Update: Wine prices in 2012

Remember January's post about wine prices in 2012 (the one with the crummy graphic)? That's the post that said wine prices may finally be firming after four years of declines, and that consumers may not be able to find as many bargains later this year and the beginning of next.

Well, it may be time to reconsider that. More, after the jump:

Know that nothing has significantly changed in the wine market since I wrote the January post. The 2011 California harvest, like the two before it, was plentful but not overwhelming, and there aren't excess grapes in the supply chain. That means prices for grapes will continue to increase, which would normally raise the cost of wine (something that was confirmed in discussions with winemakers over the past couple of weeks).

In addition, several countries that have had excess grapes have pared back significantly -- including and most importantly Australia, one Aussie wine official told me. Grapevines there have been plowed under, and the country's wine industry seems to be making an effort to adjust to market conditions, he said. Fewer grapes in Australia means fewer cheap imports to the U.S. Also significant: the Australian dollar has been on par with the U.S. dollar for more than a year, which means those cheap imports aren't necessarily cheap anymore. This is so important that YellowTail is reportedly considering a price increase. If true, that would allow other grocery-store producers who sell similar wine to take a price increase.

So why am I taking another look at this?

First, because there is still a lot of previous vintage wine in the supply chain, and that is driving down prices. In the past couple of days, I've seen a 2007 Oregon pinot gris on sale for 75 percent off, a 2008 MacMurray Ranch pinot noir marked down one-third from the suggested retail price, and stacks and stacks of older wines from producers I've never heard of selling for as little as $5.

Even allowing for normal discounting practices, the vagaries of the Dallas market (we're having a price war that has already driven a local big-name retailer out of business), and things I don't know anything about, that's not supposed to be happening at this late date. These wines were supposed to have been sold by now, and I'm not the only one who has noticed this. Several wine writers in other parts of the country have noticed the same thing.

Second, there is still a lot of cheap wine coming into the country from elsewhere. Lew Perdue at Wine Industry Insight has analyzed U.S. wine export-import data (behind a pay wall), and despite improvements, 2011 was the third worst trade imblance in the last decade. We're buying more wine from abroad than we're exporting, and all that wine we're buying is not first growth Bordeaux.

Third, and most importanly, consumers have decided they like cheap wine and don't want to pay for the more expensive stuff. That means that any producer that raises prices is likely to find that consumers will go elsewhere rather than pay more.

"I think so, yes," Wine Market Council president John Gillespie told an industry conference earlier this month. "2012 will probably mirror 2011 in terms of consumption frequency and purchase price-points. Within that there may be some shifting, because if there are shortages in California, there are certainly no shortages in Europe, South America or Australia. But I don’t see any real changes on the horizon in terms of overall consumer behavior with wine in the U.S. in the coming 12 months."

Gillespie is a numbers guy, and he wouldn't say this unless he had the figures to support it. And he does. At the same conference, Danny Brager, who heads Nielsen's Beverage Alcohol Client Services (which means he's the guy who crunches the company's alcohol survey numbers), said that wine prices in 2011 were virtually unchanged from 2006, and that he doesn't see any reason to expect them to change any time soon. 

These are revolutionary developments, if they play out this way. It meas that consumers have enough clout to affect wine prices, which has never really been the case. It will present yet another challenge to an industry that doens't really understand wine consumers.

Comments

[Christopher Miller]

This will be interesting to watch as it evolves, as the consumer gets more clout. But for now the critic still holds too much power along with the wholesale link in the chain.

[Jeff Siegel]

Exactly correct, Christopher, and if someone had told me this was going to happen, I wouldn't have believed them. Which is why I wrote the January wine price post.

That consumers are flexing their pricing muscle is almost too good to be true.