Wine producers move closer to market balance

March 3, 2011
A feeling of optimism radiated through the Sacramento Convention Center as wine sector leaders from around the world gathered in record numbers last week for the 17th annual Unified Wine and Grape Symposium.
During the event’s most popular and well attended session, the state of the industry report, a winegrape grower leader, a market researcher and a marketing guru discussed where the wine sector is now and where it is headed.
Nat DiBuduo, president of Allied Grape Growers in Fresno, estimated the 2010 California winegrape harvest at 3.18 million tons, down by 14 percent from the huge 2009 crop of 3.7 million tons and closer to production totals for the three previous years.
“This downward swing in production, coupled with increasing wine shipments, could go a long way toward re-establishing overall market balance,” he said. “Planting has slowed significantly at the high end. Most new vineyards in the state have been planted in the interior regions for value-added wines.”
Each year, Allied conducts a survey of grapevine nurseries in order to project planting intentions. DiBuduo reported that “depending on vine spacing,” total potential planted acreage will be somewhere between 14,000 and 17,000 acres. He said growers are planting mostly red grape varieties, particularly cabernet sauvignon, rubired and muscat Alexander, although the white grape chardonnay remains a popular choice.
DiBuduo said one concern being expressed by winegrape growers around the state is that land acquisition, vineyard development and production costs continue to increase and that current market prices for grapes remain mostly unsustainable.
“We caution growers throughout California to watch their growing costs while continuing to produce the best quality grapes they can. We must also look to our winery partners and ask them to re-evaluate those cultural operations that growers feel are important to them and realize that growers cannot continue to perform all of these viticulture operations if they are not provided with the financial resources to cover their costs,” he said.
“As always, the wine industry faces many challenges, from market issues to planning and relationship issues to taxation, regulation and process issues,” DiBuduo said. “The grape industry would not be anywhere without the wineries and the wine industry would not be anywhere without those grapes. It is imperative that growers and vintners work together.”
Wine is a very attractive product to retailers, ranking third in unit growth and dollar growth among 117 products represented on the shelves that are tracked by Nielsen, said Danny Brager, vice president of the Nielsen Beverage Alcohol Team. This compares to spirits (9th and 14th) and beer (40th and 21st).
Brager noted that while the economy is showing positive signs of recovery, consumers remain cautious and pragmatic, carefully assessing the costs and benefits before spending. Wine is faring relatively well and is less impacted than many other products.
Domestic wines, led by California, consistently outperformed imports, he said. For example, domestics hold a 98 percent share of wines priced at under $2.99 a bottle; 68 percent for wines priced $9 to $11.99; and 81 percent for wines priced $15 to $19.99. Imports have a larger share (54 percent) at only at one price point: $6 to $8.99.
While it is well documented that consumers shifted to lower-priced wines with the economic downturn of the past two or three years, there are clues that changes are under way.
“With the recovery through 2010, we saw a ‘trading up’ comeback,” he said. “But consumers are still acknowledging good quality wine at lower prices and are likely resistant to price increases,” he said. “Even with some acknowledgement that higher-priced wines are typically better quality, consumers broadly report finding good quality wines at lower prices, and many don’t plan to change.”
Chardonnay continues to lead in sales volume with more than 21 percent, according to Brager, followed by cabernet sauvignon, merlot, white zinfandel, pinot grigio, pinot noir, sauvignon blanc, syrah, moscato, Riesling, zinfandel and malbec.
Brager said that while the number of traditional wine consumers remains constant, there is an increasing number of wine consumers among the 55 million members of the “millenial generation” who have reached drinking age (21 to 34) and are showing a strong interest in wine as they shift away from beer purchases. More than half of the millenials who purchase alcohol identify themselves as wine drinkers.
Francesca Schuler, chief marketing officer for Treasury Wine Estates (Beringer and Stag’s Leap), agreed on the role that millenials will play in the future growth of the wine sector.
“This is a generation that was raised on the experience of going to Starbucks, not watching their parents drinking 7-11 coffee,” she said, adding that it is important to talk to them in a consumer voice, not an industry voice.
“It isn’t enough any more to just get your wines on the grocery shelf. You have to let people try it. You want everyone to visit your winery, join your wine club, to follow you on Facebook or Twitter or whatever they use,” she said.
Schuler said that established brands need to continue to evolve to stay relevant in the long term.
“There is an opportunity to rediscover California with innovative wine styles and refreshed brand propositions,” she said. “Consumers will try different things, but they base a lot of their buying decisions on familiar brands. They will trust a brand if they have been drinking it for the past five years or more.”
Schuler also noted that today’s consumers seek good value in their wine purchases.
“Consumers are concerned about value. Value is not just price, it is really a combination of quality, the experience they have and price, and that is how they define value. It is an important thing to keep in mind that it isn’t just about price,” she said.
This year’s symposium attracted a record 12,200 attendees. In 2010, the event drew 11,700 visitors. Since its inception, the event has hosted wine and grape professionals from around the world to discuss the latest trends, issues and needs.
“Both the record attendance and the outlook of many of our speakers point to an upswing in the wine industry’s economy,” said Lyndie Boulton, executive director for the American Society for Enology and Viticulture, which co-organizes the event with the California Association of Winegrape Growers.

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