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Rising Prices and Strong Demand Continue for California Wines

Daniel Sogg
Posted: September 20, 1999

Although fall storms could dampen the lengthy 1999 California harvest, the investors and industry experts who attended the annual Wine Industry Financial Symposium in Napa on Sept. 15 and 16 forecast mostly clear skies for wineries and grapegrowers.

This year's theme, "Expanding the Market for U.S. Wine," reflected the confidence shared by many of the 400 attendees. Times have changed since 1992, when the first symposium was entitled "Surviving the '90s." But survival is no longer the issue -- especially for premium wineries and growers -- as record prices and uninterrupted demand are expected to continue into the new millennium.

According to the symposium's 1999 survey of nearly 500 members of the wine trade, 70 percent of wineries expect to increase their volume in the near future, while 58 percent plan to raise their prices. Red varietals will make up the hottest sales category.

Survey results indicate that Cabernet, which constitutes over 50 percent of new plantings throughout the state, will likely remain king. A majority of premium growers and wineries in Napa, Sonoma, the North Coast and the Central Coast anticipate supply shortages of the most popular red varietal. Shortages of Pinot Noir, Zinfandel and Merlot (except from the Central Coast, which may have a surplus) are also widely predicted.

Nonetheless, reaching a consensus in the wine industry can be like herding cats. High-end wineries in regions such as Santa Barbara, Napa, and Sonoma have little in common with the state's bulk growers.

Premium suppliers of Cabernet, Chardonnay, Pinot Noir and Zinfandel are confident that their market will remain strong for at least a few more years. But that optimism is not universal, according to Joseph Ciatti, president of the largest bulk wine brokerage firm in the United States, and Barry Bedwell, president of Allied Grape Growers, a marketing cooperative of 550 members. They said that through May 1999, California's domestic and export wine shipments (which are predominantly bulk wine) were off about 3 percent, or 5.5 million gallons, from the previous year.

In addition, prices for some bulk grapes in the Central Valley have already dropped as much as 50 percent this year. Although this trend means better and cheaper jug wines for the consumer, the 122,000 acres of wine grapes coming into production over the next three years could well lead to oversupplies, even of popular varieties such as Chardonnay and Merlot.

One subject on which nearly everyone agreed was the importance of the Internet. "It will change literally every dimension of our business," said Allen Shoup, president and CEO of Stimson Lane, which owns and operates wineries such as Chateau Ste. Michelle in Washington state and Villa Mt. Eden in Napa.

But, predictably, there's little agreement on exactly how the Internet will change the industry. Shoup doubts that much wine will actually be sold online, while other industry observers, such as Robert Smiley, dean of the Graduate School of Management at the University of California at Davis, believe that national Internet sales are inevitable. "People are starting to do their shopping online, and eventually they'll find it too irritating that they can't also buy all their wines," he said. "I don't see how it can be stopped."

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