| My last trip to California’s Napa Valley was in 2000 and, despite a downturn in the economy, the valley was still buzzing with optimism. I recently returned from the region and this time around, the scene was a little more bleak.
There were tales of unsold wines, people losing their wineries, and vines in the central valley left unpicked or being grubbed up for other crops. Some growers admitted to being surprised by the downturn, but veteran winemakers, who had seen this kind of thing before, were more nonchalant. For them it was easy to see the crash coming, and smart, conservative producers were prepared for this latest instalment.
So what was it that brought the world’s hottest wine region to its knees in just a couple of years? Was it 9/11? The Gulf War part deux? Locusts? Or just greedy producers and whacked-out dot-commers with more money than sense?
The simplest answer is that supply overcame demand – the market forces that govern every commodity slipped out of balance. Since the early ’90s, the California wine industry has undergone unprecedented growth, moving from 299,678 acres of grapes in 1992 to more than 490,000 by 2003. Growers noticed the big numbers wineries were willing to pay for quality grapes, and vineyards began to pop up everywhere.
And why not? The shortage of grapes and high wine prices meant easy sales and a profitable venture. The U.S. economy was still going strong and the number of wine drinkers was steadily growing, as was the price people were willing to pay for a bottle, especially if it contained the phrase "Napa Valley Cabernet." But things changed.
As one local merchant explained, "When people had lots of money and security in their jobs, they were willing to take a flyer on any $50 bottle of Napa Cabernet (the average price for a bottle of Napa Cab in the U.S. is over $50), no matter who produced it. And with the introduction of dot-com millionaires, the prices of highly sought-after wines were driven through the roof. But today, people are after value-priced wines and their patriotism dies with their budget. If they can get a better deal buying Italian or Spanish wine, then that’s what they’ll do."
Merchants started to watch the dust gather on wines that once sold out, and producers saw pallets back up as the amount of unsold wine continued to rise. Looking back, it’s easy to see where the mistakes were made – greed took over when common sense should have been at the helm.
The first mistake came in 2000 with the release of the 1998 vintage. After several idyllic years in the ’90s, the cool and wet 1998 vintage brought lean, hard wines lacking in charm and complexity. There was an opportunity to lower prices and move the wines quickly, but stubborn producers held or increased prices and tried to mislead the public about the quality of the wines. There are few wineries in California that don’t have a room full of ’98s today.
Although the following vintages were better, prices continued to rise while the economy continued to suffer and wine drinkers grew weary of the stifling Napa Valley pricing. But consumers in search of value didn’t have to wait long, because along came "two-buck Chuck." The newly sold Charles Shaw winery launched a brand of low-end varietal wines that sold for $1.99 a bottle. The fruit was purchased from the desperate central valley, where farmers were struggling just to sell their grapes. Consumers jumped at the chance to buy a case of wine for under $25. Although the wine was not in the league of Napa or Sonoma, it didn’t bode well for overall pricing.
So how bad is it? From 2001 to 2002, the average price of grapes in California dropped by 17 per cent, averaging $460 US a ton, although the premium regions were not hit as hard: Sonoma was down 5 per cent and Napa even less. But over-planted grapes such as Chardonnay, Pinot Noir and Cabernet are set to continue the downslide as over 90,000 acres of vineyard have only just begun to come into production.
Will that lead to a reduction in the prices of California wines in Alberta? With the recent strength of our dollar and the backlog of wines sitting on pallets all over the States, one would be inclined to say yes. Some wineries are now beginning to release second labels of their wines, enabling them to move cheaper products without damaging the image of their main label. So look for an influx of new, high-quality wine labels at prices lower than you’re used to seeing. There just may be some good deals left in California yet. |
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