Price of Wine to Drop to Lowest Levels Due to Oversupply of Grapes in California
Sat, April 17, 2021

Price of Wine to Drop to Lowest Levels Due to Oversupply of Grapes in California

Wine drinkers can now toast to cheaper wine. The prices of wine are expected to drop to its lowest levels in five years as Californian growers have produced too many quality grapes in the last two years / Photo by: Smuconlaw via Wikimedia Commons

 

Wine drinkers can now toast to cheaper wine. The prices of wine are expected to drop to its lowest levels in five years as Californian growers have produced too many quality grapes in the last two years, reports US-based television channel Fox 8.

During the recent winemakers’ conference held California, experts said that there has also been a declining demand in wine shipment. This means that wine distributors may have to provide more discounts to sell the bottles.

Oversupply of Grapes

Allied Grape Growers (AGG), a winegrape marketing association that sells winegrapes to wine buyers of all kinds in California, said approximately 100,000 tons of grapes were “left behind” in the vine as no more wine can be made from them. They believe that the cause of the issue is not a supply problem but a demand problem, which means that farmers have not produced too many grapes but there has been a decline in wine consumption. Nevertheless, regardless of the origin of the problem, the result is just the same. The market will still manifest as oversupply because of market imbalance.

As there have been no improvements in the overall wine shipments in recent years, farmers cannot expect to “grow” themselves out of the market imbalance. Farmers were also told that to solve the wine issue is to shrink themselves “back into balance.”

Wine consumption has declined for the first time in 25 years. It declined by nearly 1% in volume last year. At first look, it may look like a small amount but it already had quite an effect on growers. It was way back in 2015 when the trend started but nobody was considering it a particular concern until 2018. In the past, people were spending more money on wine but the demand gradually went down.

They believe that the cause of the issue is not a supply problem but a demand problem, which means that farmers have not produced too many grapes but there has been a decline in wine consumption / Photo by: Galaxyz27 via Wikimedia Commons

 

New Marketing Strategy

AGG has pointed out that one way to solve the issue is by focusing their attention on younger consumers. A study released in October 2019 by research and insights agency Wine Intelligence found that millennials are vital to the health of the wine industry in the next five years. It shows that the wine category has not declined among 18- to 39-year-old buyers. The demand for such a market is stable.

Wine Intelligence’s chief operating officer Richard Halstead said via Harpers Magazine that the younger consumers (18-39) today who consume wine at least once a month last year have a “more engaged relationship with wine” compared to the same age cohort a decade ago. The millennials are also more likely to agree that they have a “strong interest” in wine” or that wine is important to their lifestyle.

Using Price as a Signal for Quality

Since they have less experience compared to older consumers, millennials also tend to spend more on wine in the off-trade, which means sales to food retailers like supermarkets. This is possible because millennials have less compared to older consumers. So, when the wine is off-trade, buyers will use price as a signal for quality.

The average price of the leading 10 types of wine in the US in 2015 per 750 ml bottle was published by database company Statista. It shows that Zindafel, characterized by its dark red color and rich flavor, is the most expensive type of wine in the US amounting to US$10.00 per 750 ml bottle. It is followed by Pinot Noir ($9.91), Sauvignon Blank/Fume ($8.98), Malbec ($8.72), Cabernet Sauvignon ($8.28), Riesling ($7.44), Red Blends ($7.01), Chardonnay ($6.71), Pinot Grigio/ Gris ($6.66), Merlot ($5.74), Muscat/ Moscato ($5.38), and White Zinfandel ($3.99)

Despite spending more on the off-trade wines, the millennials nevertheless have a broader range of alcoholic beverages compared to people of their age 10 years ago. The data shows an increase in the usage of beer, cocktails, rum, gin, and cider. This suggests that wine is working harder to maintain its market share in the alcoholic beverage industry by volume.

Threats to the Wine Category

The Wine Intelligence data added that losing the attention of millennials today would be a “big threat” to the wine category in the next five years. Other threats to the wine industry are increased taxation and reduced alcohol consumption. Emerging research suggests that moderate drinking of wine, which is a glass per day, provides health benefits. For instance, a glass of wine is rich in antioxidants that prevent cellular damage caused by oxidative stress and inflammation. Oxidative stress happens when there is an imbalance in the antioxidants and damages the cells. But grapes have a high level of polyphenols, which are beneficial compounds found in wine. A 2-week study involving 40 adults highlights that consuming 400ml of red wine every day increases the person’s antioxidant status.

Wine likewise contains compounds that help combat inflammation. Chronic inflammation increases a person’s risk of conditions, such as autoimmune disorders and heart disease. To reduce chronic inflammation, one has to consider exercise, stress reduction, and diet. Wine, as well as other foods, can reduce inflammation. Researchers likewise believe that drinking wine may benefit mental health, promote longevity, and promote healthy gut bacteria. Studies were compiled by medical platform Healthline that likewise emphasized that the type of wine that contains the most benefits is red wine because it contains more resveratrol, an antioxidant that is found in grape skins.

Emerging research suggests that moderate drinking of wine, which is a glass per day, provides health benefits. For instance, a glass of wine is rich in antioxidants that prevent cellular damage caused by oxidative stress and inflammation / Photo by: rexromae via Pixabay

 

Winemaking Industry: Trends and Statistics

Business and marketing platform BrandonGaille.com shares the number of wineries in the US in 2018 by state as follows: California (4,391), Washington (772), Oregon (774), New York (395), Virginia (276), Texas (319), Pennsylvania (251), Ohio (208), Michigan (184), North Carolina (165), Missouri (149), Colorado (127), and Illinois (115). If California is a country, it would have been the fourth-largest winemaker globally today. The data shows that 85% of wines in the US come from the state of California. It even managed to ship $35.2 billion worth of wines in 2017.

More than a million wine labels are also a part of the world’s winemaking industry and about 150,000 winemakers are the ones that created these labels and produced about 36 billion wine bottles every year.

As much as the drop in the price of wines is something to cheer for on the part of consumers, it is not a good thing for the economy in the long-run. The slowdown in wine shipment growth has now caught the wine industry by surprise; now, they must once again find the balance between demand and supply.