Free grapes and over-supplied wineries
by Scott Carpenter and Laura Carpenter
October 08, 2009
October 08, 2009
A secret six months ago, it’s now well-known that the tumbling economy has pushed retail wine prices down, creating a trend that’s led to heavy price point cuts for wineries who, in turn, are trying to stem the loss in revenue by putting pressure on growers to sell their grapes for less. But some California grape growers have decided not to bring their grapes to market and are instead letting their fruit hang on the vine to drop.
Growers we spoke to – some wanted to remain anonymous – freely admitted they have a problem. They agree it all starts at retail, where price pressure has dramatically slowed sales on middle- to upper-end-priced wines. Typically, off-premise sales now depend on pricing that's under $20, and most wine in that category is priced under $15. As a result, wines in the $30-and-up range aren’t moving, clogging warehouses and wineries, so growers have found themselves selling to wineries at discount prices. And now the harvest is underway.
When you consider how many wineries there are in the U.S. – 2,800 bonded wineries in California alone – then add ample supplies from France, Spain, Italy, Australia, New Zealand, Argentina, Chili, and Uruguay, you end up with an even bigger surplus of these competing lower-priced imported wines.
Some grape producers operate under the terms of a contract that includes an “Evergreen” clause, which allows a buyer to cancel the contracts early, so growers given notice of cancellation have to hustle to sell their fruit on the spot market before the contract ends. That’s helping drive the per-ton price down.
Greg La Follette, founder and operator of Tandem Winery in Sonoma County, says some growers are getting creative in the face of gluts and shortened contracts by giving their grapes to blue chip wineries with the stipulation that the winery will use the grapes to make special vintages and follow up with a secure contract the following year.
"I know of one grower who rounded up several tons and gave them to a big-name winery. They're giving away free loads so they can unload grapes they can't sell. It’s a marketing tool," says La Follette. "But wine makers are in a tough spot too, because now they’re getting backed up with their own product."
The Lodi, CA, grape growing region was established in the 1860’s and remains California's largest grape producer, yielding more zinfandel, cabernet sauvignon, merlot, chardonnay, and sauvignon blanc than any other appellation in the country. Today there are eighty Lodi area wineries, including Gallo's Turning Leaf, Delicato Family Vineyards, and Van Ruiten Family Vineyards.
"We have long-term contracts with wineries and haven’t had any cancellations so far," says Van Ruiten president Bill Rogan. "But we’ve been growing since the early ’50's and are well locked into the marketplace."
Mike Manna, a long-time grower in Lodi, says a few growers are letting their crops hang and drop; most are trying to avoid selling their grapes on the bulk market by pitching them to the concentrate market to be used for things other than wine. "In addition, some wineries are skipping a vintage, which leaves the poor growers to scamper around to get their grapes sold on the spot market."
Manna also says most growers say it’s not a good idea to pick grapes because it will add to the glut. "They say, put ’em on the ground, it would be better for the industry. The problem is, a hundred percent think they should do just that, but only five percent do. And now banks are telling some wineries not to buy any more grapes because they don't want to create more of a monster. Manna has vineyards in Sonoma and Mendocino counties and says he’s having trouble selling those chardonnay grapes.
"We're down about fifty per cent on price per ton for most varieties compared to last year at this time," says Brian Clements, senior partner of Turrentine Brokerage in California. He says growers and wineries didn't feel the crash for about the first full year into the economic downturn. "It wasn't until last January that the prices started falling, and they never stopped. It dropped so quick most growers with uncontracted grapes were caught off guard, particularly on the spot market." But, he says, at least seventy percent of California wine grapes are contracted in advance. The spot market, which has to run under contracts, represents about thirty percent of the overall market.
Clements says that while the wine business overall is up four percent, there are winners and losers. "Consumers who were buying middle- and high-end priced wines dropped out for the lower prices, sending demand and pricing for grapes down. The price per ton on pinot noir is way off. The varietal that sent merlot sideways a few years ago was selling in Sonoma County for about $3,000 a ton a year or so ago; it's down to $1,700 this year."
But Clements has found the silver lining to the glut cloud. He believes the market will come back when the economy turns around. "When it comes back, I believe we'll run into shortages, because growers have planted fewer grapes in the last five years and have been pulling up aging vineyards. This would help drive prices back up."
California isn’t facing the overage alone. Growers in New York are anticipating a glut, particularly in the Finger Lakes Region. “There's a lot of inventory in tanks, and wineries are cutting back on purchases," says Hans Walter-Peterson, Area Extension Viticulture Specialist for Cornell University. He says pricing is down from five to about twenty-five percent on Riesling, cab franc, and gewürztraminer. Peterson also says the Finger Lakes region is highly dependent on direct-to consumer tasting room sales, and that while tourism is up, the sales numbers are not.
by Scott Carpenter and Laura Carpenter
Scott Carpenter is a host, network reporter, journalist, and publisher. Current credits include CNNRadio, CBS Stations, ABC, MSNBC, and Industry News Update. TWITTER - scotcarp. Laura Carpenter serves as editor-in-chief and writer for the ESC Media Group, the Broad Market Report™ and The Everyday Wine Guy™ web site. She is a former newspaper reporter and photographer and television producer, director, news writer, and documentary maker for the NBC affiliate in Las Vegas, NV.