Wine expert value promotion as way to move big crops Regardless of the variety or where it comes from, if the wine isn't very good, there just isn't much demand for it, says Bill Turrentine of the bulging California wine inventories after the 2000 season.
The San Anselmo wine broker measured the industry and joined others in support of promotion during the recent Unified Wine and Grape Symposium in Sacramento.
Turrentine cited four implications generated by the change from short supply to long. First, the greater the supply, the greater the competition to sell.
California producers are not alone, as vineyard plantings elsewhere around the world also grow faster than demand for wine.
"The first plantings for varietal wines in recent years were targeted for inexpensive varieties because that was the hottest thing on the market six years ago," he said.
As consumer tastes climbed the wine price scale, so did the anticipations of growers and vintners. The situation will continue to evolve as more new vineyards come into production.
Routes to prosperity Vintners found two routes to prosperity in the recent past: by being highly efficient through production, distribution and finance, or by being exceptionally creative in top-notch wines packaged with novel methods of reaching consumers.
"As the world becomes more competitive it will be increasingly important to put the two together, and there are not that many brands that have been successful in doing both," he said.
The second implication, said the head of a company which deals in more than $100 million a year in wine products, is much of the industry rests in the hands of distributors and retailers as they monitor their own paths to prosperity.
They would prefer to stock fewer items and sell more of them to rotate inventories more often. While brands getting promotion enjoy a sales boost, ignored brands suffer the consequences.
"We've gone through a period when sales have been good for everyone, and there's not been quite enough wine to go around. Every brand could find its place in the sun. But it's going to be more competitive as we go forward. That's good news for brands that can put all the things together and difficult for who cannot."
A third implication is tension between margin and market share during a transition for brands Turrentine perceives ahead.
After reaching a point where demand significantly exceeds supply, wineries reduce marketing costs and increase prices. Growers, too, make gains as grape prices are buoyed.
But as the industry comes into more supply, the situation becomes difficult. The options are to try to reduce the supply or try to increase demand. An initial response from some coming off a peak is to reduce supply, but that creates two big difficulties.
"The first is everyone has the same idea, and it becomes hard to sell off the excess bulk wine and grape contracts. In fact, we are seeing that in Chardonnay right now.
"The second thing is, even if you can do that for an individual brand, every brand has to work in the context of the whole market.
"When someone sells off wine very inexpensively, some entrepreneur will come in and seize an opportunity, but the wine comes back into the market place and erodes the price structure of the whole market."
But what about reducing price to spike demand? Sorry, no, explained Turrentine. "When Brand A reduces its price, it may steal some customers from Brand B, but Brand B may also reduce its price and take them back, so it's a very short-term gain. It doesn't do much to bring in new consumers."
Increase promotion His fourth implication is that when things are good, they should be good for all. The best solution, he offered, is to increase the market with promotion to bring up overall demand.
That can be accomplished by the industry investing in a united effort, through the American Vineyard Foundation, the Wine Marketing Council, Wine Vision and public policy organizations.
Turrentine's message for growers is those who produce the best quality grapes will find that things work out reasonably well. On the other hand, those growers who became complacent during a time of shortage and fail to achieve quality will find difficulties ahead.
Yet he offered some optimism: "We have a lot of new plantings that will produce the best wines California has ever made over the next three or four years. It will be a really exciting time to be part of the business."
Panelist Barry Bedwell, general manager of Ciatti Grape Brokerage, said the 2000 season was wonderful for some growers but not so wonderful for others as he put numbers to the problem.
Not at all pleasing was the spot market for the Southern and Central San Joaquin Valley, which produced 66 percent of the wine grape tonnage but collected only 18 percent of the wine grape value.
Bedwell, responsible for coordinating statewide wine grape activity the nation's largest wine concentrate and bulk wine brokerage, said the 2000 crush is estimated at 3.85 million tons, from 3.20 million tons of wine varieties plus 650,000 tons of other varieties, mainly Thompson Seedless. It approaches the record 3.9 million-ton crush of 1997.
"That is why we had capacity concerns in 2000," he said, turning to a closer look, using Chardonnay as only one example, at the selling job the wine industry faces.
Chardonnay statewide production rose from 491,403 tons (33.78 million cases) in 1997 to an estimated 590,000 tons (40.56 million cases) in 2000.
The bulk of the increase comes from the interior regions, the northern composed of Districts 9-11 and 17 and the southern composed of Districts 12-14.
On the international front, wines from France and Italy, which dominate world volume, are up in supply 15 to 20 percent and price reductions accordingly are expected.
Against the backdrop of 2000, California growers will have another 40,000 acres of wine grapes, or about 200,000 tons, coming into production in 2001, so Bedwell suggested that a normal crop of about 2.9 million tons could become 3.1 million tons.
Stable situation For 2001 he projected a stable situation for pricing of red varieties on the North Coast, which is in "a world of its own" and where availability of certain reds previously in short supply may increase.
On the Central Coast, reds may hold their own, but perceptions are that many vineyards in the region do not have contracts and with increased production, signs of price erosion will show.
In Northern Interior districts, returns will vary and contract prices will ease, although given a normal crop, spot market prices could hold.
In the Southern and Central SJV, he sees contract prices declining and the spot market becoming "very difficult to nonexistent, with a similar trend until we get an increase in demand or a decrease in supply."
Jon Fredrikson, president of Gomberg, Fredrikson and Associates, San Francisco, said consumers are moving up-scale to the $7-$10 per bottle level. "The boom in high premiums continues" and "jug wines are down about 50 percent."
This development, he said, is good for growers in coastal districts, although consumers are deserting the "every day" category of wines.
The veteran economist and consultant, who maintains an index on premium wines, said the problem is, as it has long been, that "10 percent of American adults consume 86 percent of the wine."
Only 25 percent of all Americans drink any wine, he said, describing the wine consumption "pie." Another 33 percent drink alcoholic beverages but not wine, and 42 percent abstain.
The wine industry's challenge is to expand its consumer base. He said of California's production of about 147 million cases of wine, nearly three out of four are considered every-day brands, deprived of anything near the attention of $100 Cabernets.
"These wines are like lost souls. They don't get any attention in the press. They are never written about, and the industry does not promote them. These are the wines we have to promote if we are to save a lot of the Central Valley's interests."
Tomen Agro, Inc. will be supporting the ongoing battle against the glassy-winged sharpshooter (GWSS) and Pierce's Disease (PD) in California by returning some of the proceeds from the sale of its fungicide to fight the problems.
The company is pledging "thousands of dollars" toward research and education focusing on GWSS/PD. Funds will come from the sales proceeds of Elevate fungicide in the California grape market.
"Given the severe threat posed by this pest complex, coupled with our commitment to protecting the future of California's grape industry, we feel compelled to take an active role in this effort," noted Dennis K. Krass, president of Tomen Agro.
Tomen Agro has headquarters in San Francisco.