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Rod Byers: Stormy weather on the horizon

Rod Byers
Columnist

Way back in the day, like six weeks ago, it was my intention to write about changing wine trends based on two recent industry events. Neither one involved a virus.

The first was the highly influential Silicon Valley Bank Annual Wine Report that came out in January. The other was February’s Unified Grape Symposium, the largest wine trade show in the country. There is no better place to find out what industry leaders are thinking than from the panels they assemble.

Both described significant challenges for the immediate future of the wine industry.

Wine consumption in the U.S. has been on a growth bender since 1991, during which time America became the leading wine consuming country in the world. For over 25 consecutive years, through several economic downturns, wine sales have delivered positive growth.

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It’s important to do your part. Stay home and have a glass of wine.

Premium California grape acreage rode a similar wave. A continual flow of new grape acreage, at higher prices, was absorbed by the ever-increasing demand. Fueled by the Baby Boomers as they graduated from generics to fighting varietals to premium wines, wineries could afford to pay higher grape prices because they could raise their prices justified by demand.

There have been warnings since 2018 that change was coming. Now for the first time in more than a generation demand is slowing. The Silicon Valley Bank report could not have been more blunt declaring “We’re transitioning to a period of flat to negative sales volume growth, low to negative sales value growth and a surplus of grapes that will take several years to normalize. That will force grape prices lower.”

The record setting 2018 bumper crop was the proverbial straw. It flooded everyone leaving no room, or demand for the excess. Unable to put anything but a sunny face on things, Napa grape prices increased again in 2019 while at the same time Napa grapes offered on the spot market at a 50% discount were going unpicked.

The sobering Silicon Valley Bank report continued, “We are at a position of oversupply across the entire supply chain. That extends through retail and every growing region in California at every price point. For California, this is the worst combination of market conditions for growers since at least 2001 and perhaps of all time.”

The wine industry wants to blame it on the millennials, who are blaming it right back on wine. The wine industry watched the Boomers demonstrate their loyalty to wine and their willingness to upgrade. Even as Boomers drank less, they drank better, pushing sales dollar numbers ever higher.

Gen-Xers have followed a similar path as the Boomers, but there are not enough of them to make a difference. The millennials, even larger than the Boomer generation, were expected to carry their weight, keeping the wine ship on course.

Millennials have more alcohol options than ever, including craft beers and spirits, not to mention hard water or hard kombucha, all things that didn’t exist in the early Boomer days. In spite of all the extra choices, they are also choosing to drink less.

Millennials are more health conscious. For a while wine succeeded with a wine-is-healthy message but lately has been losing ground to prohibitionist and anti-alcohol headlines. Both hard water and craft vodka are perceived as healthier choices.

Beyond that, millennials view wine as expensive. Both craft beer and spirits deliver better value at your neighborhood spot than a similarly priced glass of wine. As the quality of the wine goes up, so does the price, often doubling the cost of a beer or cocktail.

Increased choices, decreasing demand, shrinking sales channels, challenging labor issues and foreign competition are keeping industry professionals up at night.

A 2018 survey of winery owner confidence conducted by Silicon Valley Bank demonstrated a slight first time dip into negative territory. The same survey in 2019 dropped dramatically with 49% of owners taking a pessimistic view.

All very interesting, but why should you care? Only to point out that we are entering a time of tremendous wine values. Generally, it means better quality wine at lower prices. That’s a win for the consumer at both ends.

Wines on the store shelf just out of your price range will start dipping into it. But wineries don’t really like to discount their wines or worse, lower the price. It is sometimes preferable to introduce a new, lower priced label than sabotage the main brand. Look to places like Trader Joe’s or Grocery Outlet for that.

Remember. All of this was going on prior to COVID-19.

Even as we watched the restaurant business in areas of China drop by 100%, we didn’t understand what it meant. Australian winery owner Jeff Burch explained in February, ”There is a backlog on the (Chinese) docks with none of it moving. The pipeline is so full it is going to take another 12 months to work our way through once this thing settles down.”

With an equally full pipeline, will things be different here?

One short-term benefit has been a surge in off-premise wine buying as people head for life-at-home with a couple of bottles of wine tucked under each arm. Still, that hardly makes up for lost revenue from tasting rooms and restaurants.

When we get past this coronavirus we’ll have an even bigger wine surplus than we have now. It’s important to do your part. Stay home and have a glass of wine.

Rod Byers, CWE, is a Certified Wine Educator and wine writer as well as a California State Certified Wine Judge. He is the host of the local television show Wine Talk. He can be reached at rodbyers@pinehillwineworks.com or 530-802-7172.


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