How Lodi Grapes Can Avoid Commodity Trap

With inflation-adjusted grape prices lower than in 1986, experts discuss a path toward premiumization

by Stacy Briscoe
A vineyard in the Clements Hills AVA, which is east of the city of Lodi and part of the much larger Lodi AVA. While Lodi is gaining a reputation for quality wine, it still hasn’t been able to consistently command premium grape prices.

Lodi, Calif.—Premiumization: the action or process of attempting to make a brand or product appeal to consumers by emphasizing its superior quality and exclusivity.

Commoditization: the process through which goods that have economic value and are not distinguishable in terms of attributes (uniqueness or brand) end up becoming simple commodities in the eyes of the market or consumer.

Those are the definitions that Jeff Bitter, incoming president for Allied Grape Growers, presented at this year’s Lodi Vineyard & Wine Economics symposium and which defined the symposium’s overall discussion: the premiumization of Lodi as a grape-growing and winemaking region. “Lodi has to actively fight being commoditized,” Bitter said.

The growing Lodi region
It’s no secret that the wine industry in the city of Lodi and the larger Lodi AVA, has been actively expanding its market in the past 20 years. Stuart Spencer, the recently appointed executive director of the Lodi Winegrape Commission (LWC), opened the symposium reflecting on the expansion he’s seen since he began working with the LWC in 1999. The number of wineries within the region has grown from eight to 85, and San Joaquin County, where Lodi is located, is now home to 106, according to Wines Vines Analytics’ winery database.

Spencer said the type of winery in Lodi has also evolved from predominantly large operations to include smaller, boutique producers or what Spencer called “artisan” wineries.

And the region’s wine grape crop has grown from 400,000 tons, valued at around $250 million back in 1999, to between 750,000 and 800,000 tons, valued between $450 to $550 million.

Not only has the region itself expanded, but Lodi is now reaching a broader marketplace as well. Just within the last three months, Spencer, along with other LWC members, represented Lodi abroad at a “Lodi in London” tasting event at the popular Noble Rot Wine Bar, attended by more than 30 members of the UK wine industry; ProWein in Germany, one of the largest international wine industry events; and, most recently, VinExpo in Hong Kong, creating a Lodi footprint in the Asian wine market. “And the one thing everyone was looking for,” Spencer said, “Lodi Zinfandel.”

That being said, as synonymous as Lodi is with Zinfandel, so it is with “commodity.” Within the wine industry, this means buying grapes at a value price. For example, Cabernet Sauvignon can average $2,000 to more than $7,000 per ton when purchased from North Coast counties, but averages $700 per ton when purchased from Lodi (District 11), according to the state crush report.

Brad Alderson, who owns the consulting firm Wine and Winery Advice, presented data reflecting this differentiation in reference to Lodi’s history as an AVA. His chart referenced three of California’s most common varietals: Chardonnay, Sauvignon Blanc and Cabernet Sauvignon. (He purposely left out Zinfandel, because when Lodi became an AVA in 1986, it was what Alderson referred to as “the height of the white Zinfandel craze,” and could not differentiate between white and red Zinfandel sales.)

According to his data, in 1986 the average price per ton for the three varieties was $398. In 2017, the price was $610 per ton. But, when adjusted for the consumer price index (CPI), the average price in 2017 was really $274. So, in effect, the price for Lodi grapes has decreased overtime.

Alderson said Lodi grape growers need to look for premiumization opportunities. “Increasing in quantity is one of the ways Lodi has made its way over the years,” he said.

Indeed, according to Erica Moyer and Marc Cuneo of Turrentine Brokerage, Lodi is “glutinous” with Zinfandel at the moment, unable to move excess grapes, accounting for the “commoditization” of Lodi’s region, grapes and wines.

“We need to see grapes growing profitably,” said Alderson who suggested growers “take the load off Zinfandel” and find other varieties suited to the region. “Put in the research and share practical information,” he said. “What makes Lodi great is cooperation.”

Lodi Rules help the growers’ marketplace
Bitter boiled down the premiumization of grapes to a few key points:

•Growers need to be willing to spend money farming, focusing on quality over quantity.
•They need to consider treating small lots separate, to break into a specific market.
•They must remember to invest in marketing, and market grapes to new wineries for potential long-term business relationships.

Part of the “cooperation” Lodi has put in place to help growers achieve these premiumization goals, is the Lodi Rules sustainability certification program. In fact, the first chapter of the Lodi Rules handbook, according Stephanie Bolton, grower communications and sustainable winegrowing director for the LWC, is all about business management. She spoke of the importance of grape growers establishing a budget and, specifically, setting aside money for marketing.

Since its launch in 2005, membership in the Lodi Rules program has grown from six local growers and 1,500 acres of vineyards to more than 150 growers and 48,000 acres across 11 California crush districts. There are currently more than 60 growers outside of Lodi, including in Israel, certified under the Lodi Rules, Bolton said.

She mentioned testimonials from both grape growers and winemakers as to the effects of the Lodi Rules program, indicating that grape growers have better success selling grapes when certified under the program. “It’s their story, a branding message they can sell,” she said.

And it’s a brand and story they can sell to both winemaking partners and the wine consuming public. The Lodi Rules program is the first sustainable wine organization to have a consumer-facing website to engage the public with Lodi wines and wine country. The program is also actively engaged in social media. With the hashtag #LodiRules, growers and winemakers alike can build their social content, bring awareness to their specific brand and promote conversation beyond the Lodi borders to consumers world-wide.

Considering the consumer
Industry experts across the board agree that, whether at retail shops, through e-commerce or within social media, branding in a way that speaks to the public has become increasingly important.

According to Brian Lechner, vice president of client consulting for Nielsen, the overall number of off-premise locations selling wine has decreased. Furthermore, in the past five years, there’s been a plateau in the amount of shelf space retailers are giving to wines and, thus, there’s been a “leveling” in sales. Lechner also mentioned the amount of new wine introductions has hit a plateau. “If you have new items coming out, it may be harder to get them on the shelf,” he said, but adds that those with new, innovative or unusual products will certainly have less competition.

The key, he said, is for wineries to focus on their brand and figure out who their target audience is. “You need to make your products that much more relevant and tell your story,” Lechner said.

Another trend Nielsen has tracked is that consumers, on average, are making fewer trips to brick-and-mortar shops. Though wine sales only account for about 8% of online purchases, Lechner said people are buying common household items online now more than ever. “Wine is very much an impulse purchase ... and the lack of trips to the store for those other items are keeping (wine sales) growth rates down,” he said.

But, he adds, the flip side to that is continued growth with wine e-commerce (such as wine.com) and direct-to-consumer shipments. So even though the brick and mortar environment may be becoming more challenging, there are new and emerging avenues for wineries and brands to take advantage of in order to reach consumers in different ways.

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