Thursday, January 26, 2012

Expect wine prices to rise this year

California had its second small vintage in a row in 2011. Italy had its smallest wine grape crop in 60 years. Australia is still battling drought; yields are way down. The crop in Spain is smaller than normal.

So forget about vintage ratings: the way to characterize 2011 wines from most of the world is going to be "expensive."

This was the main thing I learned at the Unified Wine & Grape Symposium this week, where I was a panel moderator. Ironically, my panel was about how to sell wine from any kind of vintage, but in tight times like we're about to experience, selling might be easier than ever.

Steve Fredricks, president of Turrentine Brokerage, said stocks of bulk wine are at the lowest levels in 11 years, and that includes just about every type of grape. A bulk wine shortage will raise prices for wines you aren't currently thinking would be affected.

Here's why.

Since California's huge 2005 harvest, US wine has been in an oversupply mode. Wineries without vineyards could bottle Napa Cabernet and sell it for $20. That meant wineries above them had to lower their prices to compete -- and wineries below them had to keep their prices down, because why pay $20 for, say, Paso Robles Zinfandel when you could have Napa Cab for the same money? Wineries had to offer discounts to distributors or risk losing their placements in stores and restaurants to cheaper upstarts.

The discount daisy chain has become expected. Consumers feeling pinched by the economy demand cheaper wines. Wine stores demand discounts from distributors, who demand discounts from wineries. And everybody had wine to move, so they kept giving in.

Now, though, for the first time in a while, some wineries can say to some distributors, "Sorry, we don't have as much this year, so we can't give you that discount. We'll sell what we have elsewhere." Distributors looking around for cheaper substitutes won't find as many.

Forget about quality: that doesn't have as much impact on price as you might think. Pricing is all about supply and demand. In the US -- now the world's largest wine market, with the gap between us and No. 2 France growing rapidly -- demand has steadily risen while the supply, both domestically and globally, has taken a huge two-year hit.

How important is California's small harvest to the rest of the world? Quite important: the state now represents 9% of global wine production, about half as much as the entire nation of France and more than twice as much as Chile or Australia. So while Languedoc production was up 10% and Bordeaux has spare wine (Fredricks: "There is plenty of wine in Bordeaux if they could ever figure out how to make wine to meet the world market."), that won't hold down prices overall as much as you'd expect.

Even the high end will be affected by the small harvest, again because of the end of discounting. Wineries that have built up multiple ways to sell their wine won't be as eager to cut prices.

So prepare to spend more on wine in 2012, no matter how the vintage is characterized and rated. (And yes, that's another story for another day.)

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1winedude said...

Fresh from the Union des Grand Crus de Bord'x tasting in NYC, and here is a quote from a salesperson I met there regarding prices for the 2009s:

"Whatever you think the price is, add... A LOT!"

Not exactly on-topic, but given the subject matter I *had* to share that! :)

Dapz said...

Great post,
"Pricing is all about supply and demand".
Could not agree more. That always explained to me why Burgundy is so expensive. Such small domaines and negociants producing a relatively small quantity of wine with a huge demand. What i don't quite grasp are the Bordeaux prices. The Chateaus are very large, use high vinification technology and produce an outrageous large quantity of wine. Shouldn't their prices, by the laws of supply and demand, be lower than Burgundy's? Or is the demand for BX much higher than for Burgundy?
Thanks for the post!

W. Blake Gray said...

Dapz: I think the demand is that much higher for Bordeaux. Burgundy remains more of a specialized market, whereas you don't have to know anything to buy Bordeaux -- and in fact, people with more money than wine sense seem now to be Bordeaux's main market.

Gail said...

Great concise reporting, that my followers will love.
Thanks so much...will share and give you credit.


New Hampshire Wineman said...

Let me see! Coffee is up 22%, fish is up 33%, bread is up 15%, but then that's food; oh, wine is food too. That might explain some of this. Keep in mind wine futures are up, and as an investment, certain wines are worth investing in.

Dapz said...

That makes a lot of sense Gray, Thanks :)

Mark Golodetz said...

Sales people can say what they like, but Bordeaux prices are not going up, and I expect to see them lower. A lot of 2009s and 2010s are still stuck with the trade and as yet, not been sold to consumers.

Fortunately interest rates are low, but even so, these are the two most expensive vintages in history, and it will cost a good deal to carry the wines.

Also look at the secondary market, particularly 2005s, a very high quality year, where prices are stagnant, and that will give you an idea of how worried the merchants are. They have plenty of stock, some demand but it's far from overwhelming. And to keep alliocations, they will need to buy 2011 (which, luckily for them, is a relatively small vintage).

Expect a few of the less well financed houses to drop prices just to get some cash flow. Far from expecting higher prices, I am looking out for some really good deals over the next few months.

W. Blake Gray said...

Mark: Nobody can predict Bordeaux prices' future more than you, so I will not disagree.

Wine prices in general will rise, but I'm sure you're right that classified Bordeaux will be the exception.