Wines & Vines Home
   
 
Welcome Guest
LOGIN |  CREATE ACCOUNT
 
 

Editor's Letter

 

Who Will Miss the Market Share?

November 2013
 
by Jim Gordon
 
 
The economic picture for most wineries and grape­growers is very bright right now, as the second consecutive harvest with good quality and large quantity is about to be completed. Grape prices recovered earlier and held nearly steady this year, so vineyard owners are counting their winnings. The retail price of domestic wines rose 4% in off-premise sales, while revenue rose 7%, so wineries and the wine trade are counting their winnings, too.

Yet the view is complicated because the immediate picture is that of a moderate grape surplus, while the long-term outlook could be one of a shortage. That will happen if the long-term trend of rising consumption continues and little new grape production occurs.

In a closed system, that would mean long-term grape price increases and a rush to plant new acreage. But the U.S. wine industry is not a closed system and has not been for many years. California wineries have easily bought low-priced bulk wine from Chile, Argentina and Spain, filled their familiar bottles with it, or created new import brands with them. It appears to have been a profitable strategy, so is there a problem?

Too few acres being planted
The two related concerns we’ve heard mentioned most often are the erosion of market share by volume for California wine and the prospect that too few new acres of grapes are being planted to fulfill future consumer demand.

At the Wine Industry Financial Symposium in late September, David Freed, chairman of a large vineyard company, the Silverado Group, quoted statistics that the import share of the U.S. market in volume terms in 2001 was 22%, and in 2012 it was 35%. He asked where the new grapes are going to come from if demand keeps growing.

Maybe the deeper question is: Can the domestic wine industry, like that of Burgundy, lose market share and still be healthy as long as its sales revenues are growing? The sales value of U.S. brands has climbed by 7% off-premise and 10% in direct-to-consumer shipments during the 12 months ending in September.

Almost all price points and varietals of California wine brands are growing. What may be shrinking is the percentage of low-priced bottles from the largest brand owners that are filled by California-grown grapes. But they are in the import business, too, so their market share loss is muted.

California has more than 3,500 smaller wineries that sell wines at higher average prices. Most of them source exclusively from California vineyards, and they are also enjoying healthy sales growth. Wines selling at $20-plus per bottle grew 18% in value at off-premise locations during the 12 months ending in September, for example. These wineries are presumably not worried about the volume share shrinking either.

What about the California growers? They are the ones really losing market share. Trying to compete with cheap, imported bulk wine tends to force their prices down and potentially dilute the quality of their crops. In California’s biggest grapegrowing region, the San Joaquin Valley, some are concerned and others are not.

In the south valley those who struggled to compete already have replanted to pistachios, almonds and other specialty crops, and they are now making better returns than with wine grapes. They’ve moved on.

Growers from Stockton north, however, feel the challenge and are responding proactively by planting new varieties and boosting yields. Many winemakers have welcomed the higher yields with no great outcry about reduced quality.

In terms of planting new acreage up and down the state, the activity has not yet been dramatic. But planting is a big decision, farming is a conservative business, and it is apparent that more planting is still to come.

Emulating France
Does the California wine industry need to supply all price points with California-grown wines to be successful? Or is it OK to emulate Champagne and Burgundy, and succeed by continually raising the bar for quality and earning higher prices? We think this scenario is a good one for the California wine industry, but there is no denying the impulse to fight for volume.

“No one wants to sell less wine,” said Steve Fredricks, president of Turrentine Wine Brokerage. “People want to sell more cases. People want the momentum going forward because it reflects on their success.” This means the high-volume growers and wineries are going to defend their market share.

To revisit the French comparison, California as a wine-growing entity is more like the whole country of France than any one region. Some regions of California will succeed in the luxurious fashion of Burgundy. Others will succeed in the value tradition of the Cotes du Rhone and Languedoc.

 
SHARE »
Close
 
Currently no comments posted for this article.
 
 
SEE OTHER EDITIONS OF THIS COLUMN ï¿½ CURRENT COLUMN ARTICLES »


 
Wines & Vines Home
 
866.453.9701 | 415.453.9700 | Fax: 415.453.2517
65 Mitchell Blvd., Ste. A San Rafael, CA 94903
info@winesandvines.com
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Wine Industry Metrics
 
Off-Premise Sales » Month   12 Months  
July 2015 $603 million
6%
$8,136 million
6%
July 2014 $568 million $7,701 million
     
Direct-to-Consumer Shipments » Month   12 Months  
July 2015 $66 million
9%
$1,906 million
14%
July 2014 $61 million $1,674 million
     
Winery Job Index » Month   12 Months  
July 2015 323
4%
262
18%
July 2014 312 222
     
 
MORE » Released on 08.13.2015
Direct To Consumer
Wine Shipping Report
2015
 
Download full report »
 
 

Practical Winery & Vineyard Library
 
Search the PWV archive »
 
 

CALENDAR
  • September 6
     
    Harvest Wine Celebration
     
  • September 11-13
     
    Cincinnati Food + Wine Classic
     
  • September 17
     
    Winejobs.com Summit
     
  • September 18
     
    Owning and Operating an Urban Winery or Brewery
     
  • MORE »
 

READER COMMENTS
 
Article: Nielsen Unpacks Package Design »
 
Okay, I'll state the obvious (to anyone with CPG experience) - the Wine Biz is...
Reader: Joel Miller
 
Article: Nielsen Unpacks Package Design »
 
Very interesting reading. Certainly agree with the more indirect approach of evaluating the extent to...
Reader: Roger Brooks
 
Article: Experimental Solution to Pierce's Disease »
 
Congratulations to the team! It is amazing what can be done with biological controls. Keep...
Reader: Bruce Coulthard
 
Article: The Spiciest Wines You Have Ever Tasted »
 
There are some wines from New Mexico are infused with pepper flavors. Also, The Wine...
Reader: Guest
 
Article: Does Red Blotch Affect Wine? »
 
I have a grapevine in my polytunnel in east London which is showing signs of...
Reader: Guest
 
 


2015 Directory/Buyer's Guide
The Wines & Vines Directory and Buyer's Guide
 
 
EXPANDED ONLINE SEARCH INCLUDED WITH PURCHASE
 
ORDER NOW »
 
LEARN MORE »
 
 
Wines & Vines Magazine
 
 
   LEARN MORE »
 
   SUBSCRIBE »
 
Digital Edition Now Available!
Wines & Vines Digital Edition Now Available
 
LEARN MORE »
 
ORDER NOW »
 
 
The Wines & Vines Online Marketing System
 
The Industry Standard winery marketing application
 
FREE LIVE DEMO »
 
VIEW VIDEO »
 
 
 
 
Latest Job Listings
 Wine Educator & Hospit...
 Santa Rosa, CA
DTC, Tasting Room and Retai
 Wine & Beer Sales Rep
 Dallas, TX
DTC, Tasting Room and Retai
 Full Time Retail Wine ...
 New York, NY
DTC, Tasting Room and Retai
 Financial Analyst
 St. Helena, CA
Finance
 Wine Sales Representat...
 New York, NY
Sales and Marketing
 Tasting Room Manager
 Healdsburg, CA
DTC, Tasting Room and Retai
 Territory Sales Rep - ...
 Modesto, CA
Sales and Marketing
 Wine Sales Specialist
 Boulder, CO
DTC, Tasting Room and Retai
 Tasting Room Associate...
 Sebastopol, CA
DTC, Tasting Room and Retai
 Communications/Public ...
 Santa Rosa, CA
General Administration and
 
More Job Listings >>
Follow Us On:
 
 





Home  |  About Us  |  Editors  |  Subscribe  |  Print Edition  |  Digital Edition

Advertise  |  Site Map  |  Contact Us  |  Privacy Policy
 
 
Copyright © 2001-2015 by Wine Communications Group, Inc. All Rights Reserved.
No material may be reproduced without written permission of the Publisher.
Wines&Vines does not assume any responsibility for any unsolicited manuscripts or materials.