More Demand Seen for Central Valley Grapes
California forum offers optimism for winegrape growers in San Joaquin Valley
David Kent, CEO for The Wine Group (TWG) headquartered in San Francisco, which purchases 25% of the grape production from the Southern San Joaquin Valley, discussed wine market and varietal trends for consumer age groups by generation. In 2006, TWG started its Underdog Wine Merchants business unit to produce and market a portfolio of wines for post-Baby Boom-generation consumers. Underdog includes Fish Eye and Cupcake, which Kent called "one of the hottest brands in the country today." TWG is the second largest wine producer in the U.S., and the world's third largest producer by volume, with annual sales of nearly 60 million cases, and expected 2010 export sales of 10 million cases.
TWG owns 10,000 acres of vineyards, but buys a major portion of the grapes it processes into wine. The company also buys bulk wine, sells finished wine, and sells its own brands ranging from bag-in-box to premium, bottled wines. "We have a lot of moving pieces in our operation, because the consumer is a moving target," Kent said. "Wineries need to reinvent themselves, just as retailers reinvent themselves," he observed. TWG brands include Franzia, Corbett Canyon, Glen Ellen, Foxhorn, Mogen David, Almaden, Inglenook and Concannon. TWG also produces the Oak Leaf Vineyards brand for WalMart, which retails at about $3 per bottle.
Kent said TWG believes that consumers want the following varieties, currently underplanted in these regions:
• Southern Central Valley -- Chardonnay, Cabernet Sauvignon, Moscato and Pinot Grigio. Kent explained, "Here in the South Valley, it's more fundamental, we need Chardonnay and Cabernet (to meet demand for core box-wine varietals), but also growth in Moscato and Pinot Grigio."
• Northern Central Valley (includes Lodi) -- Moscato, Riesling, Pinot Grigio, Viognier, Malbec and Pinot Noir.
• Central Coast -- Albariño, Torrontes and Grüner Veltliner, to meet growing demand for floral whites; for red varieties, Malbec and Grenache Noir. TWG purchases 10% of Central Coast grape production, much of it used in the Cupcake and Fish Eye labels.
Kent said, "I feel as strongly about the market for Malbec as I did about Pinot Grigio in 1995, when we started to put it in the ground." He also discussed the steady consumer demand for sweet wines. "Fifty percent of the population will always drink sweet wine. It's not a culture or educational issue, it's a genetic issue (due to sensory factors/preferences)," he said. "Moscato (also called Muscat Blanc or Muscat Canelli) is where Generation Y will go for sweet wine, rather than with White Zin as the Boomers did. I think Moscato will become as big a business as Pinot Grigio, if not bigger," he added.
Kent, who is also the 2010-2011 first vice chairman of The Wine Institute, cited current economic factors influencing the market for value-priced wines. Since the recession, 37% of Baby Boomers are now in a job that pays less than they previously made. Generation X is the first generation in U.S. history to earn less than the previous generation.
Kent offered some advice for grapegrowers:
1. Grow what consumers drink. "You have to get realistic. Growers and wineries don't have the resources (advertising dollars) to convince consumers to drink what they have," he observed.
2. Outrun the other campers. Reduce costs and improve yields to ensure your market price is sustainable. "As hard as it is to do business in California, we have a good strong domestic market. I think you can have high quality and good yields with balanced vine growth," he said.
3. Enjoy the home-field advantage. Fees for duty plus freight plus bulk processor margins will dissuade wineries from looking elsewhere if you grow what the market demands.
Kent and other speakers indicated that grape contracts -- and longer-term contracts -- will likely play a bigger role in the market again, but all parties will have to be more realistic regarding prices.
New acreage added, still more needed
Jeff Bitter, VP of operations for Allied Grape Growers (AGG), a 600-member statewide grape marketing association based in Fresno, discussed the 2010 harvest and future outlook for the California grape and wine industry. AGG estimates the 2010 California grape harvest at 3.15 million tons, down 15% from the 2009 harvest, and below what AGG estimates should be a statewide average of about 3.4 million tons. Bitter said southern Central Valley vineyards had closer to average yields than Coastal and Lodi vineyards in 2010.
Although overall California planted acreage trends shifted from the interior toward the coastal re gions between 2000 and 2009, that now seems to be reverting toward the interior, AGG estimates of recently planted acreage indicate. Based on its annual survey of nursery vine sales, AGG estimates that 18,000 to 22,000 acres were planted statewide during the past year, with the highest percentage planted in the Central Valley for the value-priced wine market.
Bitter noted that demand continues for coastal grapes, but not at the same prices as previously. He said, "The wine market is experiencing excess supply, but it is limited to the upper end of the market." He commented that trends in the grape concentrate market have increased demand and prices, giving Central Valley growers another sales option. Bitter concluded, "There's more to be optimistic about than there has been since the mid-1990s here in the Central Valley."
Dr. Jim Lapsley, who specializes in wine economics, marketing and California wine industry history, provided information on wine consumption trends that appear favorable for Central Valley growers. Lapsley is retired from his long-time position at the University of California, Davis (UCD) as director of the Ag Extension program, but continues as an adjunct professor and researcher in Viticulture and Enology and at the UCD Agricultural Issues Center.
He said California produces 60% of the wine consumed in the U.S., with half of this priced at under $5 per bottle and grown in the Central Valley. The U.S. is already poised to be the world's No. 1 wine consuming country by volume in the near future. Lapsley believes U.S. wine consumption will continue to grow faster than population growth.
Per capita consumption going up?
Although current statistics show that 30% of American adults consume wine, and 43% of adults abstain from all alcohol consumption, Lapsley believes the abstention rate will decrease over time, and per capita wine consumption will increase. He predicted both population growth and wine consumption growth in the Hispanic market as a factor.
Overall, he estimated as much as a 38% increase in table wine consumption in the U.S. To meet this demand, Lapsley said, "The Central Valley needs to expand production by 500,000 tons, or add 42,000 new acres producing at 12 tons/acre by the year 2030."
Another factor affecting ag land economics and planting decisions in the Central Valley is the price of nut crops, such as almonds, pistachios and walnuts, which in recent years have provided a higher average income per acre than grapes in many locations. Vineyard owners now have options to plant other crops that may have higher market value. Farmland values have remained stable in the Central Valley, compared with vineyard values in some coastal locations, in part because Central Valley farmland allows more options for production of different crops and for other ag uses.
Citing data related to California Crush Districts 13 and 14 (Madera, Fresno, Tulare and Kern Counties), Lapsley said of the 105,000 acres of grapes now planted in these districts, 93,000 acres are 10- years-old or more, and will probably be pulled by 2030. He asked, "Will this acreage be replanted to grapes, plus another 40,000 acres added to meet increased demand for wine, or will those acres be planted to other crops?"
Lapsley concluded, "Wineries will have to provide long-term contracts to growers, or they will have to start planting more of their own vineyards."