Big changes on tap for California wine industry

NEW YORK CITY, N.Y.
February 3, 2010 9:43am

Declining demand for higher priced wines, coupled with increased imports of lower-priced wines has changed the landscaped for wine suppliers, according to a new Rabobank report.

“Domestic suppliers have been caught between consumers, who are demanding less higher priced wine, and an influx of imported lower-cost bulk wine,” says Rabobank Food & Agribusiness Research and Advisory Executive Director Stephen Rannekleiv. “The net affect for U.S. producers, particularly those in California, was a rocky 2009.”

In 2009, the U.S. market saw a reversal of what Rabobank terms the “premiumization trend” – where consumers began to migrate toward lower priced wines. For example, it says in its quarterly report on the wine industry, super-premium wines (those over $15 per bottle), which had enjoyed the strongest growth before the recession, fell by approximately 10 percent, and wines above $30 were down by an estimated 15 percent, even as overall wine sales grew.

Theoretically, this should have created an opportunity for California grape growers that supply fruit for lower priced wines, it says. However, because the United States has gradually become the most important export destination for international wines, suppliers such as Chile and Australia flooded the market with an increasing amount of low-cost bulk wine, which filled the gap created by the increase in demand.

“Moving into 2010, we’re likely to see sales of higher priced wines improve, but will remain well below pre-recession levels,” says Mr. Rannekleiv. “We may also see some improvement in the competitiveness of European wines because the euro is expected to decline relative to [the U.S.] dollar more so than other currencies.”

The dramatic decline in super-premium wine sales appears to have sparked a decline in the number of sales of high-profile, super-premium wineries in California, because buyers and sellers have widely divergent price expectations, Rabobank’s report says.

“Although stress has indeed been increasing for many super-premium wineries in California, one of the reasons more wineries have not sold is the large discrepancy in expectations between buyers and sellers,” the report says.

However, 2010 may see an increase in winery sales as pressure to sell increases, buyer and seller price expectations converge and alternative buyers increasingly enter the market, it adds.

For Argentina, Rabobank notes a “dramatic 23 percent decline” in production in 2009 due to drought, caused a 34 percent volume decrease of total exports. Most of the decline was a reduction of bulk wine exports, while bottled exports grew. In spite of the dramatic decline in volumes, export values only declined 1.3 percent.

The bank’s report also says soft global demand in 2009 aggravated oversupply in Australia. Production was down approximately 5 percent over 2008 and 18 percent below 2006 levels.


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