-wineries-really-make.html#more). The recent blog shows that the average winery makes, before taxes, a 6.9% profit. Pretty small.

    So, to answer Bill’s question from above, “No, I don’t think anybody in the California wine business has taken an economics course. If they had, they wouldn’t be in the wine business in the first place.”

    Adam Lee
    Siduri Wines

  11. Hi,
    When I was winemaking in Australia a number of years back, there was a saying that the surest way to become a millionaire in the wine industry was to start out as a billionaire and invest in a winery…

  12. First- It’s not rude that people are pointing out your typos?

    Second- Will a shortage in wine/wine grapes increase prices? Has this happened before? (Remember I only started drinking wine 4 years ago) Before the recession how was the wine industry?

    I heard a colleague say around 2011 that the industry could do with a shortage because we had a surplus of wine/wine grapes and no one to buy them because the consumer demand was so low at the time. To my knowledge the past 3 years have only increased in fruit yield. Except for that one with all the rain late in the season… (was that 2010?) Anyways when consumers have money they are always willing to spend it on more luxurious products like wine. However I agree with the Unified Grape Symposiums observation that like apple juice the future of wine could be where the label reads “Made with grapes from; Argentina,China,Australia and California” because the demand will grow so exponentially that we could become like apple juice where we cannot meet the demand and have to source from every grape region corner of the world.

  13. Dear Kayla: It’s never rude when people correct a typo. It’s rude when they resort to personal attacks. Fortunately, only a few do. I think there will be an increase in wine prices. Wineries had to hold the line the last 5 years because of the recession, but with recovery, they’ll need to make up for lost ground. Consumers are still struggling, though, so I don’t think we’ll see runaway inflation. Wineries will take whatever modest price increases they think they can get away with. As for imports, I expect they’ll continue to grow, although pricing will be determined by the value of the dollar against the currency of the country of origin.

Leave a Reply


seven − = 4

Recent Comments

Recent Posts

Categories

Archives