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Grab Fortune by the Forelock

The Challenges, Overreactions, and Opportunities of Oversupply
by Curtis Phillips
March 16, 2020

With the news that some wine industry experts are encouraging growers in Washington to rip out vineyards in an effort to deal with a grape surplus, I thought that I would chime in with some observations that extend beyond the particular case of Washington state. I’m not surprised that  there is more Washington Cabernet Sauvignon than the market can absorb at the moment. General uncertainty, international trade and tariffs, looming pandemics, demographics, and an economy that simply isn’t “lifting all boats” are all both putting a brake on and fundamentally changing the US wine market. I also expect the wine in wine industry will overreact and rip out more vineyard acreage than would be needed to correct the oversupply thus making the pending grape shortage that we will face in two to four years more acute than it would be otherwise.
Bill Turrentine of Turrentine Grape Brokerage used to talk about the “Wine Business Wheel of Fortune®”* as a symbol for the regular boom-and-bust cycles we see in the wine industry. As the Turrentine Brokerage noted in their December 2014 edition, “Over the years, there has been a parade of smart marketing companies, including the likes of Coca Cola, Schlitz Brewing, and Pillsbury, who jumped into the wine business and got blind- sided by violent supply cycles. In the meantime, there was a certain family-owned winery headquartered in Modesto that has played the supply cycles well.”
Turrentine’s wheel has four sections corresponding to: (1) Emerging Excess, (2) Acute Excess, (3) Emerging Shortage, and (4) Acute Shortage. Turrentine’s wheel describes the typical business cycle of Expansion, Peak, Contraction, Tough (and repeat) so it may not d

It should be noted that Turrentine’s “Wine Business Wheel of Fortune®” is focused on the 80% of the US wine industry that is based in California. Other regions certainly experience similar economic pressures as California, at more or less the same times, but they may experience significantly different growing conditions and harvest yields. The wheel more or less holds true under normal conditions. When extraordinary things happen, like the economic bust, crash, and malaise from 2008 onward, the wine market can jump backward from a situation of emerging shortage to one of acute excess, as we saw in 2008 and following years where we went from an emerging shortage to an acute excess in a single year.

One can probably fill in the years since 2011 to bring the wheel up to date. That would place last harvest into the “Emerging Excess” category with an “Acute Excess” expected with the next harvest. I think that Turrentine’s wheel is more useful as a descriptive tool rather than a predictive one. The wine industry boom and bust cycle follows the same pattern as any consumer product but there is an inherently longer lag for new plantings to come into full production causing most of the industry to overreact to market trends by planting when sufficient acreage has already been planted, but hasn’t entered production, and to rip out more vineyards than are necessary.
 
Festina Lente

The most important lesson one can take away from Turrentine’s Wheel is to “make haste slowly” and don’t overreact to a current boom or bust when anything one does won’t take effect until the cycle after the next one. Certainly, a grape glut is as good an excuse as one ever will get to rip out vines with something like Red Blotch, vines that were grafted to AxR, to undo vineyard design mistakes, planted to the wrong cultivar, grafted onto the wrong rootstock, or that were without a contract last harvest. I would be much more reticent to do much if the vines were healthy, had contracts or were winery-owned, and producing high quality fruit. Always remember that a winery or vineyard shouldn’t be reacting to today’s crisis, but rather trying to predict where the market will be in eight, ten, or fifteen years. Washington may have too much Cabernet Sauvignon today, but will that be the case in a decade?

The Kids These Days . . . Are Our Industry’s Future

I’d like to return to the particular case of Washington’s current surplus in Cabernet Sauvignon. By itself, Cabernet Sauvignon isn’t the best bellwether for where the winemarket will be by the time the current surplus has become a shortage. I think that while the big three varietal wines, Cabernet Sauvignon, Merlot, and Chardonnay, will continue to encompass the bulk of the market for many years to come, they just aren’t where the action is. I’m pretty tired of the blame being heaped onto Millennials simply because the size of their cohort is smaller than, and their drinking habits are different than, Baby Boomers. Heck I am a Boomer and I don’t adhere Boomer trends. In any case, our job isn’t to dictate taste, but rather to find out what the consumer wants and provide that beverage.

 

* The reference to a “Wheel of Fortune” has little to do directly with the daytime TV game show hosted by Pat Sajak and instead is a reference to the medieval image of the Classical goddess Fortuna and her wheel where there is a regular pattern of increasing and then decreasing fortune.  The game show wheel is more like roulette with good and bad results intermixed.


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