There has been further bad news for California’s wine industry over the past couple of days as the State’s newspapers digest the reports just after New Year that the all-important fourth quarter of 2002 had been the “worst for a decade”.
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As reported in just-drinks last week, AC Neilsen figures showed that sales of California wine declined in most categories this season for the first time since the 1991-92 recession. This has been exacerbated by a general over-production of grapes, accelerating the decline in prices.
Already three wineries have been reported as having filed for bankruptcy protection since the fall, and grape prices have plummeted as much as 75% over the past two years.
In the Napa Valley Register, Joe Ciatti, of Joseph W. Ciatti Co., one of the state’s largest bulk wine brokers, said he believed some 20% of all of the state’s 900 wineries could face bankruptcy or be forced to merge with larger concerns.
The paper also raised concerns for the state’s growers saying: “Growers are also under pressure. Some in the Central Valley are giving up and ripping out vines to make way for other crops.” It quoted Gary Wilson, a grower near Bakersfield who plans to pull out 20% of his wine acreage, as saying: “The price doesn’t justify keeping them in the ground.”
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By GlobalDataThe Modesto Bee quoted Tom Pillsbury, vice president of estate wine sales with Youngs Market Co., one of the state’s largest distributors, who called the coming together of a worldwide wine glut, flat consumption and increasing competition from cheap imports “the perfect storm”.
There are also fears of the growing homogenisation of wine as smaller, niche wineries, put under increasing financial pressure, are forced to sell to the world’s giant wine groups.
However, it should not be all doom and gloom. Larger wineries will certainly benefit as the price of wine acquisitions falls below the unsustainable multiples being asked in the last 12 months.
Furthermore as the prices fall, California wines will regain some of their market share as they become more competitive in the face of cheap but high quality wines from abroad.
The figure of 20% of all wineries disappearing seems over-pessimistic too. No doubt there will be a fall-out, as those wineries not strong enough to withstand the economic pressures are forced out of business. But those with strong brands at the bargain end or a real niche in the premium sector will survive, prompting some commentators to predict a two-level industry dominated by global players at one end and high quality winemaking boutiques at the other.
