Has there been a 'Sea Change' in Wine Pricing?
With a global oversupply that goes into yet another harvest, there are signs that California may soon see some relief in grape pricing. Interestingly, however, the oversupply is drying up the fastest in the interior valley (where the cheaper wines are produced). This is largely because a significant number of vineyards have been ripped out for other crops, but it may also be telling of a worldwide trend. In California, Napa and Sonoma wines are having their asses handed to them by "value wines" - Two-buck Chuck, Smoking Loon, Rex Goliath, Leaping Horse, etc. Gallo, through their ownership of Louis Martini, is paying ~$1,500 per ton for Napa Cabernet grapes right now. Using the 1% rule (retail/bottle is generally 1% of grape $/ton) that equates to a $15 bottle of Napa Cabernet! There is still a sea of overproduction of Napa Cabernet and it is quite possible that the prices may actually fall as consumers continue to look for value.
The average US wine consumer, you see, is not brand loyal, doesn't understand the appellation concept, and cares little beyond price and varietal (something the Aussies figured out years ago and the French are still struggling with). In a survey of wine consumers done a few years ago, consumers were asked to name several appellations. The first named was Napa, but the second most-commonly named was "Mondavi" (I kid you not, never underestimate the ignorance of the wine consumer and their reluctance to climb the wine learning curve). Concepts like vintage wine, varietal labeling requirements, oak use, etc. are lost on 99% of wine consumers!
The problems of the French, below the first growth or two, have been well documented. Their inability to move wine in large volumes given their archaic labeling system makes their entire business model shaky. What hasn't really hit the wine press yet is that the Aussies are slowing down as well, at least above $7-8 retail. The growth of, in particular, Black Swan and [yellow tail] has come largely at the expense of wines in the next price tier. In fact, Australian export data shows that the average price per liter of Australian exports fell significantly in 2003 and continues to fall in 2004. Even Lindeman's and Rosemount have been undercut!
Spanish wines are all the rage, particularly for their value. Even $2 Portuguese wines are available on the East Coast. Australia has passed France in cases exported to the US and will likely catch Italy next year for the #1 position.
What does it all mean? Is it a short-term blip as people buckle down in an uncertain economy or have wine economics made a permanent shift down the price ladder? Is this why Mondavi is splitting off their "luxury" lines, because they can see continued problems at the high end? Stay tuned......
The average US wine consumer, you see, is not brand loyal, doesn't understand the appellation concept, and cares little beyond price and varietal (something the Aussies figured out years ago and the French are still struggling with). In a survey of wine consumers done a few years ago, consumers were asked to name several appellations. The first named was Napa, but the second most-commonly named was "Mondavi" (I kid you not, never underestimate the ignorance of the wine consumer and their reluctance to climb the wine learning curve). Concepts like vintage wine, varietal labeling requirements, oak use, etc. are lost on 99% of wine consumers!
The problems of the French, below the first growth or two, have been well documented. Their inability to move wine in large volumes given their archaic labeling system makes their entire business model shaky. What hasn't really hit the wine press yet is that the Aussies are slowing down as well, at least above $7-8 retail. The growth of, in particular, Black Swan and [yellow tail] has come largely at the expense of wines in the next price tier. In fact, Australian export data shows that the average price per liter of Australian exports fell significantly in 2003 and continues to fall in 2004. Even Lindeman's and Rosemount have been undercut!
Spanish wines are all the rage, particularly for their value. Even $2 Portuguese wines are available on the East Coast. Australia has passed France in cases exported to the US and will likely catch Italy next year for the #1 position.
What does it all mean? Is it a short-term blip as people buckle down in an uncertain economy or have wine economics made a permanent shift down the price ladder? Is this why Mondavi is splitting off their "luxury" lines, because they can see continued problems at the high end? Stay tuned......
posted by Anonymous at 9:47 AM
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