Even as an oversupply of wine grapes is forcing some growers to downsize their vineyards, the challenges the industry faces today are cyclical and can be overcome, experts said at an industry conference.
Producers can respond to current demand doldrums by looking for opportunities to expand “wine occasions,” focusing on convenience and health and wellness trends and enhancing the “experience” of wine drinking, said Danny Brager, senior vice president of the beverage marketing practice at the Nielsen Co.
While the industry is in a competitive battle amid a changing consumer environment, there are still growing segments within wine that can be leveraged, Brager told about 1,100 growers and distributors Feb. 5 in Sacramento.
Wine producers must find creative ways to increase demand, particularly among millennial and younger consumers, he said.
“We’ve been here before,” said Steve Fredricks, president of Turrentine Brokerage. “We’ve adapted and innovated to get through these cycles.
“We’re in excess, and it’s a challenging market when we’re in excess,” he said. “Not every cycle is the same, but we’ve been here before.”
With challenges come opportunities, Fredricks said.
“We need to market at all price points,” he said.
GLOBAL GRAPE GLUT
The remarks by Brager, Fredricks and other wine professionals came amid a “State of the Industry” presentation at the 26th annual Unified Wine and Grape Symposium. Their talks mainly centered on a a two-year global glut of grapes that forced some growers last fall to leave unsold fruit on their vines.
“You don’t want to grapes on the vine with no leaves,” said Jeff Bitter, president of Allied Grape Growers.
The U.S. wine market is still growing, but at a lower rate than before, noted Brager. Annual sales of wine cases rose by just 1.1 percent in 2019 to just over 410 million cases, continuing to slow a trajectory of annual growth that reached as high as 6 percent in 2011, according to bw166, which tracks the beverage alcohol industry.
Growth in the U.S. wine market began to slow a couple years ago as changes in consumer attitudes, more competition among drink choices, oversized grape crops and increases in production costs cast some clouds over an industry that had grown accustomed to sunny outlooks over the last few decades.
A Silicon Valley Bank report in January predicted that oversupply will lead to vineyard removals and reduced returns for growers in most regions this year.
SVB Wine Division founder and report author Rob McMillan asserted that California growers are in the midst of the worst market conditions they’ve seen in nearly two decades or perhaps ever.
McMillan’s report pins the blame not on “speculative overplanting” by farmers but on the industry’s difficulty in marketing to millennials, whose tastes and whims are different from those of older generations.
He predicts the industry will see early replants, removals and fallowing of vines in every region as grape and bulk prices fall below levels growers haven’t seen in the last five years.
The challenges could be particularly acute in the San Joaquin Valley, where vineyard pullouts could again top 30,000 as growers besieged by low prices look for higher margins in almonds.
While opportunities for growing quality wine grapes are still robust along the coast, inland grape farmers of all types – wine, raisin and table – are reacting to poor market conditions that left fruit unsold last year.
Allied Grape Growers’ Bitter told Western Farm Press last month he sees trends that could continue to push independent grape growers aside, particularly in wine grapes, and leave remaining growers in the San Joaquin Valley with lower-quality varieties that will need to focus on tonnage if growers are to make money.
Adding to concerns about oversupply was an Allied nursery survey finding that 22 million vines were sold in California in 2018 – enough to plant about 22,000 new acres.
With two more years of bearing acres coming in, Bitter suggested at last year’s symposium that growers consider taking out aging, diseased and underperforming vineyards.
This year, he said about 30,000 acres statewide need to be removed to bring supply and demand back into balance, and that’s above and beyond the older vineyards that are routinely removed and replaced with new ones.
“We’re perpetually going to be 200,000 tons long each year until that 30,000 comes off.”
The California wine industry can find buyers for about 4 million tons of grapes each year, Bitter said. However, the 4.25-million-ton crop in 2018 was followed last year with production that exceeded 4 million tons even with grapes left on the vine, he said.
The industry needs to whittle down its bearing acreage from more than 590,000 currently to about 560,000, Bitter said. The good news, he said, is 30,000 acres equates to only about 5 percent of production.
“We don’t have that far to move the dial to bring us into balance,” he said. “The battle cry to remove vineyards is still legitimate.”
The symposium was held Feb. 4-6 at the California Exposition and State Fair, the event’s temporary home while the downtown Sacramento Convention Center is in the midst of a $120 million upgrade.
The Almond Conference in December also met at Cal Expo, and while that conference’s organizers were optimistic that the convention center would be ready for the 2020 gathering, the wine symposium booked Cal Expo again for 2021 just in case it’s not.
The wine symposium is the largest wine and trade event in North America, drawing between 13,000 and 14,000 registrants, according to organizers.