Market Conditions Call for Caution and Solid Decision-Making

The lighter-than-expected harvest this year has impacted a changing market that’s somewhat out of balance and in the process of correcting itself, according to experts who are keeping a close eye on the current vintage and what it might mean for short and long-term wine industry trends.

Glenn Proctor, a Partner with Ciatti Co. and GM of Puccioni Ranch, says the expectation for this year had initially been for another big crop, following the record harvests of 2012, 2013 and 2014. Instead, a prolonged cooling period in the spring, followed by unusually hot weather, affected fruit set and resulted in uneven cluster development.

“All of a sudden at harvest time we said whoa! This is a lot lighter than we thought, “ confirms Proctor.

Proctor explains that wineries, typically the buyers of grapes, were actually selling off some of their previous vintage inventory because they assumed they had plenty of excess. Suddenly that changed. For example, Proctor reports that before harvest, there were 28 million gallons of bulk wine on the market in California. After harvest, the number was 18 million.

“That 10 million wasn’t necessarily sold,” he clarifies. “A lot of those wineries said, ‘uh oh … we’re going to need this.’”

Proctor likens such activity to a market “teeter totter,” noting that the dynamics of one side of the supply/demand chain will affect the other. He believes that the market will adjust to current conditions and that “buyers are going back to being buyers and sellers being sellers.” He opines that the confidence level in a big crop for 2016 has been tempered somewhat by what happened this year, and that buyers are now seeking longer-term contracts for the future.

Proctor says another phenomenon affecting market conditions is how wineries go about growing an existing brand.

“If the supply isn’t there on the North Coast,” Proctor points out, “do I go to the Central Coast or to other parts of California?”

He believes price point will continue to be a determining factor for the industry as well, with the majority of growth and activity in wine selling above $10/bottle.

Proctor also voices concern about the impacts that other alcoholic beverages are having on the wine industry’s current market share. He calls the growth of cider, craft beer and high-end spirits “surprisingly large,” and alludes to the relatively high cost of wine production, as well as outdated marketing techniques.

“The cost of wine products are approximately 40 to 50 percent, while the cost to produce spirits can be 10 percent,” Proctor attests. “(To compete), we’ve got to make sure our wine is interesting to the next generation of wine consumers. Beer, cider and spirits have done a pretty good job of that.”

Proctor says all of the current market conditions point to a need for caution and solid decision-making as the wine industry heads into 2016 and beyond.

“You have to be a little careful,” Proctor warns. “You want to be sure you make good decisions and don’t get overconfident … be aware and align yourself with the right relationships that will give you sustainable profitability.”

Glenn Proctor will be discussing these observations and other issues at the upcoming North Coast Wine Industry Expo slated for December 3rd in Santa Rosa, CA. He will be the moderator for a session called “Market Conditions for the North Coast Winegrape Industry: What Wineries and Growers Can Expect in 2016.”

Proctor will be joined by panelists Cameron Lyeth, Sales Manager for Beckstoffer Vineyards; Bill Pauli, President of Pauli Ranch and Yokayo Wine Company; and Scott Warren, Director of Grower Relations for Constellation Brands.

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