It has been 11 years since I last wrote about this subject – one that comes around roughly once every 15 years. It is the almost inevitable scenario that hits many agricultural crops: a repeating cycle of surplus and shortage.
In four decades of reporting on the wine industry, I have seen this cycle often. It’s now so clear that many industry observers now predict it. Despite the fact that we know it will happen with some degree of regularity, it appears that little can be done to avoid it.
This roller coaster ride that hits the wine business consistently has now put us into one of those periods in which savvy American consumers can take advantage of an huge oversupply of wine.
Prices for every wine on the retail shelf are under siege. Most wines are now being offered in fine wine shops at increasingly greater discounts. Shop around: values are everywhere. But there is a nasty catch to all this. See below.
The way the current situation occurred parallels the supply-demand equation in other industries in which the scarcity of a commodity that’s in high demand drives prices up. This prompts more people to increase production to fill demands, thus creating an oversupply of that same item – which then drives prices down.
There is so much wine in the U.S. pipeline today that all retail and wholesale prices are depressed. Wherever you look, retail wine sales are slow – in discount shops, high-end restaurants, grocery stores, and fine wine retailers.
Result: deep discounts.
What makes this wine glut so much more challenging to American wineries is that for the last 12 years or so, consumers have had an alternative: imports.
The last time we had a major oversupply of wine was about 2009. In the mid-1990s, only about 20% of the wine sold in the United States was imported. By 2009, that had grown steadily to a whopping 31%.
Today, imports remain strong here, led not only by French and Italian wines, but also by wines from South America, Australia, and New Zealand.
(Chardonnay and Cabernet Sauvignon are the two most popular varietals in U.S. wine sales, accounting for more than 40% of all wines sold here. Today’s third most popular wine with American consumers, at 11%, are red wine blends. Fast-rising Pinot Noir and Pinot Gris/Pinot Grigio are next in popularity.)
Consider the surplus/shortage cycle. In the late 1990s, California faced a wine shortage so severe that many lower-priced brands began to look overseas, to France, Chile, and Argentina, to sell wine carrying familiar U.S. labels. Prices mostly were under $8 a bottle.
The worst part of this, for the California wine industry, was that few consumers complained about the imports. Indeed, few even noticed that Chardonnays were coming from many thousands of miles away.
It was the shortage of 1998-99 that sparked interest here in moderately priced Argentine Malbec, which soon established itself as a fixture nationwide.
That same wine shortage helped to prompt development of more sophisticated methods of shipping wine across the sea. As a result, many wine importers began shipping giant wine-filled bladders in seagoing vessels as a way to get bulk wine to U.S. bottlers.
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Back labels of many deeply discounted imported wines, on brands no one ever heard of before, would say “Imported by XXXX,” and the city of bottling would be listed. In tiny print would be the grape source. Such as “Product of Moldova.”
Such low-priced wines are essentially used on brands created just for such retail sales. The brands are unrecognizable. Popularly branded wines (those with a reputation for quality) typically sell for more money are rarely are discounted as much.
Where consumers will face their greatest challenge is on restaurant wine lists. Even in surplus periods such as this, prices typically remain high.
Restaurants almost never pass along discounts that they receive from wholesale companies or direct from wineries. Most restaurants expect to mark up their wines substantially from front-line (non-discounted) prices. And they expect that most consumers will not put up a fuss.
On those rare instances when I’ve been able to chat with a restaurant owner or manager about outrageous pricing, I have politely mentioned how counter-productive it can be to their bottom lines.
Most just say it’s business as usual.
Imagine the scenario: A wine that sells for $30 a bottle on a regular basis typically is marked up to about $60 in a restaurant – even though it probably can be found at about $26 in most discount retailers.
During a surplus period, all retailers are offered many wines at deeper discounts than ever, meaning that the same wine could show up at $23 at a discount store.
Restaurants also are offered deeper discounts than usual during such periods, yet restaurant prices never change.
I have never heard if a restaurant that ever lowered its prices during a wine-surplus cycle.
The fact that an upscale Scottsdale Japanese restaurant today is charging $72 for the excellent Trefethen dry Riesling is evidence that most restaurants are perfectly content to rip consumers off.
The average national price for this wine is $21. That restaurant probably paid less than $15 per bottle to acquire that wine from a wholesale company.
Is it any wonder that wine sales in restaurants have sharply declined in the last two years?
In a recent Silicon Valley Bank annual report on the wine industry, wine prices in restaurants wasn’t listed directly as a cause of slow restaurant wine sales.
However, the report said that long, more formal dining was seen as a fading trend, and that “casual, quick, and cool is gaining ground.”
And $72 for a bottle of Riesling doesn’t sound particularly cool to me.
Wine of the Week: 2016 Langhart and Hill Dry Riesling, Sonoma County ($20): This wonderful white wine has attractive aromas of peach, fresh pear, and slight notes of blossoms and honeysuckle. There is almost no residual sugar (.4%), and the prior vintage (2015) is already a much better wine because of its time in the bottle. This one seems equally likely to be better with age.
Dan Berger lives in Sonoma County, where he publishes “Vintage Experiences,” a subscription-only weekly wine newsletter. Write to him at firstname.lastname@example.org. He is also co-host of California Wine Country with Steve Jaxon on KSRO Radio, 1350 AM.
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