California grape prices, which increased significantly last year, are expected to keep rising as a grape shortage looms. This could translate into higher prices for grape juice, raisins, and, well, grapes just to eat. But who cares about that stuff when it looks like the price for your favorite bottle of Cabernet or Zinfandel may soar?
Using Department of Agriculture data, Wine Spectator noted that prices for California grapes rose significantly last year. Red grape prices increased 12% compared to 2010, while white grape prices inched up 8%.
Now, according to the Annual State of the Wine Industry Report from Silicon Valley Bank, an institution that provides banking services to players in the wine business, a “looming grape shortage” in California is likely to result in a per-bottle price hike, especially for American wines produced in the Golden State. Fine wine sales are expected to grow 7% to 11% in 2012, and while prices are expected to increase, the increase is relative: The report predicts that what we’ll see is “not a return to prices prior to the recession.”
Speaking of the recession, it has had a major impact on the wine industry and wine pricing. Understandably, the fastest-growing segment of the wine business during the heart of the recession wasn’t the high-end $30-and-up bottle, but the $9 to $12 bottle. Faced with a glut of merchandise that was supposed to retail for $50 or $75 a pop, wine makers turned to online wine discounting specialists that’ll sell, say, a bottle that’s normally $75 for $30, or a $35 bottle for $18.
Such strategies helped winemakers unload excess merchandise, but it also hurt the bottom line, while getting imbibers accustomed to finding top-quality wine at marked-down prices. For wine lovers, the buyer’s market seems to be fading as both demand and prices for wine rise.
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The recession is also at least partly responsible for the grape shortage. The Wine Spectator story notes that the number of vineyards planted has slowed over the past several years, hand in hand with the slowdown in demand and the willingness among consumers to pay top dollar for wine:
“No one is planting right now,” said Ed Sbragia of Sbragia Family Vineyards. “So as demand for these wines grows, grape prices are going to go up; as a winery owner you’re going to have to pay more.”
“I think the consumer for the past five years has been used to getting really fine quality wines at a good price,” said Rob McMillan, founder of the bank’s wine division. “But as the balance evens out, you can’t expect the producer to sell at a loss, which is really what they were doing.”
Last year, the segment experiencing the biggest sales growth was the $20-and-up bottle, rather than the prototypical recession-era $10 bottle. The higher-priced trend is likely to continue, especially as the grape shortage is likely to push all prices higher, so that liquor store shelves are stocked with fewer and fewer cheap bottles. The report notes that, in particular, “high-end Cabernet and Zinfandel are clearly short” in terms of grape production in California, and these are the wines that are expected to see the sharpest price increases.
As a result of higher prices for California wines, wines produced in Oregon and Washington—where land is much cheaper—are expected to have a terrific sales year. Imports are expected to rise as well, as a stronger dollar and pricier domestic wines make vino from Italy, France, and elsewhere a better value.
Also noted in the report: A digital “Fifth Column” sales channel involving flash sales and other e-sellers is now seen as immensely important for the wine industry. On the other hand, it’s come to light that what’s not particularly important to the wine industry, at least not yet, is the Gen Y consumer. The report notes: “Millennials as fine wine consumers are over-valued in their importance today.”
Millennials account for just 14% of the wine bought nowadays, compared to 30% for Gen X and 42% for wine-loving Baby Boomers. Instead of focusing marketing efforts on Gen Y, then, a group suffering high unemployment and declining economic might, not to mention somewhat of an apparent disinterest in wine, the report suggests that the demographic that’s the best target for increased wine consumption is instead Gen X.