Comment - Wine - Tough Harvests Lead to Moment of Truth
Storm clouds over this year's wine grape harvest could lead to major changes in the supermarket aisles
Reports out of the northern hemisphere's wine-producing regions has suggested that this year's harvest has been rather different to previous years'. Chris Losh takes a look at what this could mean on the shop floor.
Well, it never rains but it pours. Or, alternatively, it doesn’t. At all. This must go down as one of the oddest harvests that the wine world has seen for decades, with some of the most extreme temperatures, rainfall and what they now call "weather events" ever recorded.
Moreover, it’s not just been one or two isolated regions or countries. Droughts, frost, hail, floods… the wine world is used to dealing with these. But, I can’t remember a year when so many regions have suffered with one (or more) of them.
Perhaps counter-intuitively, the reports are that quality in most countries and regions is good – at times, even exceptional. But, the story this year is not one of style or quality. It’s size. Or, more specifically, lack of it.
New Zealand Sauvignon? 25% down this year. Champagne? Worst volumes for decades – down at least 30%. Italy? Down 7% on what was already a small 2011. France overall? Down 20%. Burgundy? Smallest vintage in 50 years. Rhone? 20% down. Douro? Down 40%. Rioja? Down 20%.
It all goes to underline what we sometimes forget in the era of powerpoint presentations and yearly predictions: Grapes are an agricultural product and subject to factors outside the control of the boardroom.
As one Kiwi producer ruefully put it to me recently: "There aren’t many businesses where 30% of your year’s turnover can be wiped out before you’ve even made the product, let alone started trying to sell it."
The weather, it seems, has done almost instantly what Australia's grub-ups and EU incentives could not: bring supply and demand back into balance. Suddenly, from being an industry where all the talk has been of glut and oversupply, now the talk is of shortages.
On the one hand, you could argue that it’s probably healthy to have the industry’s supply-and-demand broadly in balance. But, this has not been a managed recalibration, but a sudden tectonic shift that will have a profound short-term effect on the industry.
Moreover, because the shortage is caused not by growers electing to pull out unprofitable vineyards, but by the vicissitudes of nature it means that in many cases the ‘wrong’ wines have been affected.
Three of the most popular wine styles on the planet - Rioja, Marlborough Sauvignon Blanc and Italian Pinot Grigio - are all facing problems over the coming 12 months.
Kiwi Sauvignon was 25% down in 2012, and, since the problem was related to flowering, is expected to be 20% short again in 2013 even if there are no late-spring frost issues; Rioja (which was 35% down in 2011) is looking at being lower even than that in 2012 thanks to an on-going drought. While Verona, home to much of the world’s Pinot Grigio, and which was already in short supply, is also looking at a reduction in yields this year of around a third.
The most obvious bell-weather of the supply-and-demand situation in the wine world is the bulk market. Unsurprisingly, a series of short harvests has seen spot prices firm up considerably. Marlborough Sauvignon, for instance, is twice the price it was four years ago; Italian Pinot Grigio is up around 50%. There is, as one importer put it, "going to be a shortage of entry level wines this year".
All of which is bad news for the supermarkets, in particular. A few years ago, the head of beers, wines and spirits at one powerful UK retailer told me - with impeccable logic - that it was the global oversupply of wine that allowed them to offer low prices and repeated discounts; that, with wineries all over the world knocking on his door desperate to empty their tanks, they’d be crazy not to seize the opportunity, and that if one supplier didn’t fancy the terms on offer, well, another one surely would.
That situation – at least for a while – has changed. It may be slightly over-egging it to say that the wine producers hold the whip hand, but it’s certainly true that negotiations between supplier and retailer are likely to be more even than at any time for the last 15 years. Over the next six months, buyers will really earn their corn.
In a sense, what we’re probably going to see here is the ‘true’ value of wine. With volumes running ahead of the market for most of the last decade, prices have been kept artificially low. They may have generally risen over the last three years, but that’s been in reaction to Forex rates and fuel prices (plus, in the UK at least, duty rises), rather than oversupply.
Assuming that a broad balancing of supply and demand means that prices do go up by at least another 10%, how will this impact on consumers?
‘Badly’ is probably the answer. With most mature wine markets either economically stagnant or in recession, another sudden rise in retail prices is bound to mean lower volumes. Promo-junkies, in particular, may well migrate out of the category altogether, leaving only the most committed drinkers.
Stripped of the distorting comfort blanket of price reductions, the good news is that, over the next year, we’re likely to get the most accurate snapshot for a long time of the state of the wine retail market.
The bad news is that we might not like what we see.
- Will Tequila Learn from Scotch Whisky's Mistakes?
- Comment - Beer - Does 'Craft' Work?
- Solving the diet drinks dilemma in the US
- SABMiller, Meantime Brewing say goodbye to 'craft'
- Comment - How to Target Cognac's Mok Generation?
- Whyte & Mackay takes on Flor de Caña in UK
- Diageo opens Johnnie Walker House in Singapore
- Emperador overhauls Whyte & Mackay labels
- SPI Group US, Canada sales chief departs
- Soaring Prosecco sales good for Champagne
- Global Tequila insights - market forecasts, product innovation and consumer trends research
- Global rum insights - market forecasts, product innovation and consumer trends research
- Global Scotch whisky insights - market forecasts, product innovation and consumer trends research
- Diageo plc (DGE) - Financial and Strategic SWOT Analysis Review
- Beam Suntory Inc. - Strategy and SWOT Report