Wines & Vines

16 Wines&Vines March 2015 wine industry news California rainfall—season to date Season to Date Average to Date Percent of Average to Date Lodi 10 9 111% Monterey 4 5 80% Napa 19 22 86% Sonoma 22 19 116% rainfall season to date—perCent of average 0 50% 100% 150% Rainfall season July 2014-June 2015, rainfall data in inches through Feb. 13. Source: winebusiness.com, California Irrigation Management Information System Lodi Monterey Napa Sonoma T he Unified Wine & Grape Symposium held in late January in Sacramento, Calif., highlighted the divergence of the wine market, with one half struggling as the other prospers. Unified is the largest wine in- dustry trade show in the western hemisphere. This year, more than 14,000 grapegrowers, winemak- ers, marketers, executives and 675 industry suppliers filled every available space in the Sacramento Convention Center with a waiting list for exhibit space. There's even talk of the show— the largest convention held in California's capital city—outgrow- ing the area, but two new large hotels going up nearby and talk of expanding the convention center itself make that unlikely. As always, Unified also hosted numerous seminars about all as- pects of grapegrowing, winemak- ing and marketing. The exhibits, which feature wares ranging from corks to two-story machine har- vesters, may grab the eye, but nearly 1,600 people settled into a ballroom across the street to attend the annual State of the Industry address. Here three experts as- sessed the global wine economy, the supply-demand balance for California wine grapes and a grow- ing dichotomy in the fortunes of lower and higher priced wines. Mike Veseth, an economics professor at the University of Puget Sound and the author of The Wine Economist blog, moder- ated the briefing and provided a global overview highlighting the role of the strengthening dollar and ways the highly regulated wine industry deviates from most markets. He noted that the growth in cheap bulk wine imports, which now equal bottled imports in value, has had a large impact on the U.S. market, partly accounting for the struggles of Central Valley growers. Jeff Bitter of Allied Grape Growers, a grower-owned coop- erative representing more than 600 California grapegrowers, dis- cussed planting trends and grape sales. Bitter pointed out that equi- librium is elusive in the grape- growing business, saying, "You're always a little short or a little long" on grape supply. Currently, for example, many wineries have too much wine be- cause of above-average harvests in 2012, 2013 and 2014. Bitter argued the state's "new average" is 4 mil- lion tons. Two weeks later it was confirmed that the total California wine grape harvest for 2014 was 3.91 million tons. (See story on page 15.) By 2017, Bitter specu- lated, the average could climb to 4.3 to 4.4 million tons. He also estimated that the state's planted vineyard acreage for 2014 was 655,000, while he dropped that figure to 652,000 for 2015 due to grapegrowers pulling out vines in California's southern San Joaquin Valley. In the months since the 2014 harvest wrapped up, growers have pulled 15,000 acres of wine grapes in the re- gion, Bitter said. While wines sell- ing for less than $10 per bottle are the backbone of the in- dustry, he said vol- ume for the lowest p r i c e d w i n e s h a s been in decline be- cause growing grapes for these wines has become less finan- cially sustainable. A confidential Allied Grape Growers survey found that Caber- net Sauvignon was the No. 1 grape- vine being planted in the state (29% of all vines sold), while Char- donnay led white wine grapes with 17% of vine sales. Pinot Grigio edged out Pinot Noir with 12.5% of nursery vine sales vs. 12.2%, respectively. The number of wine variety grapevines sold in 2014 dropped from 30 million to 27 million, echoing the trend of Central Valley growers who aren't planting grapes like Rubired and French Colom- bard to go into inexpensive wines. Bitter said he expected planted acreage to fall 6% in California's interior regions and 2% in its coastal growing areas between 2015 and 2017, compared to a normal attrition rate of 3%. Industry analyst Jon Fredrik- son of Gomberg Fredrikson As- sociates also highlighted the underperformance of the lower priced wine business, calling the U.S. wine market in 2014 a "tale of two markets." Fredrikson projected that the U.S. market as a whole grew 1% in case volume to 375 million cases and maintained its position as the biggest wine consumer in the world, but wines priced less than $9 per bottle struggled against competition from craft beer and craft spirits, and they were flat in volume growth. Wines priced at $9 per bottle or more performed well and grew 3.5% in value, even while their volume was down, Fredrikson said. Since wines under $9 per bottle account for 75% market share by volume, however, their lackluster performance dampened the totals. California wine sales grew 4% in volume, while imports dropped by 5%, nearly canceling domestic success. Fredrikson admitted to being worried about other beverages stealing wine's thunder. In a re- cent Gallup Poll, wine hit its low- est point in six years when people were asked what alcoholic bever- age they drink most often. On a more positive note, di- rect-to-consumer shipments grew 14% in volume during 2014, as measured by Wines & Vines and ShipCompliant. —Paul Franson tOP stORY Unified Tells a Tale of Two Wine Markets Economist Mike Veseth speaks during the State of the Industry at the Unified Wine & Grape Symposium.

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