2003 Wine Report

April 1, 2004
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2003 Wine Report

A Year Of Recovery
By Jamie Popp

Unlike previous years that had bumper crops and supportive weather conditions, 2003 was a difficult year for grape growers and wine producers in the United States. Although prices per ton were down, total crush volumes dipped and vines were ripped out due to previous years’ wine glut, U.S. wineries were able to keep international competition at bay as the dollar continued to weaken.
In 2003, wine shipments in the United States from all sources were up 5 percent to 627 million gallons. California accounted for 67 percent of the total market share at 417 million gallons, according to the Wine Institute in San Francisco.
The California grape crush was down 5 percent in 2003 from 2002, totaling less than 2.94 tons of wine grapes crushed. And growers received more bad news as prices for red and white wine grapes on average dipped below 2002 prices, according to the California Department of Food and Agriculture in its Preliminary Grape Crush Report released in February.
Chardonnay was the largest contributor to crush volume, with more than 560,000 total tons crushed at an average price of $655 per ton. Cabernet Sauvignon and Zinfandel wine grapes took the No. 2 and No. 3 spots, respectively. Cabernet Sauvignon reported more than 395,000 total tons crushed at an average price per ton of more than $1,000. Zinfandel accounted for more than 327,000 tons priced at $427 per ton. According to the report, the largest production district was Fresno/Madera/Tulare, followed by Lodi/Woodbridge and Kern, all located in Central California.
According to the Wine Institute, the decrease in crush volume was largely due to unseasonable rain storms last spring, hotter-than-normal conditions during the summer and a decrease in the total vine acreage producing wine grapes. The organization cites the removal of vines in recent years at a faster rate than planting new grape-bearing plants was the cause of lower crush totals.
Although it appears the U.S. wine industry is struggling, experts say the relatively light crop will help the supply/demand balance in the California wine business, something the industry has been struggling with during the past few years.
What Are They Drinking?
Vinexpo predicts that by 2007, Americans will be consuming an average of more than 23 million hectoliters of wine, with still light wines leading the way. Of the still light wines being consumed, the world wine organization says more than 74 percent of the wine consumed in the United States will be produced domestically in 2007. However, as both international and national producers stake a larger claim in the growing wine-drinking population, Vinexpo expects imports to steal a larger piece of the pie from domestic competition.
Americans will spend more than $18 million on domestic and imported wine by 2007, up from more than $16 million reported by Vinexpo in 2002. And more than 80 percent of the market growth in the wine retail sector is expected to be wines that cost more than $5 per bottle, according to the organization.
Battle For Position
E&J Gallo has maintained its position as the No. 1 wine producer by volume in the United States . The Modesto-based company has more than 35 brands that span all price ranges and sectors as well as a significant presence in international markets. According to Euromonitor, E&J Gallo is the largest exporter of U.S. wines, selling in more than 90 countries. However, broadsided in 2003 by Constellation Brand’s completed acquisition of BRL Hardy, Gallo now battles for the title of the world’s largest winery.
Gallo, typically known for value wines, is now expanding into the upper echelon of wine production with its premium-priced wines. This has given it an interesting position against rival producers such as Robert Mondavi and Kendall-Jackson in the United States, and Constellation on a world scale. The two multinational companies continue to compete head-to-head in a number of wine categories, including everything from low-priced budget wines to high-end premium offerings as well as flavored alcohol beverages. They also both have winery interests in Australia, one of the leading countries exporting wines to the United States.
News from the company in 2003 involved a bid on Grapeco winery in Madera, a large grape concentrate business, and more recently an announcement that Gallo will acquire Bridlewood Estate in Santa Barbara. Additionally, Gallo started promoting its brands through a roadshow in the United Kingdom using a customized vehicle with a California-style wine bar inside, and it also relaunched its Wine Cellars brand under the name Sierra Valley. Other packaging innovation included introduction of a screw cap and 187-ml. bottles for the U.K. on-premise market.
Constellation Brands, Fairport, N.Y., reported net sales for its fiscal year 2004 increased by 43 percent to $2.4 billion. It attributed its success to the addition of BRL Hardy to the fold. Constellation also looked to the United Kingdom for business opportunities. The company says its premium branded wine sales grew 8 percent due to Australian and California wine in the United Kingdom and higher-end wines in the United States.
The company announced early this year that it formed Constellation Wines Europe to account for the increasing demand for its brands worldwide. The new group is part of the integration that took place within the company’s operations after the BRL Hardy merger.
The Wine Group, San Francisco, made its own waves in the wine business this year by maintaining its solid third-place position in the market, with reportedly 25 million cases of wine sold in 2003. More recently, the company threw its bid in the ring for Golden State Vintners, one of the top five bulk wine producers in the United States. Although the combined company would not give The Wine Group a higher ranking among larger producers, it would support its positive growth.
Trends To Watch
Growers in California are increasingly turning to sustainable wine production practices. In 2003, the Wine Institute and the California Association of Winegrape Growers formed the California Sustainable Winegrowing Alliance to promote the “Code of Sustainable Winegrowing Practices” program and workbook, a tool that allows growers and vintners to gauge current sustainable practices and design and implement their own action plans. It’s also a tool for researchers to track the industry's overall progress. Since the introduction of the workbook, 25 percent of vineyard acreage in California and 50 percent of the state's wine production has been assessed through the evaluation process. The California Department of Food and Agriculture provided a $280,000 grant to support the project, which includes informational workshops across the state.
Making waves as one of the hottest wines on the market in 2002, Charles Shaw wine, produced by Ceres, Calif.-based Bronco Wine Co., maintained its hold in 2003, and was even named Winery of the Year at the Unified Wine & Grape Symposium for the second consecutive year. The winery’s sales grew by four million cases due to both exports of bulk wine and the infamous $2-per-bottle elixir.
Forecasts show the United States and Great Britain will account for more than one-third of the increase in worldwide wine consumption, and Vinexpo predicts an 11 percent increase in wine consumption in the United States by 2007.
Imports Stand Strong
Continued weakness of the dollar brought about interesting challenges for international producers promoting wine in the United States. In addition to rethinking their export efforts due to exchange fluctuations, import brands also were hit by lower price points in the U.S. wine market.
“One of the big reasons [for falling imports] is the fall of the dollar during the past six months,”says Tina Fischer, partner of Polaner Selections, an import company in Mt. Kisco, N.Y. “The fall of the dollar has been unfortunate. All of us in the multi-tier system have had to take a look at our margins and are trying to weather the storm. Good value is really important. People are looking for a $10 bottle of wine, and the average case price continues to decrease.”
Although wine imports have received a blow from U.S. competition, which is offering good-quality lower-priced wine, Polaner Selections is taking a new approach to draw attention to imports.
“We see a backlash from California wines made by cult producers, which were the higher priced wines years ago,”Fischer says. “Today, we’re finding people [in the New York market] aren’t able to spend a lot of money on a new Cabernet Sauvignon producer. [As importers] we are more reluctant to take a stab at taking on a new producer that is prohibitively expensive because people aren’t buying.”
Fischer says the company’s strategy is to introduce value wines from countries such as Greece, New Zealand and Portugal, which will entice savvy consumers watching what they spend on an imported bottle of wine. The result is an eclectic mix of wines that offers consumers variety of both microclimates and smaller producers in new regions of the world.
“For example, people have introduced Portuguese wines in the market,”Fischer says. “But there’s a trend now in Portugal to bottle wines by quinta, or a locally-owned small vineyard, and introduce clean, freshly produced wines. We also are learning about varietals that we have never heard of before in Greece. On the coattails of the Olympics, it’s a fun category to be introducing right now.”

Snapshot of U.S. Wine Consumption, 1998-2007

Wine consumed by style (millions of hectoliters)
Still light wine Sparkling wine Total
1998 17.31 1.19 18.5
2002 19.67 1.13 20.8
2007 21.93 1.16 23.09
Still light wine by origin (millions of hectoliters)
  Domestic wine Imported wine Total
1998 14.35 3.02 17.37
2002 15.2 4.5 19.70
2007 16.36 5.57 21.93
Still light wine retail turnover (millions of dollars)
Domestic wine Imported wine Total
1998 9.95 3.01 12.96
2002 11.55 4.51 16.06
2007 12.97 5.65 18.62
Wine consumed by price point (millions of hectoliters)
Less than $5 Between $5-$10 More than $10
1998 9.76 6.03 1.56
2002 9.67 7.64 2.38
2007 10.05 8.8 3.07
Source: Vinexpo – IWSR/GDR 2004

Snapshot of U.S. Wine Consumption, 1998-2007

Wine consumed by volume, excluding rice/fruit wines, fortified wines, light aperitifs (millions of hectoliters)
Still light wine Sparkling wine Total
1998 199.3 15.9 215.3
2002 19.67 1.13 220.1
2007 219.4 15.9 235.3
Wine consumed by sales, including taxes (billions of dollars)
Still light wine Sparkling wine Total
1998 78.8 14.1 92.9
2002 87.5 14.1 101.6
2007 99.1 15.1 114.2
Still light wine consumed by origin (millions of hectoliters)
Domestic wine Imported wine Total
1998 137.7 61.6 199.3
2002 138.7 66.7 205.3
2007 146.1 73.24 219.4
Source: Vinexpo – IWSR/GDR 2004

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