Dan Berger, On Wine: The imminent glut: The state industry is facing a major wine surplus
On Wine

Dan Berger, On Wine: The imminent glut: The state industry is facing a major wine surplus


Prices for most California wines have been too high for decades, and that becomes evident once every so often when an industry-wide over-supply of wine occurs.

It is then that the industry reacts rapidly to deal with what is ultimately a perishable product by offering huge discounts and other tactics to move products so recent vintages don’t back up in the distribution network.

In the next two years or so, adventuresome wine buyers may well be treated to significant bargain-basement pricing as a major wine surplus ravages the state’s industry.

Weak pricing on lower-priced bulk wines and the resultant deep discounting on medium-priced bottles also may affect pricing on expensive, hard-to get wines.

This will probably be more evident in California than in other states because of regulations related to the mandate of three-tier distribution system. California wineries have more options inside the state than they do elsewhere.

Several factors created the wine surplus, and the result could be catastrophic industry-wide — not only for wineries, but grape growers, hard goods suppliers, and the service sector. All evidence points to a situation that has repeated itself over the last four decades.

One of California’s first major wine surplus periods occurred about 1985. What experts predicted then came true: many wineries, stuck with gigantic quantities of unsold wines, developed “second labels,” then “third labels,” then adopted deep discounting, created “private labels,” and finally resorted to dumping – nearly giving it away.

As discounting became more popular in the later 1980s, many retailers began working on thin profit margins across the board.

The current oversupply started with large grape harvests over the last five years combined with a slowing of demand in the marketplace. The 2018 crop was enormous, 18% more than the five-year average.

I began seeing hints of this current glut six months ago when prices for bulk market wine (sold to wineries by the gallon) began to drop. Two weeks ago, an industry report from the state’s top wine broker, Joe Ciatti, noted:

“Bulk wine pricing is at its lowest in five years and trending downward, with some price parity between Coastal and Central Valley wines…” But the real shock was what followed.

The Central Valley has always been the cheapest source of grape material. But that sentence from Ciatti alarmingly continued “…with Coastal wines cheaper in some instances. (Emphasis mine.)”

This statement indicates that other factors are at play. Here are just a few examples:

Creation of unknown brands

Some marginal wines (often made entirely from the bulk market), were made to sell for less than $9 a bottle. Their labels are occasionally fanciful or designed to make them look like more expensive wines. But even at that price, demand is scant.

A lot of inexpensive wine that has no retail sales potential now is put into “private label” bottlings. (That phrase now has a negative connotation. So now in use is the phrase “strategic brand.”)

Some wine companies base their profits on such wines, and have ready buyers in discount supermarket stores and specialty wine shops.

In some cases, the same brands keep showing up year after year. One such discount retailer is Grocery Outlet (320 stores in California, Oregon, Washington, Idaho, Nevada, and Pennsylvania). Among the brands you regularly see there are Pra Vinera, Gliss, Indigo Eyes, and at least a dozen more.

Occasionally, real bargains show up at Grocery Outlet stores. But I’ve purchased many wines there and have found most to be rather ordinary.

Real-World Pricing

Some wineries (including some of the largest in the state) price their wines with a suggested retail price to conform to a category in which they have always sat.

These prices for recognizable brands apply in smaller cities around the country (where competition is scant), and especially in independent retailers that don’t discount.

Many of these wines rarely sell for their (purely artificial) suggested retail price in major cities. Wineries now expect discounting.

Check the Internet and you’ll find thousands of branded wines that originally were made to sell for higher prices selling for 30% or 40% less.

Occasionally, having the wine shipped to you can actually save considerably.

“Make it Disappear”

One of the worst scenarios occurs when a winery has an expensive wine that doesn’t move. In most cases the wine was simply over-priced. Perhaps the winery believed the score of 92 points it received was enough to justify a higher price.

But wineries simply can’t drop prices for $70 Cabernets to $30 just to move out the current vintage. Any consumers seeing that will assume there is something wrong, which can taint a brand’s image.

Some wineries facing this scenario talk of making the wine disappear – selling it where its low price can’t ruin the brand’s image.

In some cases, wineries cut special deals with hotels, which put such wines into special events (corporate banquets, weddings, etc.) where it benefits the image of the hotel and doesn’t embarrass the winery.

Another tactic I heard about decades ago is to sell such wines to retail stores in ski resort areas (Utah, Wyoming, etc.) where snowbirds on vacation don’t mind parting with a few extra dollars to impress people.

More reasons for the glut:

— Imports: Roughly one bottle of every four sold in the United States comes from another country. And because many of these wines are products of giant cooperatives, prices usually are low. (Example: California rosés usually are about $20; those from the south of France are usually $15.)

Many imports now are more important in the market than 20 years ago because the wine-buyer demographic has changed. The baby boomer class that dominated wine sales 25 years ago pretty much bought known items, Chardonnay, Cabernet, Merlot, etc.

Boomers have been replaced by millennials, a group widely considered more sophisticated in their wine interest and far more eclectic, willing to try different styles and types. This has been helpful to importers of Vermentino, wines from Bourg, the Loire, and Greece.

Every bottle of an import sold here equates to one less bottle of U.S. wine sold.

— Packaging: Bag-in-box wines in multi-liter packages remain a staple among bargain seekers, and now more premium wines are showing up in such boxes. Also, we are seeing wine in cans emerge as a serious category. And it’s a category that’s growing rapidly.

Regarding the wine glut, an industry wine consultant said last week, “It’s going to get a whole lot worse.”

Let the bargain hunting begin.

Wines of the Week: NV Broadbent Vinho Verde, Portugal ($10), and 2016 Trecini Vermentino ($15): Two imports that are priced reasonably. The Vinho Verde is soft, slightly floral, and retains food acidity for food pairing. It hsas only 9% alcohol. The Vermentino is citrus-y in aroma, quite tart on the tongue, and often discounted to $10 or less.

Dan Berger lives in Sonoma County, where he publishes “Vintage Experiences,” a subscription-only wine newsletter. Write to him at winenut@gmail.com. He is also co-host of California Wine Country with Steve Jaxon on KSRO Radio, 1350 AM.

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