KENNEWICK, Wash. — Washington wines are well positioned in the premium market but growth of that market is slowing, competition is increasing and margins are squeezed at all levels, a partner in the world’s largest wine brokerage firm says.
With a recent consolidation, three distributors now control 61 percent of the U.S. wine market and 10 grocery chains control more than 50 percent of sales, making it tougher for wineries to get into the marketplace, Glenn Proctor, a partner in Ciatti Co., San Rafael, Calif., told attendees at the Washington Winegrowers Association annual meeting in Kennewick on Feb. 7.
“Wineries will continue to get bigger to be competitive and hold margin. Imports will continue to grow from the bulk side and premium. There is a margin squeeze at all levels as labor and land values go up,” Proctor said.
Large supermarkets are labeling wines, which erodes brands, he said.
But Michael Veseth, editor of The Wine Economist, Tacoma, said a slower pace of premium wine growth is good because it was too fast to be sustained. A slower pace makes a new market plateau more likely than a collapse, he said.
There’s a proliferation of new premium wines as consumers are willing to pay more for new wines in their quest for authenticity, Veseth said.
Washington is well positioned for success with land and brands like Red Mountain for growth in the premium market, above $9 per bottle, while the market below $9 shrinks, he said.
Proctor said France, Italy, Germany, the U.S. and China account for 49 percent of wine consumption. Consumption is flat in the European three nations while growing in the U.S. and China. Worldwide consumption has been flat after declining from a 2007 peak, he said.
Because of that, vineyard planting is down 6 percent in Spain from 2010 to 2015, down 2 percent in France and down 8 percent in Italy. Those three nations produce more than half the world’s wine. The U.S., which produces 12 percent of the world’s wine, increased plantings 4 percent in that same period, and China increased plantings by 42 percent, Proctor said.
A light world wine grape crop of 30.6 million tons in 2017 tightened prices but the 2018 crop should return to 34 million tons, allowing prices to come back down, he said.
Wade Wolfe, winemaker and co-owner of Thurston Wolfe Winery, Prosser, gave his annual review of the past vineyard season. He said Washington’s 2017 crop was 243,000 tons, down from the record 270,000 tons in 2016.
Mildew, freeze damage and smoke taint contributed to the smaller crop, but perhaps the biggest factor was the alternate bearing cycle, he said.
Tom Collins, assistant professor at the Washington State University Wine Science Center, Richland, told of his wildfire smoke taint research that began in 2016 using a commercial smoker in a vineyard and studies of wine compromised by wildfire smoke in the 2015 crop.
Australian researchers identified four smoke compounds that can render wine with smoky, ashy aromas and flavors that can leave long, harsh after tastes, Collins said.
“Looking at affected wines of the 2015 vintage, we saw a whole range of compounds and complicated mixtures,” he said.
He is seeking to understand the chemistry and mitigate exposure and said smoke taint can worsen in storage.
WSU President Kirk Schulz talked about WSU’s strong commitment to the industry and how the WSU Wine Science Center is a key part of making WSU world-class in research.
John Aguirre, executive director of Winegrape Growers of America and the California Association of Winegrape Growers, Sacramento, talked about federal-level policy and politics.
He said the H-2C foreign guestworker bill sponsored by U.S. Rep. Bob Goodlatte, R-Va., gets little enthusiasm from agriculture not only for capping the re-entry of illegals who leave the country to come back under the program but also because it requires them to purchase health insurance, which would fall to employers.
The associations continue to fight for the exclusion of wine grapes under the Produce Safety Rule of the Food Safety Modernization Act. Wine grapes should be exempt because they are not consumed on the fresh market and the rule imposes irrigation water testing, employee training, education and record keeping all at a cost, he said.