December 2008 Issue of Wines & Vines
 
SUBSCRIBE   »
 

Solid, Balanced, Swaying?

In an uncertain economy, speakers see three states of being for 2009

 
by Jim Gordon
 
 
    HIGHLIGHTS
     

     
  • Keynote speakers for the Unified Symposium previewed their analysis of the wine industry economy.
     
  • Prospects looked good for growers, fair for wineries buying grapes and bulk wine, but mixed for wineries as they sell to a cautious market.
     
  • A short harvest in 2008 is expected to approximately match softening demand after several years of oversupply.
     
  •  

     
    State of the Industry Jan. 28, 8:30-11:30 a.m.
It sounds like a riddle: What's solid at one end, tentatively balanced in the middle and swaying uncertainly at the other end? It's not the Golden Gate Bridge during a seismic event, but the wine industry economy at the beginning of 2009.

Headline speakers slated for the Unified Wine & Grape Symposium's keynote session Jan. 28 about the state of the industry described three different states of being as they previewed for Wines & Vines their outlooks for wine production and sales. Prospects looked good for growers, fair for wineries buying grapes and bulk wine, but roiled for wineries moving cases to the market.

The overall supply/demand dynamic has moved toward a grape shortage now that recent light harvests and good sales have virtually dried up the lake of bulk wine that formed after the bumper crop of 2005. This has enabled many growers to command higher prices from wineries and to negotiate contracts from a stronger position, confirmed Nat DiBuduo, president of Allied Grape Growers.

In the middle of the chain, Bill Turrentine, president of Turrentine Brokerage, said that a decreasing supply has "pretty well balanced out more conservative demand projections, and the bulk and grape market prices mostly held steady through the harvest."

At the consumption end, restaurant wine sales are down, but some food store sales are up; expensive wines are down, but lower-priced wines are up; imports are down, while some California wineries continue to grow. "It's a period of market turmoil," said Jon Fredrikson of winery consulting firm Gomberg, Fredrikson & Associates.

Alternative text
 
"Our members are in a better position now than they have been in the past five years."
--Nat DiBuduo, Allied Grape Growers
DiBuduo, whose organization is a 500-plus member marketing cooperative based in Fresno, Calif., sounded cautious when speaking at the 2007 and 2008 Unified symposiums. "Things are looking better now," he said, for growers who may be negotiating new contracts this winter. "I've been bullish this year. Our members are in a better position now than they have been in the past five years, in terms of negotiating fair contracts."

For one thing, the state of California estimated 3.4 million tons from the 2008 harvest, but it will be more like 3 million, DiBuduo predicted. Another thing bolstering grapegrowers' bargaining power is that some have alternatives. "Growers have the option today of planting higher income-producing crops, like almonds," he said.

He hoped to bring the results of a new data-crunching formula to his 2009 Unified presentation for a more accurate prediction of supply and demand. In the meantime, the shaky state of the U.S. economy dictates that growers should remain cautious about planting more winegrape acreage, he advised. "It definitely means that growers have no business doing speculative planting."

Alternative text
 
"Bulk wine and grape markets signaled a change from excess to incipient shortage."
--Bill Turrentine, Turrentine Brokerage
Turrentine's take on grape supply was that after seven years of excess supply, California has very few non-bearing (new) plantings of any varieties except for Pinot Noir and Pinot Grigio. "Dynamics in the bulk wine and grape markets in 2008 have signaled a change from excess to incipient shortage," he said.

"However, the economic downturn has slowed the rate of casegood sales growth and also motivated retailers and wholesalers to trim inventories. This would have probably caused a softening in the market, but about the same time, it became evident that the 2008 crop was significantly smaller than most wineries had projected. Decreasing supply pretty well balanced out more conservative demand projections, and the bulk and grape market prices mostly held steady through harvest."

Wineries, their investors and lenders are in a cautious mood, Turrentine said. "We expect the grape and bulk markets to be relatively strong but exactly how strong will depend on consumer demand during the 2008 holiday season as well as the availability of credit. In a capital-intensive business, credit is a key factor in keeping markets functioning efficiently.

"Stay close to your bankers and lenders," Turrentine recommended. "Those with access to capital always have a decided advantage in times of tight credit. And remember that risk comes in multiple forms. Many are afraid of holding inventory, but when supply is tightening it can also be risky to carry less inventory than necessary to sustain sales. Brand value depends on sales volume; sales volume depends on supply. If you don't have it, you can't sell it."

He said the wine industry's goal should be to get through the "troubled waters" of the next year or two and position itself to benefit from the recovery. "If the wine business is holding together as well as it is in the midst of major economic woes, imagine how good it could be when the economy improves."

Cutbacks in travel and entertainment

Alternative text
 
"Restaurant sales have been hurt by the downturn in the economy."
--Jon Fredrikson, Gomberg, Fredrikson & Associates
Fredrikson typically recaps sales results in his Unified presentation and declares a winery of the year. He estimated the economy had pushed down restaurant wine sales by 15% to 20% this year. "Restaurant sales have been hurt by the downturn in the economy, plummeting stock market, business cutbacks in travel and entertainment, rising gas prices and consumer worries."

He noted that the off-premise business is not so gloomy. A.C. Nielsen reported wine dollar volume being up 5% in food, drug and liquor stores through Sept. 6. Food store sales for American wines priced $9 and above were trending down, but those below $9 were rising as consumers looked for bargains.

He described imports as "off sharply," the big losers being France and Australia, both down 16%. Yet, the 2008 results will still include plenty of good news. "Some of the largest California wineries are expanding in a period of market turmoil," Fredrikson said.

None of the three experts put all their cards on the table for these interviews in late October. They no doubt were saving some gems for their presentations in Sacramento. And with the wildly fluctuating stock market, a presidential race that hadn't concluded and almost three more months to observe their markets, the keynote speakers can be expected to bring even better insights to the Unified Wine & Grape Symposium.
 
SHARE   »
Print this page   PRINTER-FRIENDLY VERSION   »
E-mail this article   E-MAIL THIS ARTICLE   »
Close
 
Currently no comments posted for this article.
 
CURRENT MONTH'S FEATURES INDEX ยป