Market trends benefit California wine business

The industry remained highly competitive and price sensitive in 2012.

A feeling of optimism permeated the Sacramento Convention Center as thousands of wine sector participants from around the world gathered last week for the annual Unified Wine and Grape Symposium.

Described as the largest show of its kind in the Western Hemisphere, Unified drew a record attendance of 13,400 people from 30 different countries. Very few in attendance had any complaints about the current state of the wine business. In fact, the general consensus was that the rosy times will continue for the foreseeable future.

Winegrape growers in particular are enjoying strong prices and a ready market for the grapes they produce. Despite an expected record California winegrape crop in 2012—the final figures aren't in yet—a shortage of premium winegrapes remains.

During a "state of the industry" forum that is the most popular event during the three-day show, four wine experts laid out their assessment of where things stand for growers and wineries alike, then gave their visions of where things go from here.

Nat DiBuduo, president and CEO of Allied Grape Growers in Fresno, predicted that the 2012 California crop numbers would come in at 3,885,000 tons crushed, making it the largest crop in state history, surpassing the 3,703,021 tons produced in 2009.

"The large 2012 crop was a blessing, not a curse. The immediate future looks relatively balanced regarding supply and demand," DiBuduo said, adding that a short California crop this year would have encouraged imports from countries such as Chile, Argentina, Australia and New Zealand, which are all fighting for space on supermarket wine shelves in the United States.

California had 520,000 bearing acres of winegrapes in 2012, which yielded nearly 7 1/2 tons of grapes per acre. For 2013, there will be another 15,000 acres coming into production and DiBuduo estimated that by 2016, winegrapes in California will be grown on 590,000 acres, producing nearly 2.2 million tons of fruit.

DiBuduo noted that factors driving winegrape prices have been in the growers' favor lately, but that he can remember only a few years ago when the opposite was true.

"Our industry will continue to face the everyday pressures of global competition, economic uncertainty, regulation and taxation, fluctuating crop sizes due to Mother Nature, and indecisive and fickle consumers," he said.

Presenting a worldwide view was Glenn Proctor of the Ciatti Co., a global wine and grape broker with offices in eight wine-producing countries. Proctor pointed to a shift in consumer buying patterns, from selections based on wine regions to decisions based more on variety, price and brand name. As a result, he said, U.S. wineries now import more bulk wine and bottle it under their recognized labels.

"Wine companies are willing to source from more regions. With tighter California supply and stronger pricing, we are seeing wineries sourcing more bulk wine internationally for many price points, not just entry level," he said.

Proctor said the global market will continue to grow in importance, with wines being produced in such countries as Chile, Argentina, South Africa, Australia, Spain and France. He also noted that while plantings in many of the traditional producing countries have been flat or in decline, significant plantings are taking place in China, Chile and New Zealand.

Wine drinkers in the United States—who account for 13 percent of all wine consumed globally—are the target market, creating strong competition among producers. For California winegrape growers and wineries to compete, Proctor said they must embrace the global market, expand export opportunities, optimize efficiencies and create their own opportunities.

A third presenter, Charles Gill of Winemetrics, focused on restaurant wine sales, which have suffered with the worldwide economic downturn. Restaurant wine sales will see very slow growth over the next few years, he said. While by-the-bottle sales in restaurants have slipped, those declines have been somewhat offset by increases in by-the-glass wine purchases.

Gill offered suggestions to boost wine sales in restaurants, including recommendations; tastings and half-glasses; and placing the wine list on the menu rather than separated.

Like the other presenters, Jon Fredrikson of Gomberg, Fredrikson & Associates acknowledged the high level of competition among wine-producing nations and individual wine companies.

"The industry remained highly competitive and price sensitive in 2012, as thousands of producers from around the world all vied for shelf space in the world's largest wine market," he said.

Outlets for purchasing wine for both take-out and on-premise consumption have increased by about 12 percent in the past five years. Fredrikson cited a Nielsen Co. report that outlets for selling wine grew in the last five years by 60,000 to an estimated 507,000 outlets in 2012. On-premise outlets also increased by 12 percent to 332,000 outlets.

"There are more wine bars now, even in some airports. Starbucks is now serving wine at selected stores in six large markets and more locations will open this fall," he said. Those markets are Los Angeles, Chicago, Seattle, Atlanta, Portland and Washington, D.C.

Fredrikson said the possibilities for expanded sales are enhanced by such large retail outlets as Walmart, Target, Walgreens and CVS, all of which now have wine sales. Another growing segment is Internet sales through such sources as Wine.com, Amazon.com and Facebook Gifts, where someone can send a bottle of wine to a Facebook friend with a few clicks of the computer mouse.

(Steve Adler is associate editor of Ag Alert. He may be contacted at sadler@cfbf.com.)

Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item.