Bulk wine produced last year likely to spill over into 2013

By MATEUSZ PERKOWSKI

Capital Press

Wine producers can expect modest sales growth in 2013 even as they contend with more competition from imports, according to a bank that tracks the industry's finances.

Silicon Valley Bank forecasts increased wine sales of 4 to 8 percent, which is a slower rate of growth than seen in recent years, according to its annual wine report.

Wine producers are expecting to buy more grapes in the coming year, but they think prices will probably stay the same, said Rob McMillan, founder of Silicon Valley Bank's wine division.

Prices rose in 2012 but yields ended up being large, so bulk wine produced last year is likely to spill over into 2013, hindering further grape price increases, he said.

"Our supply is in balance, (that) is the bottom line," McMillan said.

Quality along the West Coast was excellent in 2012, which is good news for wine producers but may hurt sales of the 2011 vintage, he said.

A similar dynamic occurred a decade ago, when distributors preferred to stock up on 2001 wine -- which had a great reputation -- to the detriment of the 2000 vintage, McMillan said.

"That could very well come up to bite them," he said. "Those bottles could just sit there."

Imports increased substantially last year, particularly from Argentina, Chile and Australia, and the trend can be expected to continue in 2013, the report said.

Though supplies of domestic wine have come into balance with demand after roughly a decade of surplus, growers haven't been planting many more acres of grapes, said Tony Correia, a vineyard appraiser, during an online panel discussion.

"We have not been planting enough to replace our existing inventory," he said.

New plantings have been hindered in part by rising land prices in popular wine-growing regions in California and competition from other crops, Correia said.

As a result, there's a need to fill the looming gap between wine supplies and consumption, he said. "Is that going to come from the United States or is that going to come from imports?"

The trend toward more foreign wine will be reinforced if the U.S. dollar gains in strength against other currencies, said McMillan.

"It's not just the price of dirt itself, but the value of the dollar," he said.

Prodigious supplies of foreign wine may be dangerous for market share because young wine consumers appear less interested in region than price and variety, the report said.

Such "millennial" drinkers also aren't as attracted by wine clubs, which have been a popular source of wine for the "boomer" generation, said Mary Jo Dale, chief consumer direct officer at the KLH Consulting firm.

"We're starting to see trouble on the horizon with the wine club model," she said.