California may be leading the rest of the country into a recession, with home prices spiraling downward. But don't expect the slowdown to help curb rising wine costs.
In fact, just the opposite might happen, according to a variety of producers that I have talked to over the past couple of weeks.
Producers are facing pricing pressures from a couple of directions. The grape glut (overproduction which kept grape prices low for much of the past decade) has apparently ended, which means grape prices will increase. Also, $3 gasoline is just one part of higher transportation costs. Both are key since California produces 90 percent of the wine made in the U.S. Finally, land prices for vineyards is continuing to increase, despite the slump in housing.
Meanwhile, the weak dollar has raised the price of imported wine, making it easier for U.S. companies to raise prices. Australian or Chilean wines that cost $8 a couple of years ago now cost $10 or $12. So some U.S. producers have raised the price of their product to take advantage of the foreign increases.
But what will happen if the economy slides into recession? The people I talked to expect to see wine sales decrease, and especially for the biggest growth part of the market, wines costing more than $15. There may even be a shakeout in the business, with smaller, undercapitalized wineries closing.
Comments