As US Demand Drops, California Worries About an Excess of Grapes

First and foremost, it’s not being driven by too many grapes from too many big harvests, as has almost always been the case for the past three decades. Rather, it’s being caused by an almost unprecedented drop in demand, as US consumers cut back on wine purchases. Too little wine is being sold, so unsold bottles are sitting on retailer shelves and in warehouses, while bulk wine and even grapes sit and wait for buyers.
 

Red wines hard hit

The excess is hitting red grapes and red wine harder than whites; prices and demand for the latter are a bit down, but not nearly as much as for reds, say officials with two leading California grape brokers. And, though prices may have dropped as much as 50% for some reds, prices had been at historically high levels – which means the current lows are mostly near historical averages for grape prices.
 

Corrections in Washington state

If that’s not confusing enough, some imports – facing a glut at home – are cutting prices in the US to move inventory. The Washington state grape market was turned upside down this summer when Ste. Michelle Wine Estates, the state’s biggest producer, said it would cancel 40% of its grape contracts over the next five years. All of which means that no one is quite sure what the correction will look like – or when it will end.

“That’s what we keep asking every day of everybody,” says Steve Fredricks, President and Partner of California’s Turrentine Brokerage, one of the leading bulk brokerage houses in the state. “There are a lot of really smart people trying to figure out what is going to happen and then to do something about it.”
 

Decreasing bulk wine prices in California

California’s bulk numbers don’t paint a pretty picture. Grapes crushed in 2022 were 3.349 million tons, the smallest crop harvested since 2011, according to the California Department of Food & Agriculture — and it was a lighter crop than expected. Nevertheless, Turrentine reported in July, “As we progress through the season, it has become increasingly difficult to sell large volumes of bulk wine, even at significant discounts.”

That has mostly been the situation for the past 18 months, says Greg Livengood, CEO for Ciatti Global Wine & Grape Brokers. “The short version of all this, is that this is the first time since the mid-1990s that we’ve seen an oversupply based on a lack of consumer demand.”

Notes his company’s August report: “Volumes of 2023 grapes – particularly reds such as Cabernet Sauvignon and Zinfandel – remain uncontracted and pricing on unsold 2022 and older vintage wines has become more negotiable. … Lower pricing is struggling to stimulate extra buyer interest amid a slowdown in wine sales across all channels. …”

More specifically, reports Ciatti, Cabernet Sauvignon inventory in July was approaching nine million gallons (3.4 million litres) statewide, almost twice as much as the same time a year ago. Even for more in demand whites, like Sonoma County Chardonnay, says Turrentine, sales have been between $18 and $22 per gallon (3.8 litres), less than earlier in the year. There is more wine, even dating back to 2021, on the market, and it’s staying for sale longer. In addition, “The biggest market shift over the past two months has been traditional grape buyers becoming grape sellers themselves.”

Grape prices are flat

Jeff Runquist, who makes 30,000 cases for his self-named winery in Amador County, says he hasn’t seen any grape price increases for the 2023 harvest from the 19 growers in 12 appellations that he buys from. Since his wines start at around $30 a bottle, his growers should be less sensitive to excess. But that hasn’t been the case, and Runquist says he is considering lowering the price of one of his wines by $1 a bottle since his costs have come down.

Prices probably aren’t even low enough to force growers to leave unpicked grapes on the vines this year, says Livengood. That may change once the industry has a better idea of how big the 2023 harvest will be and growers can decide not to pick late-harvesting varieties, but until then, it’s business as usual.

Complicating matters further, says Joan Kautz, who oversees marketing for their family’s winery, is what appears to be much less buying from distributors and retailers for bottled wine. Says  Kautz: “I’m out in the market, and I see this. Distributor warehouses are full and shipments to distributors have slowed. There are a lot of rumblings about what people are calling ‘a backlog of bottles.“
 

Risk taking is also flat

There is a sense, say those interviewed for this story, that wholesalers and retailers are much more wary of adding new products, whether because of a slowing economy, the drop in wine demand, an increasing number of cheap imports – or something no one quite understands yet. They see slowing sales, and so are that much more careful. That has made it much more difficult for savvy producers, who would buy low on the bulk market to package new wines at much lower prices and try to reverse the drop in demand. The most famous example, say analysts, is Bronco Wine’s Charles Shaw, which used the 1990s demand-driven glut to produce $1.99 wine, the legendary Two-buck Chuck.

But if wholesalers and retailers aren’t willing to take risks, there’s less reason to create new wines that would deplete the bulk market. Which, says Fredricks, is a one of the biggest obstacles to clearing all that excess inventory. It doesn’t mean it can’t be done, and it doesn’t mean producers aren’t trying to do it, but that it will be more difficult than the last time. “I’m always optimistic that someone will be able to do that, because they are working on it,” he says.
 

Not many hard numbers available

All of this is anecdotal, and there aren’t as many hard numbers for this as there are for bulk volumes, though Meininger’s reported in 2019 that US wholesale alcohol inventories were at an all-time high. That’s about the same time that the flat grape supply first outpaced decreasing demand, according to Livengood and Fredricks. The surge in pandemic wine sales in 2020 balanced the market, they say, but the excess started showing up again in 2021.

If that’s not confusing enough, no one is quite sure how the Ste. Michelle Wine Estates cuts will affect California. Ostensibly, it shouldn’t do much – California-made wines that include any percentage of out-of-state grapes can’t use the California appellation by state law and must be labeled as ‘American’ wine. Most California producers are loath to do that. Still, says Kurt Kautz, he has seen ads for Washington state grapes in listings that go to California producers, something that doesn’t usually happen.

The only thing to do is to wait. Because, as Kurt Kautz says, these corrections always do what they’re supposed to do, and this one should be no different.