With the current status of the economy, has the wine industry felt anything negative or positive? It’s very difficult to tell at this stage, but the looming short crop (due to very abnormal weather patterns and major spring frosts in many areas) means grape prices could rise significantly. Spot market fruit—that is, grapes that are grown without a contract—will be in big demand, or so the story goes. Interestingly enough, just after the frost last spring, there was suddenly not a drop of wine available on the bulk market. Those wineries that had surplus wine to sell must have realized that the value would increase dramatically. And right they were.
Most of you aren’t familiar with the bulk market, but it’s frequently the invisible tail that wags the grape-price dog. Many wineries crush far more grapes than they can sell as finished product, so it remains as bulk wine in a big stainless steel tank until another winery needs it. When a winery needs more wine for its marketing program it will request samples from bulk wine brokers, of which there are two major ones and a few smaller ones.
The buying winery can state the vintage, appellation, price range and volume they need, and then selling wineries submit samples to the potential buyer, who selects what he wants. Anytime you want to know if a wine has been purchased bulk by the selling winery, simply read the label; it will say, “Vinted and bottled by….” Just go to an outlet like Trader Joe’s, where each week, it seems there are another three or four labels on endcaps selling for $3.99 to $5.99. I’ll virtually guarantee you they’re bulk wines. Buying bulk, bottling, labeling and selling are a very major part of the wine business. There are several wineries in the state that buy grapes, crush, ferment and sell bulk with no retail sales.
The economics of the bulk market are interesting. You get about 160 gallons per ton of grapes, so if you multiply that by the price per gallon and subtract about $200 (a high estimate) per ton for winemaking, you’ll get the value of the grapes in the wine. Thus a bulk wine that sells for $10 per gallon (160 gallons x $10 minus $200) equates to about $1,400 per ton of fruit. That equates to $14 per bottle (bottle price times 100 equals the value of grapes). These numbers are all relevant to small, North Coast wineries—and when efficiencies of size and scale set in for the San Joaquin Valley, you can get wine worth about $4 per bottle. There’s actually bulk wine available from Spain for about $.50 Euro per liter (that’s about $3.05 per gallon for you metric-challenged individuals). All of these prices are about 30 to 50 percent higher than before the frost.
This summer, bulk prices have varied greatly depending on appellation. Using Cabernet Sauvignon as an example, bulk prices look like this: Central Valley, $4 to $5 per gallon; Central Coast, $4.50 to $8; Mendocino, Lake and Sonoma counties, $12 to $15 (with some at $20); and the Napa Valley, $20 to $25 per gallon. Russian River Valley bulk Pinot Noir goes for at least $20 to $25 per gallon, and Russian River and cool area Napa Chardonnay is $10 to $18. It’s also notable that Lodi is becoming more competitive each year as it continues to improve quality, especially for mid- to high-range wines.
As for the lower price for Mendocino and Lake counties, neither area has consistently made very high-end wines. The lack of wineries making high-end wines throughout those regions continues to plague them. Probably the only Mendocino County winery many people know is Fetzer, and it’s a poor place to hang your hat for national premium wine recognition. (I should probably point out that most of its labels are California appellation anyway, which does nothing to promote Mendocino County.)
Lake County makes some wonderful Sauvignon Blanc, but SB isn’t popular enough to promote the entire area. Lake and Mendocino have always been grape exporting areas because of the lack of processing facilities, and the fruit usually ends up in wines with either a North Coast or a California appellation, which does absolutely nothing for their image. Do they make excellent wines in either area? I’ll leave that to you to decide.
And I hear some of you asking about Anderson Valley and Philo. They do make wine in a limited number of varieties due to the cool growing conditions, but they don’t consider themselves Mendocino County. They want to be their own entity—just as Carneros does. And we wonder why the average consumer is confused.
So what about grape growers in all of this? Using $15 per gallon as the value of bulk wine, the grapes would be worth about $2,200 per ton. A vineyard yielding four tons per acre would generate $8,800 gross, with actual cash costs of about $4,000, overhead of about $2,500 (lots of variables here) and thus yielding some profit. This would then give you a $22 bottle of wine retail using the basic grape price divided by 100 equation.
These numbers all seem pretty straightforward, but in reality, it’s obviously not quite so simple. The single biggest variable is grape yield, which can change as much as 50 percent from year to year. There are also many winemakers who want growers to keep yields down (sometimes to three tons per acre or less) under the guise of better quality. This is especially true with Pinot Noir, which explains the ridiculous average price of $35 to $40 for many local Pinot Noirs.
The factors affecting bulk wine are many—and far more globalized than one might expect. A sea of wine in Europe, a drought in Australia, massive new acreage coming into production in Spain, South Africa exporting more and more to the United States all add to the complexity of wine prices.
In closing, I’ll say that if any of you really think wine retail price is based on actual costs of production, you must be smoking some funny tobacco. The only consistent rule followed is to charge whatever the traffic will bear…and if you can convince the buying public that your wine is better than most others, then more power to you.
OK, off to your homework. And while you’re at it, notice how many wines are being sold in screwtops, and that Chateau-la-Box is the fastest growing segment in the wine marketplace. Do you suppose wine is finally becoming mainstream?
