News spreads quickly on social media. One such story that came out of the SF Chronicle is that the California wine industry is dying. They noted declining foot traffic in Napa Valley, vineyards being yanked out, and unsold bulk wine on the open market.
 |
| Removing vines image from winebusiness.com |
All of that is true, but the conclusion that the California wine market is done is false. These things have all happened before.
Visitation Down
Napa, and other places, are seeing lower visitation. We are still working our way out of the Pandemic lockdown when there were zero visitors, then the pent-up demand led to a flood of people going on wine vacations, and now there is a sort of leveling off. There's also jacked up prices, part legit with increasing costs, part gouging. Or, if you're an economist, you'd call it a reaction to supply-and-demand.
It's not just some wineries doing this. Lodging has seen a huge increase in costs in Napa Valley. Restaurants everywhere have gone up in price. Suddenly, a few days in Napa are out of the reach of some potential visitors.
Vineyards Ripped Out
Vineyards getting taken out is nothing new. If it happens en masse, that would be telling of a problem. Vineyards usually get yanked for economic reasons -- the vines are old and not producing well, nobody is buying whatever grape is planted, or even because the wrong grapes were planted in the wrong area, and they just aren't thriving. Most of these vineyards get replanted.
Unsold Wine
There is almost always unsold wine on the open market looking for a buyer. Sometimes there's more demand than wine available, sometimes there's more wine than demand. It varies year-to-year.
Where Are These Problems?
California is a big, varied state. So is the state's wine business. There are cheap grapes and cheap wines, there are very expensive grapes and very expensive wines. The vast majority actually falls in the cheaper end of wine market. So when you see news about vineyards ripped out, you should ask, what grapes and from what area? Cabernet from Napa or French Colombard from San Joaquin Valley? When you see news about unsold wine, you should ask, $100 Napa Cabernet or $7 whites from Modesto?
The 2024 BMO Wine Market Report
This report gathered data from multiple sources. Their conclusion? The wine business is doing fine, as more than half of the wineries met or exceeded their 2023 sales goals. Of course, this means many didn't. Looking at the premium and luxury end of the market, 31% of Napa wineries reported a sales increase, 38% of Sonoma wineries, and 35% overall for the state. So some aren't doing as well, and that's not good, but you don't see a failing business sector. You can expect fallout, meaning more wineries go up for sale and more wine goes on sale.
The premium end of the wine market is holding pretty steady on sales.
There is a lot of inventory in wholesale and retail, as these people stocked up when the fear of scarcity hit many consumer goods. Not just wine, it turns out there's a post-pandemic oversupply of TV sets, so get a good deal while you can! The comfy, loungewear clothing everybody wore while working at home during the pandemic? That's also in oversupply. There are plenty of other examples.
All of this is still fallout from the Pandemic, as is inflation, and nobody knows how long it will take for market correction and a return to some sort of normal.
For wineries, it's a matter of using good business practices controlling hiring, grape purchases, equipment purchases, and all the other expenses. Their wine clubs and direct-to-consumer sales are what is saving many wineries. Taking care of these customers seems to be what matters now.
State of the California Premium Wine Market
I would call it cautious optimism when looking out the next few years.
BMO Report
At this website you will find a PDF with more detail.
No comments:
Post a Comment