‘War for shelf space’ affects wine outlook

Issue Date: February 4, 2015
By Steve Adler
A large audience gathers for the annual State of the Industry panel discussion at the Unified Wine & Grape Symposium in Sacramento.
Photo/Steve Adler

When it comes to securing shelf space in American supermarkets, there's a war going on among three formidable segments of the beverage business: everyday wines priced under $9 a bottle, craft beers and ciders. There's no clear-cut winner, but the craft beers and ciders are making serious inroads in an area of beverage purchases that wine once had a lock on.

That was the view expressed by three leading wine experts last week during the Unified Wine & Grape Symposium in Sacramento.

"The explosive growth of craft beers, flavored spirits and cider has taken over shelf space, especially from everyday wines," said Jon Fredrikson of Gomberg, Fredrikson & Associates. "Is it any wonder? Craft beer, spirits and cider are all now advertised on television, and it is rare to see a wine ad on TV."

The everyday wine segment has been losing momentum the past three years, Fredrikson told a packed audience during the symposium's State of the Industry presentation. Fredrikson was joined on the panel by Jeff Bitter, vice president for operations at Allied Grape Growers of Fresno, and Mike Veseth, editor of the Wine Economist blog.

In contrast to the everyday wines, the premium wine business—wines priced $10 or higher—is strong and the prospects remain good for continued growth during the next two years, Fredrikson said.

"That's a pretty easy prediction to make for California producers, because many have three excellent vintages sitting in inventory, all grand slam homeruns with high quality and large quantities," he said.

On the North Coast, Fredrikson said, "You see the signs of the booming premium business everywhere—new vineyards and winery construction, new warehousing, growing employment and other strong indicators."

Bitter painted a different picture when he described what is happening to the winegrape sector in the San Joaquin Valley, where the bulk of winegrapes go into everyday wines sold at lower prices.

"You can hardly drive five miles without seeing a vineyard piled up. They are everywhere," he said, adding that an estimated 22,000 acres of winegrapes have been removed since last fall, with most being replaced by almonds or pistachios.

Approximately two-thirds of all recorded vineyard removals in the San Joaquin Valley were of winegrapes, he said. Last year's vineyard removals tripled in acreage compared to what was recorded in each of the previous five years, and Bitter said it's likely that removals "will continue at the current pace through spring and even into next year."

He said Allied Grape Growers projects the final 2014 crop will exceed 4 million tons, making it the third huge crop in a row—a figure most winegrape leaders say will be affirmed when the annual grape crush report is released in a few weeks. As a result of the large crops, there currently is excess inventory that will affect prices for winegrapes moving forward, Bitter said.

"What we need is a short crop," he said.

Looking ahead, Bitter said the wine sector needs to focus on promoting California while embracing sustainability, including economic sustainability. It is important for growers and wineries to continue to monitor production increases and growing inventories to ensure balanced growth, he said.

"Planting for need—with contracts—is critical, and it is critically important for growers to understand contract terms and conditions," he said. "Opportunities exist, even in those segments of the business that appear disadvantaged at the moment."

In summing up, Bitter stressed that the wine business in California remains very strong, with positive overall shipment growth, billions of dollars in annual economic benefit and the production of a globally consumed product.

"But in the midst of this success, we will be constantly challenged to find and maintain equilibrium considering variable production, ever-changing consumer preference and the natural time it takes to bring our superior product to market," he said.

Veseth focused on the global wine picture, reiterating the impact that craft beers, ciders "and even sake," are having on sales of lower-priced wines. Compounding the problem is the strengthening of the dollar versus foreign currencies, which results in more interest among foreign wine producers to make further inroads in the U.S. market.

He said the U.S. has become "a focal point for global competition" because of weakness in continental Europe and complications in selling wines in the United Kingdom.

"Foreign producers are investing heavily in brand and distribution (in the U.S.)," Veseth said. "Everyone wants to be king of the hill."

The United States continues to be the world's largest wine market, with Americans accounting for 14 percent of the 2.65 billion cases of wine consumed in 2013. The U.S. is followed by France (12 percent) and Italy (10 percent), both of which are showing declines in wine consumption. The other major wine markets include Germany (8 percent), China (7 percent), the UK (5 percent) and Russia, Argentina and Spain (each at 4 percent).

The symposium, now in its 21st year, has shown continued growth since its inception. Attendance this year topped 14,000, with attendees coming from throughout the United States and 28 other nations. In addition to two general sessions, there were 15 breakout sessions, with half targeting growers and half focusing on winery interests. A two-day trade show included 675 exhibitors with products ranging from wine corks to grape harvesters.

The 2016 Unified Wine & Grape Symposium will once again be held in Sacramento and is slated for Jan. 26-28.

(Steve Adler is associate editor of Ag Alert. He may be contacted at sadler@cfbf.com.)

Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item.