NEWS : California Wine Prices to Rise

A sudden wine shortage in California is causing a frantic scramble for quality grapes by major wine companies, signaling an imminent rise in wine prices.

California wines now selling for $6 a bottle are expected to rise at least a dollar over the next six months, say industry analysts.

There are two reasons for the sudden shortage of fine wine:

* California had small wine grape crops in 1993 and 1994. After a 1993 harvest that was 5% lower than 1992’s near-record crop, the amount of wine grapes crushed in 1994 was down another 5%.

* Consumer demand for fine wine continues to rise significantly (a fact that was masked by statistics showing flat sales for all wines, which include the declining jug-wine and wine-cooler segments).

Wine grape growers in California’s north coast are posting price increases for their grapes from next fall’s harvest, and the bidding by wineries is escalating almost daily. Meanwhile, supplies of bulk wine, which had been the major wineries’ salvation and which were in surplus as recently as last October, are dwindling rapidly, and prices have risen faster than anyone expected.

After back-to-back short crops, many growers raised grape prices for this year’s harvest by about 10% over last year. In the last two weeks, moreover, bidding for the better vineyards has driven grape prices up 20%, and they may go even higher.

The shortages have already shown up at the retail level. Some premium 1994 Chardonnays have hit store shelves months ahead of schedule as wineries try to maintain visibility after selling out of their 1993s.

One wine buyer for a major retail warehouse chain who requested anonymity said: “Shelf prices are going up, but the increases won’t be very strong at first because no one wants to lose market share. But we had meetings last week in Southern California with (two major wholesale companies), and we’re trying to work out prices that we can all live with.”

“I think (the shortage) is a basic problem of the wine business,” said San Anselmo-based wine broker Bill Turrentine. “This business tends to be very cyclical.”

He said that when the retail market for wine is soft and there is an excess of wine, “lenders and investors become concerned about excess supply, so they stop lending money for planting new vineyards.”

Production stabilizes, and when sales begin to catch up with production, he said, “there is a short cycle and prices go up. It’s then that the bankers and investors get bullish and soon everybody plants grapes. When that production comes on line, sales will slow down and we’re back in an excess situation again.”

Ed Everett, a San Francisco wine industry consultant, said the present shortage certainly will lead to the elimination of deep discounts offered to major buyers of certain wines.

“The ‘$10 wine’ we’ve all been buying for $6.99 will be a lot closer to 10 bucks,” said Everett. “Everybody’s margin is going to be trimmed.”

Most industry trackers believe shelf prices will be up at least 10% by late spring. Everett was more pessimistic: “I think wines that you once saw for $5.99 will very soon be $7.49,” he said.

“Whatever prices increases you will see at first,” said Don Schliff, with Wine Warehouse, a large Los Angeles wholesale company, “will be a tightening up of the discounts. No one wants to raise front-line prices.”

The three prime grape varieties under stress are Chardonnay, Cabernet Sauvignon and Merlot, said Turrentine.

California’s Chardonnay harvest last year was up 16% in volume, so there is still a reasonable amount of Chardonnay in the bulk market, said Turrentine, but “wines that last year sold in the $3.50 to $6 (per gallon) range are selling now in the $6.50 to $7.50 range.”

Demand exceeds supply for all red wine, but Cabernet that sold last year for $6 to $8 per gallon today is at $10 to $12 and rising. Some lots are selling at $14 to $16, said Turrentine.

Merlot is the hot ticket. It is in such demand that average-quality Merlot is selling for $11 to $12 a gallon; some lots have sold for $18 per gallon.

Many industry watchers were surprised by the suddenness of the shortage. “No one foresaw how fragile the surplus was last year,” said Everett. “There was a real imbalance of supply and demand, especially for coastal quality red wines like Zinfandel, Merlot and Cabernet.”

The consensus is that the present shortage won’t be over for a while.

“I think we are in for three years of relative shortage,” said Turrentine. “I don’t think this will blow over quickly. Either demand has to soften or production has to increase, and we won’t get wine from new acreage (for another) two to three years.”