October
5, 2002
By Holly Hubbard Preston
Bargains Galore from Grape Glut
In the Napa Valley of California, premium Cabernet
grapes, which were in short supply until this year, are being sold
on the spot market at a discount of as much as 50 percent. There is
a sea of white wine from the Italian region of Friuli
on the shelves because of a falloff in demand from German consumers.
Vineyard owners in Chile who invested millions in premium property
cannot find anyone to pick up their wines for distribution.
The global wine industry is winding down an unprecedented 10-year
growth cycle that has seen its ranks swell to proportions that are
proving untenable in a widely depressed world economy. And that may
spell opportunity for anybody looking to build a cellar.
“Two years ago I couldn't find any grapes at any price,"
said Doug Shafer, a Napa Valley vintner who grows his own grapes but
also relies on third-party growers "Today, grapes are being given
away. The market turned so fast, and there's a little bit of panic
out there.”
Jamie Ritchie, North American director of wine sales for Sotheby's
PLC, said that while auctioneer's average lot prices are holding firm,
percentage-sold rates have declined in the past months as fewer participants
are showing up to bid both in London as well as New York.
Winegrowers in Australia and France are also experiencing oversupply
problems, though so far only at the lower end of the markets, in the
$10-a-bottle-and-under crowd.
As a senior-level sales director for a major American brand that imports
overseas noted, price cuts at the retail level are usually the last
line of defense for the wine distribution channel in the face of a
slowdown.
People are becoming acutely concerned about a slowdown," said
William Terlato of Paterno Wines International in Lake Bluff, Illinois,
an importer who deals with distributors in 20 countries. "I have
just returned from a trip to Europe, and I can tell you, anyone that
doesn't have some concerns is not really aware of what is happening."
Among the market indicators Terlato cited as evidence of a global
slowdown was the fact distributors in a number of major markets are
giving away bigger chunks of their margin to retailers in order to
get them to pick up inventory. He also noted the volume purchase agreements
and other buying incentive programs that a number of wineries are
employing to move more product through the channel
Michael Robertson, owner of Boutique Wines in Hong Kong, said competition
in the local wine market, in part exacerbated by an increase in Hong
Kong import duties, had “put pressure on wineries to offer incentives
or otherwise camouflage discounts to move product.” He said
that some of his distributors were working with him to set up frequent-buyer
programs, where regular customers are offered the equivalent of "wine
miles" for bottles purchased.
Gerhard Schumacher, the owner of Friedenauer Weinhandlung in Berlin,
noted a general trend among his fellow retailers in Germany to lower
prices as a result of a drop-off in customer demand. In the future,
he said, “wine that used to cost E10 may only be E5 now."
The challenge for wine consumers at this phase of a slowdown is being
able to pinpoint values in the absence of obvious price reductions.
New releases are a good place to start. According to Jeffrey Zacharia,
owner of Zachys Wine Liquor Inc. in Westchester County, New York,
pre-arrival prices for 2001 Bordeaux, which are due to be released
in 12 to 15 months, are 10 percent to 70 percent below the prices
of the 2000s. While Zacharia, who has been importing Bordeaux for
20 years, said the 2001 vintage was not up to the quality of the 2000
- "the best young vintage" he had ever tasted - he nonetheless
found the discount excessive and more reflective of depressed market
conditions than of quality.
Sergio Esposito, owner of
Italian Wine Merchants in New York City, reported seeing vintage
1997
Brunellos from Italy priced significantly more competitively than
those released for 1995 or 1996 - even though the 1997, he said, is
a superior wine. Esposito cited Poggio
Antico, a Brunello producer that is currently selling its 1997
vintage for $46. The winery's 1995 and 1996 vintages were released
at $64 and $61, respectively.
Not only are prices coming down on new releases, but wines that were
in limited supply are also becoming more available. Typically, top-end
vintners allocate the bulk of their vintages to restaurants, to regular
mailing-list customers who are often collectors, and to high-end wine
boutiques. In a poor economy, vintners will expand allocation to include
a broader array of retailers, including mass marketers.
Keep in mind, however, that evidence of increased allocation is not
always obvious. Money Report asked Nelson Riou, sommelier for the
supermarket chain Monoprix in Paris, to identify his top 10 buys in
terms of value (See box, page 17). At press time, Monoprix had about
300 bottles of each of the 10 wines he identified. Were a consumer
to go looking for these wines on Monoprix's shelves, however, he or
she would not find them. These are wines, according to Riou, that
consumers must order through Monoprix.
Another opportunity for picking up value buys can be found in wines
usually designated for export. Currency valuations are contributing
to oversupply within certain markets.
“We are all holding off on major purchases because of the strength
of the euro, which for now is creating a backlog of wine in Italy,”
Esposito said.
It has been in large part because of the weak currency in Australia
that the country's wine export market is growing at a clip of 35 percent
a year. Were the Australian dollar to strengthen significantly against
the U.S. dollar or the euro, Victor Chlebnikowski of Nicks Merchants
PLC in Melbourne acknowledged, he and his fellow retailers would be
drowning in a sea of wine. As he pointed out, domestic consumption
of wine in Australia is only growing at about 1 percent per year.
Oenophiles living in markets such as Japan, where a strong U.S. dollar
or euro have precluded imports of their favorite wines, may soon be
able to pick up some good values previously unavailable to them.
In the meantime, several major brands from Australia, Chile, the United
States and France are bombarding that market with what Yoshiji Sato,
a writer for Shuhan News, a Tokyo-based wine industry trade magazine,
called "high-value" wine priced at ¥800 to ¥1,500
($6.50 to $12.20) a bottle.
Among them, Sato said, is a relatively new California label, Stone
Cellars by Beringer Blass Estates. Stone Cellars is representative
of another value opportunity that consumers, particularly those who
tend to eschew the $10-and-under category, will want to note: The
wine is not made from lower-quality grapes, as comparably priced wines
normally would be, but from excess premium grapes. According to Bill
Turrentine, a broker of bulk wine and grapes in San Anselmo, California,
there are a number of major American brands that are looking to soak
up their excess supply through the creation of low-cost labels such
as Stone Cellars that can be added and subtracted from the market
on an as needed basis.
The oversupply, coupled with improvements in viniculture technology,
means that consumers can expect to see "dramatic improvement
across price points," Turrentine said.
Agustin Francisco Huneeus, a native of Chile and the chief executive
of Franciscan Estates in the Napa Valley, the fine-wine division of
Constellation Brands Inc., pointed out that there are only seven to
eight Chilean brands, including Franciscan's own Veramonte label,
that have ties to major national and international distributors. The
other 40 or so wineries, he said, are at the mercy of those independent
importers and retailers that are willing to go out on a limb and carry
lesser known labels that they deem to be solid buys.
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