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Global trade, the laws of supply and demand and penny-pinching consumers are mixing this year to give California wineries and grape growers a case of indigestion.
The supply and demand thing always has been a conundrum for agriculture. A great growing season and a big crop usually will mean lots of competition to find a buyer, and ultimately lower prices.
A bad growing year, on the other hand, raises prices but leaves the grower with not as much quantity to sell.
The ideal situation, which almond growers experienced in past years, is big crops and a growing worldwide demand that keeps prices up.
But almonds were in a unique position, with California growers dominating the world supply. That’s not the case with wine grapes. Europe, Australia, New Zealand, South Africa, Argentina and Chile are major grape and wine producers.
So this year’s big California grape crop isn’t necessarily a cause for celebration.
“It’s been a great growing season, and the quality is great,” said Karen Ross, president of the California Association of Winegrape Growers. “It’s bigger than we need right now. People are inventory adverse.”
The problem isn’t really California’s production, Ross added. “There’s an ocean of imported wine coming in. It’s a reality of our global marketplace. We just didn’t expect it this year.”
That over-supply of wine is combining with the trend of recession-weary consumers trading down to cheaper wines to put pressure on smaller wine producers.
Consumers want wines priced under $7, to fit their battered budgets. That’s great for the giant Northern San Joaquin Valley wineries, long expert at producing huge quantities of inexpensive wines.
Mega-wineries like E.&J. Gallo in Modesto are even adept at taking advantage of world-wide wine supplies, introducing brands sourced from Italy, France, Australia and South Africa.
Even Fred Franzia, who heads Bronco Winery in Ceres, has introduced an inexpensive Australian chardonnay, despite previously chiding other California wineries for importing wines.
He can hardly be blamed.
“There’s an ocean of chardonnay, and the sooner we can move that pipeline, the better. Fred saw the opportunity,” said Ross, “and is clearly labeling where the wine is from.”
The beneficiary of all this is the consumer, who is getting wines from California and around the world for remarkably low prices. It’s a good time to be a wine drinker.
The major victims are growers and smaller wineries that can’t compete with the economies of scale enjoyed by the larger wineries. That $7 bottle of wine is not an option for a foothill, coastal or Lodi winery that was doing fine with a $15 to $20 price point.
The Central Coast wineries, which enjoyed a boom in popularity with the movie “Sideways,” said Ross, have been particularly hard hit.
The key question, according to Ross, is whether the current market conditions are a cycle that the California industry can work through, or a permanent shift in global supply and consumer expectations.
The California industry is looking for a price point that’s good for both the grower and the winery, and can be sustained over time, Ross said. That means the price point has to be acceptable to the consumer.
“Obviously the consumer is eyeing continued supply of wines from around the world at under $7. Price is more important than anything,” Ross said. “Wineries with bottling capacity and distribution can source a diverse portfolio under $7. It’s not necessarily a price point that wineries without scale can sustain.”
Ross offers some optimism – the Millennial Generation hasn’t been hit as hard by the recession as the Baby Boomers have, she said, and perhaps won’t be as fixated on that $7 price point.
The California Association of Winegrape Growers is focused on making sure that wine coming in from overseas is clearly labeled as such.
But that might not be much of a deterrent for consumers. Many wine drinkers seek out world wines looking for new experiences – a sauvignon blanc from New Zealand, a malbec from Argentina or an Italian pinot grigio.
Many wine brands boast of their origins to attract consumers. Gallo’s Red Bicyclette is an example. The Modesto winery set out to make a French wine, carefully researched consumer attitudes and taste preferences and emphasized the French connection with label art and marketing.
So, the other CAWG effort is to tell the story of California wines, with each region focusing on it’s strengths, emphasizing the wines, price points and varietals it does best.
Lodi might push its old vine zinfandel, Napa its cabernet and the Central Coast its pinot noir. In any event, the consumer wins, whether it’s inexpensive wines from around the world or quality California regional wines.