By Justin Charbonneau, GrapeConnect Co-Founder
January 22nd, 2019
Our corner of the industry is back in full swing as we approach the end of the first month of the New Year. Exciting, albeit noticeably sobering insights from SVB’s State of the Wine Industry Report 2019 have many in the trade decidedly aware that the “rising tide that lifts all boats” is tapering out, and that decisions made in 2019 carry significant strategic weight in the medium and long term.
The projected record-setting 2018 harvest and emerging consumer preference trends do, however, create a number of compelling opportunities for savvy buyers and sellers in the spot bulk wine and grape markets. A few of the key trends we’re seeing, or expect to see:
Bulk wine and grape prices will drop in California, which will initiate a sharp shift away from long term contracts and enable an increasingly large and dynamic spot market.
2018’s assumed record-breaking harvest arrives on the heels of back-to-back healthy 4m+ ton harvests in both 2016 and 2017, which left many California wineries with more incoming fruit than tank space. Unfortunately, market conditions are not evolving in such a way that welcome excess supply.
Facing slowing domestic demand, more competition from good-value imported wines, and increasingly grim prospects of growing exports – many U.S. wineries coming up for contract renewal will be looking for less gallonage/tonnage for their respective programs. Many buyers will resist entering into new multi-year contracts altogether, anticipating lower pricing available on the spot market as more uncontracted fruit and bulk comes online.
Until buyers have a better handle on how far prices will drop, fewer will enter into long term agreements and those that do will negotiate lower pricing –providing further downward pressure on average market pricing. Importantly, even sellers with multi-year contracts should be on their toes. Given market conditions, many buyers will be challenged to honor existing multi-year contracts for fruit and bulk, especially at pricing significantly higher than that of the spot market. Unfortunately, many of GrapeConnect’s first interactions with platform sellers take place after an unexpected contract cancelation, so we’re painfully aware of this marketplace reality.
The good news, however, is that fruit and bulk from many previously inaccessible appellations will become increasingly available, and competitively priced –allowing opportunistic buyers the chance to secure supply to raise quality of existing blends or add inventive new ones to their programs.
The private/control/exclusive label category will only continue growing, offering a valuable outlet to soak up excess supply.
Many leaders in the industry continue to warn of the increasing threat that private label brands pose to U.S. wineries via retailers, restaurants, and the growing number of online wine clubs. They’re right. These are ballooning categories that will only continue growing, posing a real danger to both U.S. wineries’ retail and direct sales. So, what’s the silver lining?
Though we wish you all luck on your quest to find the holy grail in 2019, we also believe the growing private label trend will offer reprieve to adaptive U.S. wineries. This year and beyond, a large and increasingly dynamic spot market will be lighter-fluid for the already explosive private label category, which is a huge opportunity for domestic producers that have excess supply.
Recent headlines continue to remind us how deeply millennials are disappointing the industry by consuming less wine than many predicted. However, they’re the target demographic of online wine subscription businesses and fueling the insatiable growth of companies like Winc, Naked Wines, Bright Cellars, and many, many others. As these online wine clubs grow, so do the number and volume of private label wines offered to their customers.
Retailers and restaurants are continuing to up their private label game, too. And if, or better when, retailers are granted the same rights as wineries to ship directly to consumers across state lines, those with robust private label programs will be in an especially lethal position to gobble up market share. As Paul Mabray aptly warns in his article, this is the point at which we should fully expect that “Amazon, the long-dormant giant in the wine space, will likely awaken, particularly now it has Whole Foods in its competitive arsenal.”
Reaching beyond the first wave disruptions this will cause (especially to wholesalers), we should also expect private label to take on an even more important role in the wine industry. After all, Amazon has made a habit of ravaging retail sales of countless brands in numerous industries by releasing its own private label products, so running that playbook shouldn’t come as a surprise when the company returns to the wine space.
We’re roughly a week out from the Unified Wine and Grape Symposium (I’ll be there, drop me a line). Judging by Mike Veseth’s recent blog post, I expect The State of The Industry presentation will add more foreboding dimension to the risks wineries face in this increasingly complex macroeconomic climate (learn more about the session here).
Though our industry surely has an uphill battle ahead, the GrapeConnect team is excited for what this year will bring in our neck of the woods. The changing market conditions we’re likely to see in 2019 and beyond expose numerous spot market buy/sell opportunities, which excites us on behalf of our current and future users.