Wine: Cheaper than Water

Call it what you will; a recession, an "economic downturn," a depression, whatever it is, table wine sales don't seem to be suffering quite so much. In September of last year, California restaurants were already struggling, and hence depleting their wine cellars instead of buying more wine, but retail and direct-to-consumer sales were doing slightly better. University of California at Davis wine industry economist Robert Smiley recently released the results of a study he did of 73 California winery and vineyard businesses. High-end wines sales are hurting, according to Smiley, but producers of "moderately" priced wines in the $10.00 to $14.00 dollar range might actually have seen an increase in sales. Presumably, as people economize by staying at home instead of dining out, they're buying their own wine—and based on the corkage fees reported by some restaurants. When people did go out, they were bringing their own bottle.

The California wine industry outlook has gotten a little bit darker since 2008. Unlike other industries that make an actual product, wineries and vineyards don't have complete control over how much they produce. The same vines can, and do, produce dramatically different amounts and qualities of grapes from year to year, at the whim of nature. Because everyone's budget is a little tighter, restaurants are selling less wine, and buying less wine. But the vines don't know or care; they keep producing—and 2009 is looking like a good harvest.

While people are continuing to buy wine directly, from California wineries and retails, they're buying in the moderate to budget price tiers. Consumption is up, but it's the consumption of those under $20.00 bottles. People are buying more wine at the lower price tiers. That means that some niche growers, for instance those who planted expensive pinot noir grapes several years ago, have grapes but no buyer. The prices are dropping per pound of grapes, substantially, but the costs involved in growing and harvesting the grapes aren't dropping. That means growers and wineries who target the upper-tiers, but not the very highest, are being hardest hit.

There's a reason for those tiered price ranges that just about everyone seems to be offering; they might not be able to sell their top range at $60.00 a bottle, but they are selling the mid-range and under bottles. Fortunately for California, most growers started reducing their vine acreage about ten years ago, when a glut of grape juice resulted in bulk packagers like Bronco producing Two Buck Chuck.

Elsewhere, in Australia, things are a little different. A few years ago, wineries and vineyards expanded dramatically, and now experts say that the vineyards are over planted by as much as 20%. In some ways, Australia is where California was ten years ago. Now, with consumers spending less, there's a glut, one so extreme that some growers are comparing wine prices to bottled water—and the wine is cheaper. One major retailer is selling unlabeled cleanskin bottles at $1.99 a bottle. There's a reason that large International wine conglomerate Constellation is pushing imported Australian Shiraz and Chardonnay and Merlot with names like Banrock Station and Boonaroo not only at Trader Joes but at your local chain grocer or co-op. Given the recent grape glut in New Zealand, I'm expecting to see a lot more budget priced New Zealand wine as well.