Monday, February 22 2010

Grapes, Wineries, Harvests, You

As is my custom, I was perusing the New York Times the other day when I came across this tidbit from Dining and Wine Section: Try the Red: Napa Learns to Sell. The article's hub is the idea that due to unsold inventory from the 2009 harvest, Napa wineries now have to actually market, advertise and actively sell their products, rather than deigning to allow consumers to take it from them. On one level that's enough of a hook for me: learning how big wineries approach things like consumer contact, promotion, web presence, it's all good stuff.

But the article conceals a interesting facts, and glosses over a really Big Point: there's yet another imbalance in supply of grapes. Grape prices have fluctuated as an agricultural commodity in California ever since prohibition was repealed. It got so bad that in the past the largest purchaser of California grapes (Gallo) tried to use its purchasing power to stabilise pricing, by declaring what it would pay per tonne for various varietals, prior to harvest. Not to say they're entirely benign (sometimes the price was only just what was necessary to cover the cost of getting the grapes out of the field and setting up for next year) but Gallo knew full well that if the price was too low some high-volume/low margin growers would either rip up the grapes and plant almonds, or they'd simply abandon their land and walk away, and there would be no grapes for next year. On the flip side, in lean years, there were some shady deals, where contracts went unfulfilled when another player bid higher per tonne or the spot market in grapes got hotter than a smoky bearing.

But this year?

Is that at cellar temperature?

California is swimming in wine, although not as literally as the picture above would indicate (silly Nipponese, wine is not for bathing!) According to last Thursday's San Luis Obispo Tribune,

Mother Nature brought a bountiful harvest to California grape growers in 2009, making last year only the second time in the past decade that the state’s crush has exceeded 4 million tons.

A total of 4,089,160 tons were crushed last year, up 11 percent from the previous year, according to the preliminary 2009 Grape Crush Report released Wednesday by the California Department of Food and Agriculture.

Cross-reference that to the Times article:

Not so long ago, it seemed a given that Napa wines would forever be immune from oversupply.

But in 2009, sales of wines priced at $25 and above dropped 30 percent nationwide, according to Nielsen. While global wine sales increased, California wine shipments fell for the first time in 16 years.

They quote Ivo Jeramaz, a vice president at Grgich Hills winery:

“When I talk to my local colleagues, they try to deny what’s happening at first,” Mr. Jeramaz said. “Then it comes out that their sales are down 30, 40, maybe even 50 percent.” At Grgich, sales are off about a third. “In 2009, 20,000 cases went unsold,” he said. With sales in free-fall, the wholesalers who distribute wines to restaurants and retail stores have demanded — and received — price cuts.

It's long been my contention that prices for the top end of Napa wines have been more influenced by Veblen economics than by the good tenets of capitalism, where goods are sold in an open market based on value and demand, and prices are kept in check by competition. Even at the most costly, the most hand-labour intensive, attention-to-fiddly-detail winery, the cost-per-bottle of actual wine, free of hype, artificial scarcity and hot air doesn't rise high enough to push a reasonable mark-up to push the suggested retail above forty bucks. Yes, given distributor levels, local extortion, er, taxes and suchlike your mileage may vary, but most wines should come in somewhere south of that. So how do wineries like Screaming Eagle or Harlan Estate get $450 or $500 a bottle at release, and how do retailers manage to get a thousand bucks for the same bottle a year later? It's all Thorstein Veblen's fault.

But now the shoe is on the other hoof: with 2009's wine unsold, and 2010 coming along soon, Napa prices are falling like a stone. It's unlikely we'll see a reduction in local pricing in my home province of British Columbia, with it's jolly 'tax till you bleed' attitude about beverage alcohol (note that I'm not complaining: it's certainly a help when consumers realize that making your own wine is without tax . . .) but maybe there'll be a little more movement in other areas

We can no longer afford water to wash the streets, and are forced to use wine.

In some cases it will mean better wine at the same price: wineries that buy grapes (lots of them) will move up the purchase ladder and buy from more prestigious AVA's. Discount wineries that produce mass volumes of sub-$10 bottles of wine will likely get a bit better as well. It's only really at the very top end, where there's nothing but a conspicuous consumption ethic to drive pricing that the downward pressure will give a bit of price relief. Nice, if you're looking for a few special bottles to try.

What does this mean for wine kit pricing? Not a lot: you'd think that lower per-tonne prices would affect the cost of kits, but we only buy a portion of our grape material from California--a much larger percentage comes from Argentina, Chile, Australia, South Africa, France, Spain, Italy, Portugal, Germany, New Zealand, etc. Add to this the horrible situation with the Canadian dollar and we're in a spot.

Horrible, I said. For a small-economy, export dependent country like Canada, the value of our dollar against that of our largest trading partner (the USA, at over one billion dollars per day) is crucial: we sell our kits to the US in US dollars, which are now worth almost 35% less than they were a few years ago. Ouch.

Ah, the old 'invisible label' gag.

On the bright side, it may open up new opportunities to purchase fine grapes from awesome AVA's. We already have Stag's Leap Merlot, Sonoma Dry Creek Valley Chardonnay, Sonoma Valley Cabernet and Pinot Noir. Who knows what might show up in future?

Posted by Bemused Tim AT 12:24PM

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