For the wine industry in 2020, a shrinking supply base and shifting wine market channels interacted in a unique way, Allied Grape Growers CEO Jeff Bitter recently told the Central Coast Wine Grape Growers.

“The effects of the short 2020 crush will have a major impact on our market and our supply balance going forward,” he predicted.

“Wine market channels, how consumers purchase wine, were most affected by COVID-19 in the on-premise area, the restaurants, sporting venues, conferences, anyplace where wine is purchased and consumed,” he said. “It was quite a loss in those market channels, somewhere in the vicinity of 50% in volume.”

The picture wasn’t all doom and gloom, however. “The off-premise segment -- accounting for 84% of U.S. wine market volume -- has been quite robust as consumers shifted there for their purchases,” he said. “2020 will be a breakout year for the direct-to-consumer segment.

“As we move forward, the hope is that things will open up more over time, people will resume a more normal lifestyle of eating out, and we’ll see an uptick in terms of overall volume of on-premise sales,” he said.

Bitter’s analysis previews remarks he’ll likely make at the 2021 Unified Wine and Grape Symposium, which will be held virtually Jan. 26-28. He and other industry consultants and analysts will deliver their annual “State of the Industry” address Jan. 27.

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Interior grape regions saw some brisk sales in 2020, picking up after the pandemic started, with consumers opting for familiar Top 10 brands as they stuck with what they knew and trusted in the marketplace. “This shift in consumer demand represents both opportunity and challenge and will result in winners and losers,” Bitter said. “What is happening in the marketplace will define successes and failures.”

Shrinking coastal supply

Which leads to that shrinking supply base. “A lot of coastal vineyards left grapes on the vine and we saw more coastal vineyard removals than we’ve seen in any year over the last couple of decades. Interior acreage hasn’t changed much and central valley removed about as many acres as it usually does annually. But coastal, all the way from Mendocino County down to Santa Barbara, removed some 20,000 acres of grapes.

“In the interior regions, we guesstimate 4-5% of bearing acres were removed and replanted into orchards,” Bitter said. “Similar percentage in the north coast, some removed, some abandoned. If you’re a grower with a vineyard removed, it’s unlikely you have a contract to replace those grapes. Wineries, meanwhile, have taken the opportunity to renew their acreage in a time when the market has surplus product.”

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What’s hot and what’s not? “Chardonnay is up only 2% while Pino Grigio and Sauvignon Blanc look more promising. Cabernet is flat overall. Merlot and Zinfandel are both on the decline. But Pino Noir is the variety to be concerned about for the future as more supply is coming into the marketplace (a projected increase of 20% by 2022) and the market may not be able to absorb that supply.”

Supply balance?

So does a 2020 short crop balance supply? “If we talk about what got crushed, it’s easier to analyze what got used versus what didn’t,” he said. “In the interior region, basically everything was crushed with some red grape rejections in north valley. And in reality, a lot of those rejected grapes ended up being purchased by other buyers, so they may show up in the NASS objective crush report.

“Basically the same situation in central coast with some smoke-impacted grapes in Monterey County left hanging on the vine,” he said. “Most grapes were crushed in north coast because there’s a lot of winery host vineyards. And ultimately, agreements were entered into for post-harvest evaluation so those grapes will show up in the report as crushed, meaning the late harvest presumed to be left behind may not have been left behind.”

Bitter does his own math and based on a yield averaging over 578,000 bearing acres, with a percentage deducted for this year’s short crop and more left behind by rejections of unsold smoke exposure, his calculations add up to 3.2 to 3.5 million tons.

“We all know some crazy things have happened in 2020, so it’s possible more tons might have been left behind than we’re indicating here and we could possibly be 20% off in yield which would leave us with the smallest crop we’ve seen since 2011,” he said. “Which would essentially throw us back into a balanced situation in our overall supply.”

Bitter’s final analysis projections indicate an oversupply in acreage based on where wine sales are today. “Given some moderate pullouts over the foreseeable future, we’re only going to get into our bearing target range by 2022,” he said. “This short crop may help us in the interim, but longer term, we’re still structurally oversupplied and that will manifest itself down the road unless we continue to correct our acreage or we start selling more wine.”