U.S. Wine Market Grows 2.9% While World Wine Supply Shrinks

The Unified Wine & Grape Symposium.
Photo courtesy of Unified Wine & Grape Symposium / Facebook

Severe weather and wildfires in Europe during the 2017 growing season have helped shrink the world supply of bulk wine, affecting not just wineries in France, Italy and Spain, but in California, too. Speakers at the Unified Wine & Grape Symposium last week predicted higher bulk wine prices for at least the immediate future and growing pressure on wineries to pass along the increases to their customers.

Offsetting the pressure, however, is California’s 2017 wine grape crop, expected to reach a high (but not record-breaking) level of about 4 million tons when the numbers are totaled in February. Steve Fredricks from the Turrentine Brokerage, one of the two top California-based dealers in grapes and bulk wine, called the bulk inventory of California wine “moderate” now at about 2.5 million gallons.

California bulk wine now trades as high as $35 per gallon for Napa Valley Cabernet Sauvignon, $30 for Sonoma County Pinot Noir and as low as $7 for Chardonnay grown in non-coastal counties. Even though European bulk wine will be scarce this year, competition comes from Chile with Cabernet Sauvignon delivered at $5 per gallon and Australia with $4 per gallon for Chardonnay.

Fredricks and other speakers in the session called The State of the Industry addressed more than 1,000 winemakers, grape growers and related professionals, analyzing the supply and demand situation from multiple angles. They painted a bright view of the current sales situation nationwide, citing an increase of 2.9% in the value of all wine sold in 2017 and a 1.3% rise in case volume, according to Gomberg Fredrikson & Associates data.

The market as a whole consumed $62.7 billion worth of domestic and imported wines, splitting very close to two-thirds U.S. versus one third international.

“Premiumization” continued to be a watchword for the market’s performance, as the years-long trend in which consumers are trading up to higher price points still drives much of that growth. International bulk wine prices largely affect the big-volume brands that are sub-premium in price and were either flat or shrinking in sales during 2017, while remaining huge categories particularly for the big three companies of E. & J. Gallo, Constellation Brands and The Wine Group.

A bright spot in the under-$10 categories was boxed wines. Wines like Bota Box and Black Box in 3-liter sizes grew by 14% in value from an already sizeable base, according to Nielsen data from off-premise locations presented by Danny Brager. Other so-called “alternative” packaging formats also blew up in 2017, as wine on tap swelled by 37% and wine in cartons expanded 19%.

Canned wine began to change from a novelty to a market force in 2017, ballooning by 49% in stores that Nielsen measures.

Brager said that two trends in particular are helping wine sales grow. While retail stores as a category are shrinking, the number of wine-selling locations has expanded by 120,000 in the past 10 years. Meanwhile wine’s share of servings (and spirits’ share too) has increased while beer’s share has diminished.

Direct-to-consumer shipments from U.S. wineries form a small but growing slice of the total pie. Their performance far outmatched averages, surging by 16% in value and volume in 2017, and are expected to reach $3 billion total in 2018, according to data from Sovos ShipCompliant and Wines & Vines.

Despite all the good news for wine producers, some speakers and symposium attendees expressed a little apprehension about how long the good times will continue rolling in a business known for its cyclical performance.

Mike Veseth, an economics professor and founder of the Wine Economist blog, quoted numbers from the International Organisation of Vine and Wine that showed world wine production in 2017 was the lowest in at least 18 years. “The industry is moving from strength to strength, but it’s changing too, and change is disruptive.”

Published on January 29, 2018
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