Glass raised to a little less wine

January 27, 2007|By The Sacramento Bee

SACRAMENTO, Calif. -- The nation has nearly drunk its way out of a six-year wine glut.

Whether that's good news or not depends, of course, on whether one is in the business of making wine or consuming it.

For the 10,000 U.S. wine business players who have converged this week in Sacramento for the annual Unified Wine and Grape Symposium, the waning glut should mean some reprieve from years of low prices and slim profit margins.

"We're emerging from excess," said bulk wine broker Bill Turrentine during a panel discussion on the state of the wine business.

The shrinking surplus marks a recovery from excess vineyard planting in the late 1990s, Turrentine said. That excess planting was driven by the era's scarce wine supplies and high prices - as well as the surplus cash and general exuberance that accompanied the Internet bubble.

Since then, many vineyards have been ripped out, and consumption has risen steadily, drawing down the surplus.

For U.S. consumers, who bought a record 300 million cases of wine in 2006, the tightening supply signals a likely increase in prices - but not necessarily a very steep one.

That's because the last few years also have seen a sharp globalization of the U.S. wine market. Foreign wines, especially lower-priced brands from Australia and Chile, now make up a record 29.4 percent of the market, and that competition is not expected to go away.

In addition, the world's leading wine producers, France and Italy, face plummeting sales at home. That has led to an oversupply so grave that a great deal of French wine was used to make ethanol last year.

The increasingly competitive landscape has meant that wineries have had to innovate and develop products for every market niche.

U.S. consumers now have 100,000 choices when buying wine, ranging from the type of wine to the size of the bottle or box that it comes in, said consultant and market analyst Jon Fredrikson, with Gomberg, Fredrikson & Associates in Woodside, Calif.

On the whole, Fredrikson's take on the U.S. wine industry is bullish. As wine becomes increasingly mainstream and as new health benefits from its consumption continue to be announced, he sees a continued growth in overall U.S. sales.

As a rule, the more expensive the wine, the more popular it is: Sales of bottles over $15 rose 27 percent last year.

But Fredrickson sees pockets of trouble, too.

So-called "extreme value" wines - those less than $3 - are struggling. Supermarket sales in that category fell 3 percent last year, while sales at virtually all other price levels rose.

Many farmers who grow the low-end grapes for those wines are ripping out their vineyards to plant almonds or other crops, said Nat DiBuduo, president of Allied Grape Growers in Fresno, Calif.

"The bulldozers are working in Fresno and Madera counties," he said. Growers have removed 10,000 acres of vineyards out of a state total of about 480,000 acres since fall, DiBuduo said.

Fredrikson also praised several of the nation's more dynamic and successful labels, including Bogle Vineyards in Clarksburg, Calif.

Independently owned Bogle is now the 19th-largest winery in the country, according to Wine Business Monthly, and it is growing fast.

Fredrikson called Bogle's achievement an example of developing a line of excellent yet moderately priced wines from grapes grown in a non-marquee region.

"It's like they do it with mirrors," he said.

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