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Bulk Wine Market Activity Up Amid Demand for Well-Positioned Off-Premise Brands

But Prices are Low
by Cyril Penn
August 13, 2020

With all of the closures and restrictions that are in place as a result of the current Covid-19 situation, sales increases in any business can be few and far between, but that's exactly what is occurring in the California bulk wine market, according to Johnny Leonardo, a wine and grape broker with the Ciatti Company. After a prolonged lull, there’s increased activity mostly in California’s interior, and to a lesser extent, in coastal regions.  

In a webinar yesterday, Leonardo, who covers the California market from Lodi, said bulk market activity has been increasing since March.

Bulk wine buyers traditionally look for cheap deals this time of year because wineries need to empty tanks for harvest. “What we’ve seen is buyers with a specific purpose: to replenish supply due to increased sales in the off-premise market.” Leonardo said. “We've also seen large wineries becoming buyers again.”  

Pre-pandemic, many large wineries bulk wine sellers; then they moved to not-selling and pulling inventory back; now some are becoming buyers, in some cases, with very large volume, he said.

Leonardo indicated there’s been increased demand for grapes for value-priced wines sourced from California’s interior with interest in Coastal wines that have come down in price.

He confirmed there’s been price softening at the high end, with wines available in bulk coming from wineries that rely on tasting room, and on premise sales.

Leonardo said mainstays such as Cabernet, Pinot Noir, and Chardonnay are in demand with Cabernet by far the most active in terms of volume. In May, the inventory of bulk Cabernet available exceeded ten million gallons, but by August, that number had dropped to roughly 5.5 million gallons, he said. Leonardo said Muscat, Pinot Grigio and especially, Sauvignon Blanc, inventories are low.

Tale of Two Markets

As previously mentioned, value priced and mid-priced wines sourced for well-positioned, off premise brands are seeing strong demand. However, premium wine sourced for smaller brands that rely on tasting rooms and on premise have seen limited activity.

As a result, wineries have revised forecasts and are rethinking supply strategies.

The graph reflects bulk wine that has been available through a snapshot of each month in 2020. It shows how dramatic the Cabernet supply has been both in terms of volume and in relation to the other varietals. There’s been activity with Merlot as well. In May, Ciatti showed 4 million gallons available but that is now below 1.5 million gallons.  In 2019, the industry was coming off a very large 2018 harvest with an inactive bulk wine market but the industry is beginning the 2020 harvest with less overall bulk wine inventory than it had one year ago.


More Grapes Available

More grapes are available as wineries have opted out of long-term contracts over the past three years. As a result, 2020 started with more available grapes on the spot market than seen in recent years. Leonardo said there was an inevitable need for large wineries to “reload” after so many canceled contracts.

Coastal Dilemma

Earlier this week, Ciatti issued a report that said, buyers requiring good quality California-priced Cabernet will need – and increasingly are needing - to look at the Coast for Supply, but are requesting pricing that may not be sustainable for Coastal producers. “This prospect is positive for neither the seller nor buyer in the long-term, as – needless to say – unsustainable pricing eventually leads to unsustainable vineyards and subsequently less supply choice,” the report said.

Leonardo said there’s been limited bulk wine buying in Coastal regions with value buyers looking for opportunities and traditional buyers still sidelined.

Leonardo said he’s seen delayed payments and cash flow issues with wineries looking for help from supply partners on pricing and payment terms.

 “Our advice really is to be willing to be creative with deals to get through in the short term,” he said.

“Wineries are trying to understand what the new normal is,” Leonardo said. “We have no idea what the off premise surge is going to look like two, three or six months down the road -  and we don’t know when on premise will fully open and what the response to that reopening will be.”

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