Bill Turrentine - Editor

AIR  MARSHAL____________________________________________________________

We worked on Tuesday, September 11^th.  But we spent most of the time listening to the radio and checking the news on Yahoo.  It was a dark, disjointed, surreal day. In the days that have followed, the normal routine has again emerged, just as the airlines have again taken to the sky.  But, like an armed marshal on every flight, the disjointed character persists. 

The future of the wine business is subordinate to the future of the country.  Will there be war?  Will there be further terrorist attacks?  Will there be a prolonged economic downturn? Only time can make the answers clear. In the meantime, the sun continues to rise, sending its rays not only upon the just and the unjust but also upon the grapevines.  The grapevine leaves continue to perform their photosynthetic magic and the grape clusters continue to sugar up and so we humans must do our part.  We must pick the grapes, crush them and ferment the juice into wine.  The buying and selling of grapes must proceed.  But even so, the armed air marshal sits ominously in the background and we pray for the future of our country and our world. 

HARVEST_________________________________________________________________

Mother Nature has been kind.  She has given us a relatively light, rain-free and high quality harvest.  And, so far, she has given us a temperate harvest. This is critical because many varieties are ripening at the same time and it would be extremely difficult to process multiple varieties at once if sugars started to jump.  Lower yields and high quality is a great combination in a difficult market.  In the Northern Interior, this harvest could challenge 1999 as the best ever: great flavor in reds and whites and great color in reds. Quality looks good in the coastal regions as well, although some winemakers are concerned about grapes reaching sugar before the flavors are fully developed. In many cases, winemakers are asking growers to leave the grapes on the vine for a number of days even after reaching the target brix. 

The market is not as kind as Mother Nature.  In the interior regions, the spot market for Chardonnay peaked at $150 per ton and then declined.  Significant tonnage was left on the vine.  Even in coastal regions, some Chardonnay has sold for $500 to $700 per ton and small quantities have gone unpicked.  The only strong spot for Chardonnay has been Carneros, where we still have buyers in the $1,400 per ton range.

Cabernet Sauvignon in Lodi has taken a dramatic drop. Last year, it was $500 to $700 on the spot market; this year, spot prices started at $250 and softened from there. Cabernet Sauvignon has been readily available in coastal regions, bringing $1,100 to $1,400 per ton for Mendocino and Lake Counties and about the same in the Central Coast. Cabernet Sauvignon still uncommitted may sell for less.  Non-hillside Napa Cabernet has been mostly $3,170 (previous year’s average).  Top Napa Cabernet is still commanding $4,500 and up.  The difference this year is that we actually have some available.  Non-hillside Sonoma Cabernet has been in the $2,500 range.  Hillside Sonoma fruit has been around $2,700.

Lodi Merlot bucked the trend and actually went up in price as harvest proceeded.  The last few sales from high quality vineyards were $600 per ton.  On the other hand, we have had large volumes of Merlot grapes for sale from Napa Valley, asking $1,800 to $2,200, and few buyers.  Merlot, in stark contrast to Cabernet, is short at the low end and long at the high end.

Syrah, continuing its rocket-ride increases in production, still managed to hang on to profitable prices.  Syrah south of District 12 and Syrah with huge tonnage didn’t fare so well.  But quality Syrah in Lodi commanded $500 plus and quality Syrah in Paso Robles sold mostly in the $1,100 to $1,300 range, with a few stragglers going for $700 to $800.

Sauvignon Blanc grapes have captured the white grape leadership, generally bringing much higher prices than Chardonnay.  We sold Central Coast Sauvignon Blanc in the $1,000 to $1,200 per ton range when we were struggling to sell Chardonnay at $600.  Pinot Noir showed up in force for the third millenium: lots of new acres, planted with fashionable clones, and existing buyers getting nervous about projected sales growth. Prices for fancy clones from the Central Coast have been mostly $1,000 to $1,500. Gamay Beaujolais and other old Pinot Noir clones have become a tough sell.

IN  PRAISE  OF  FAT  MARGINS___________________________________________

As readers of this newsletter know, we have long anticipated that new plantings would catch up with demand. This change from a seller’s to a buyer’s market has been intensified, however, because the rate of casegood sales growth has dropped at the same time that new acres are producing. The wine business is suffering from the double whammy of increased production and a declining rate of sales growth.   

During my 24 years in the wine business, I have noticed that some companies grow aggressively even in a down market. I once asked the proprietor of one of these brands for his secret.  He said that many people become discouraged in the face of hardship and spend their energy complaining rather than adapting and selling. This creates an opportunity for those who are fast to adapt and focus. 

This lesson applies not only to individual brands but also to the American wine business as a whole.  Worldwide competition is heating up in quality, quantity and determination.  Individual brands can do well in this increasingly competitive market if they know how to take advantage of an increasingly abundant supply. Now is the time to charm Connie and Conrad Consumer with superior quality wine, packaging and image, at whatever price point. 

Those who seize the chance to charm Connie and Conrad, while keeping a firm grip on finances, will do well.  But ultimately, an excess supply erodes margins for everyone, even the charmers. The strongest brands – even if they heroically stave off price discounting – still must increase sales and marketing expenditure to hold their place. And most brands, even at the high-end, will be unable to avoid some price discounting.

Ultimately the ONLY way to resuscitate margins is to eliminate excess supply.  And the only way to eliminate excess supply is to grow total demand.  And the only way to grow total demand is to broaden the market beyond the 10% of the adult population that currently consumes 86% of the table wine.  And the only way to broaden the market is to be lucky (i.e., 60 Minutes Program aired in November of 1991) or focus intelligent efforts on reaching those consumers who like wine but relegate it to special occasions. 

Individual brands naturally target their marketing dollars to those folks who drink the most wine. But the wine business as a whole must tackle the problem of excess supply by broadening demand.  Everyone who is distressed when margins become haggard and emaciated, everyone who likes their margins fat and happy, should get in touch with the Wine Market Council.  Or come up with another way to broaden the market so that demand can outpace supply ASAP.

Of course, that’s not all the wine business needs to do. There are critical needs to organize around quality enhancement through research and around gaining our fair share of the world’s export markets.  But right now we need to get back to selling grapes (& wine in bulk). 

CALL  TURRENTINE ____________________________________________________

With a small, high quality crop, some savvy brands are scooping up extra grapes rather than rely on bulk wine purchases. Give us a call to fill those tanks.  And check out our improved web site, www.grapes-wine.com.

REFERENCES AND LINKS________________________________________________

1.                  Wine Industry Financial Symposium – Bill to speak on Wednesday, September 26 at the Napa Valley Marriot.  707-255-9222 or         e-mail admin@winevision.org.

2.                  www.WineVision.org