CaptureUpdated reports are coming in on harvests around the world. The government projections in Argentina have changed dramatically over the past month. Earlier crop reports had projected a 30% decline in volume, but new reports now estimate only a 6% decline from the previous year. In Italy, an updated harvest report now shows that they had a much larger than previously reported crop in 2013, and now holds the title of largest wine producer in the world. Chile continues to report a significantly smaller crop than last year, while Australia and South Africa are expecting average returns.

This Coffee Shop article is an excerpt from the Ciatti Global Wine Grape Brokers’ Global Market Update (Volume 5 Issue No. 5). Here, we focus on the California section of the report. We also included the Buyer’s Corner. See the full report for global wine market update for countries including Argentina, Australia &New Zealand, Chile, France, Germany, Italy,  South Africa, and Spain.

California Market

The California bulk market has experienced some slowdown, especially in the central valley region. Inventories remain high on several varietals, and storage capacity will be at a premium. Crop estimate reports are mixed in California and it remains to be seen what effects, if any, the draught will have on the coming crop.

US sales continue to grow but reports seem mixed. Sales for premium wines continue to pace, along with solid growth for many brands. Value and economy brands show slower growth and even decreases, with the exception of foreign sourced bulk wines. Over the previous year, price increases at the lower end, along with less producer support and emphasis, could be a cause.

Ciatti listings of California available bulk wines have swollen to over 100 million liters across all varieties. The majority of this comes from the Central Valley, but a large percentage is also being carried from the coastal appellations. Pinot Grigio is tight from all areas. Cabernet Sauvignon demand remains solid and inventory is tight in the premium appellations, with more available from the California segments. All other varieties are readily available with Sauvignon Blanc, White Zinfandel and Red Zinfandel becoming a selling concern, as wineries see another vintage looming.

Figure 2

2014 crop reports are also mixed. Recently reported cluster counts of the interior region show decreases from last year for almost all varieties. Other reports from some field reps counter those decreases and are more optimistic. Obviously, the lack of water and crop sizing will be the real indicators during the coming months. Frost damage has been non-existent and our bloom period is currently progressing.

California Bits and Pieces

The potential of a west coast port strike in July has many wineries scrambling to ship containers quickly, in both directions, in advance of any stoppage.

Buyer’s Corner

“You can’t connect the dots looking forward; you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future. You have to trust in something – your gut, destiny, life, karma, whatever. Because believing that the dots will connect down the road will give you the confidence to follow your heart even when it leads you off the well worn path; and that will make all the difference.” – Steve Jobs (June 2005)

Perhaps we can look back 20 years or so, and see what the future holds…

Consumption: In the mid 1990’s the economy was booming, baby boomers spent freely on trusted brands, and wine was the favored alcoholic beverage of which we drank 179 million cases, or about 8.5 liters per legal age drinker. Today, the economy has been somewhat less robust (very PC, we know), baby boomers are watching their spending, craft beer and craft spirits seem to have captured consumer fascination, but we now consume 375 million cases, or about 14.5 liters per legal age drinker, so the business still looks good!!

Sales: Gatekeepers have always played a key role in what gets on the shelf and wine list. The past-favored trusted brands and family names; the rule today is Brands, Private labels and Control brands. The rate of change and the consumer preference is swift and unmerciful. In the Off-Premise channel, which is 80% of the market, the broad market dominance has been replaced by large retailers, clubs, specialty retailers and internet retailers, adding levels of complexity to sell, but significant opportunities to consumers to connect with wines from around the world. In the On-Premise channel, the cycle of products on and off the list is more rapid and the mark-ups have increased dramatically.

Wholesalers: While often cited as the bane of wineries existence, their life has been no picnic either. Constant consolidation and a plethora of new brands continue unabated. Twenty years ago the largest wholesalers had 10,000 sku’s, today 20,000 is common….in many cases brands just get lost. Even in smaller wholesalers the sku count has grown from 1,000 to 5,000! Thus, the decision of who should sell your brand continues to be a daunting task.

Producers & Importers: Additionally, let’s not forget the producer: Twenty years ago perhaps 25 – 30,000 sku’s existed, while today over 125,000 crowd the shelves and more follow each day! Combine this with the huge increases in craft beer and spirit brands, and the shelf becomes a battleground for your brand.

…So finally, while challenges exist, the bandwagon continues to roll on, and the market adapts!!