Thursday, March 29, 2007

The Future of Imports in the US Market

I admit that I've been bullish on domestic wine's ability to compete with imports, but some recent data shows that I may be wrong. If I'm wrong, its not for our lack of trying, or lack of quality, its because we don't have enough vineyards planted!

Stay with me while I do some math here....

The US wine market sells about 300,000,000 cases annually, including all price points and origins. Annual growth is a steady 3%, which seems modest, but work it out and you get 9,000,000 cases per year! According to the wizards at Gomberg-Fredrikson, imports rose to an all-time high last year, 20% of the market - if we extrapolate that back to our 9 million cases of growth, domestic wines need to grow by 7,200,000 cases (9 million x 80% of market) just to keep pace. Working backwards 7,200,000 cases at 65 cases per ton means we'll need 110,000 tons annually. Still working backwards, 110,000 tons divided by the average crop yield of 7.5 tons to the acre (that's the three-year running average statewide) means we'll need 14,000 new acres planted annually to maintain market share.

California currently has approximately 20,000 acres of planted, but non-bearing acres. Since it takes three years for a grape-vine to become non-bearing, we can assume that approximately 7,000 acres have been planted annually for the last three years (20,000 / 3). Given banks' reluctance to lend for new vineyards and wineries' general reluctance to give contracts for planting (which would allow a bank to lend), any new plantings are probably still a year or two away and we'll start to "run short" after the coming 2007 harvest.

If you skipped math in high school, start reading here:

So what does it all mean? California currently can't supply enough grapes to maintain market share and imports will have an unprecedented opportunity in the next six or seven years to make large strides in this market. Interestingly, it won't really hurt domestic wineries as they should be virtually able to sell everything they make. It may, however, present opportunities for imports (I'm thinking Old World here) to reshape consumer tastes a bit. Should be interesting, it always is.

1 Comments:

Anonymous Jeff said...

Good post St. Vini! Interesting extrapolation. What will be interesting to see is if american companies seize the agenda to import themselves and create new brands with the juice or whether it will be int'l producers who do so.

Jeff

March 29, 2007 5:58 PM  

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