Wines & Vines Home
Welcome Guest

Wine Supply Is All About Control

Rabobank experts urge wineries to secure control of grape and wine supplies

by Andrew Adams
Napa, Calif.—If the market in the past decade rewarded nimble wine companies finding the best deals for grapes and bulk wine by playing the spot market, successful wineries in coming years will be the ones who control their supply chain.

That’s the message from industry analysts with Rabobank, who see global wine production continuing to decline and domestic consumption outstripping domestic production, leading to intense supply pressure in coming years.

Despite the large 2012 crop, Rabobank’s analysts see “structural limitations” to match the U.S. and the world’s growing thirst for wine with the available grape supply.

Wine companies that fail to secure their sources of supply “will face increasing challenges to grow their brands over the long term,” concluded the report by Stephen Rannekleiv, the executive director of the bank’s food and agribusiness research and advisory group.

Rannekleiv said it’s no longer about finding the right product at the right time. He said it’s more important to have control over your source of supply. “This is something we’re seeing across the food and ag chain,” he said.

During a session at the Silverado Country Club in Napa Valley, Rannekleiv and Vernon Crowder, a senior vice president and agricultural economist based in Fresno, Calif., discussed sourcing strategies with a group of winemakers, winery owners and other industry clients.

One bit of good news delivered by the pair is that they expect the U.S. economic recovery to accelerate later this year. They peg U.S. wine consumption to follow GDP growth at around 2.5% a year. “We seem to be recovering quite nicely,” Rannekleiv said.

Crowder said there’s little land available for more planting in California’s North Coast, and land in the Central Valley continues to grow more expensive. He said an acre of good land with water now costs between $12,000 and $15,000. Central Valley grape prices have soared in recent years, with Fresno County grapes prices growing by more than 200% and Madera County grapes by more than 150%. Grape prices in Napa and Sonoma counties have grown by less than 50%.

Sourcing options
Wineries should buy vineyards, consider new partners for grape contracts and ensure they’re making the most efficient use of available resources.

The growing demand for wine has kept vineyard land prices high. Buying property, however, locks in the source of grape supply for a winery and denies it from a competitor. “One option is just to bite the bullet and pay the higher prices out there,” Rannekleiv said.

That could mean purchasing property outside of regions where a company has traditionally found grapes. Rannekleiv pointed to acquisitions in the Pacific Northwest by big-name wineries in California. Washington has significant potential as a place to source wine grapes, but Rannekleiv said he doesn’t see other grape-producing states in the United States like Michigan, Virginia or Texas as being significant sources of U.S. wine supply.

Another option could be buying vineyards oversees.

Buying property in Chile, for example, could be a bold step to ensure the supply of U.S. brands, and the property could serve as a platform to launch brands into other Latin American markets such as Brazil and Mexico. An Argentinean acquisition could provide an especially competitive supply source if the country undergoes an expected devaluation of its peso.

Finding partnerships
Foreign expansion likely would pose too many risk and challenges for most U.S. wine companies, Rannekleiv said, leading wine companies instead to evaluate alternative partners for planting contracts.

Strong demand for almonds has in turn made grapes and land in California’s San Joaquin Valley more expensive. Almond growers have shown some interest in diversifying with wine grapes as a hedge against any drop in nut prices. Grapes are profitable and require less water than almonds. Investment firms continue to eye vineyards because of the potential for steady and growing returns. High land prices could present a challenge to moving forward with either type of partnership. “They still need to make it pencil out,” he said. “This is not a catch-all solution by any sense.”

Long-term contracts with bulk suppliers could be another option. Instead of playing the spot market, Rannekleiv suggested wine companies seek long-term contracts with foreign producers to control a segment of their supply. “A dedicated partnership with a foreign winery can lend a sense of place and history to a brand that can be difficult to replicate, and gives the supplier a vested interest in assuring quality,” Rannekleiv wrote.

Rannekleiv also noted that it appears many Napa and Sonoma wines are “under valued.” In his report, he states the average per-ton prices for Napa and Sonoma grapes ($3,578 and $2,181,) respectively) should yield wines priced between $22 and $36 on average. According to data from The Nielsen Co., however, most wines are selling for $15-$20. “This would indicate that a significant portion of high-value grapes are being under-utilized in lower priced brands that are not maximizing potential profits,” he told Wines & Vines.

Companies producing brands that sell for less than $20 will be under the greatest pressure to source from other California appellations or raise prices. Producers who sell wine for less than $20 because they own vineyards also will have to confront a growing opportunity cost. “The higher the price of grapes go, the higher that opportunity cost is,” he said.

In an email to Wines & Vines, Rannekleiv said it appeared wineries were set to bump retail prices near the end of 2012 but backed up due to dampened consumer confidence. That may not be the case near the end of 2013 and 2014. “Obviously the industry needs to try to pass through prices increases to offset the rise in grape costs,” Rannekleiv said.< /p>
Currently no comments posted for this article.

Wines & Vines Home
866.453.9701 | 415.453.9700 | Fax: 415.453.2517
65 Mitchell Blvd., Ste. A San Rafael, CA 94903
Wine Industry Metrics
Off-Premise Sales » Month   12 Months  
October 2014 $570 million
$7,775 million
October 2013 $539 million $7,342 million
Direct-to-Consumer Shipments » Month   12 Months  
October 2014 $284 million
$1,751 million
October 2013 $240 million $1,556 million
Winery Job Index » Month   12 Months  
October 2014 139
October 2013 131 192
MORE » Released on 11.13.2014


Practical Winery & Vineyard Library
Search the PWV archive »

Direct To Consumer
Wine Shipping Report
Download full report »

  • November 24-25
    World Bulk Wine Exhibition
  • December 2-4
    Vinitech Sifel in Bordeaux
  • December 3
    Sustainable/Organic Wine Production Seminar
  • December 4
    North Coast Wine Industry Expo
  • MORE »

Article: Kluge Saga Continues in Virginia »
Not everybody likes Pat Kluge, but she and Moses built a first class winery /...
Reader: Josh Moser
Article: Canada Adapts to Kegged Wines »
I am a wine agent in Manitoba & there certainly are kegs of cider here....
Reader: Guest
Article: What's Your Winery's IP Worth? »
If you would like more information on this seminar please visit The Seminar Group's website....
Reader: Danielle Bingham
Article: DtC Is Lifeblood of Wineries, Banker Says »
Seems like another locical option would be to have more small niche distrbutors. Consolidation of...
Reader: Guest
Article: Tasting Wine From PD-Resistant Grapes »
Congratulations Andy! Lots of grapebreeders and southern growers will be looking through the catalogs. i...
Reader: Guest

Directory/Buyer's Guide — Your Wine Industry Marketplace
Advanced Search »
   by Product
 by Company Name or Brand
Browse by Category »
2015 Directory/Buyer's Guide
The Wines & Vines Directory and Buyer's Guide
Wines & Vines Magazine
Digital Edition Now Available!
Wines & Vines Digital Edition Now Available
The Wines & Vines Online Marketing System
The Industry Standard winery marketing application
Latest Job Listings
 Tasting Room Position
 Sonoma, CA
DTC, Tasting Room and Retai
 Texas Area Manager
 Dallas, TX
Sales and Marketing
 Domaine Chandon On Cal...
 Yountville, CA
DTC, Tasting Room and Retai
 Cellar Worker Iii
 Yountville, CA
Winemaking and Production
 Wine Club & Dtc Manage...
 Glen Ellen, CA
DTC, Tasting Room and Retai
 Tasting Room/Events Ma...
 Placerville, CA
DTC, Tasting Room and Retai
 Calistoga, CA
 Experienced Sales Mana...
 Fresno/Bakersfield Area, CA
Sales and Marketing
 Oakville, CA
Winemaking and Production
 Accounts Payable/Accou...
 Napa, CA
More Job Listings >>
Follow Us On:

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

Advertise  |  Site Map  |  Contact Us  |  Privacy Policy
Copyright © 2001-2014 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.