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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