California Grape Growers Bullish

14,000 acres newly planted as demand for wine increases

by Jim Gordon and Kate Lavin
Unified Symposium
Francesca Schuler (center) and Nat DiBuduo (right) listen as Danny Brager discusses the habits of wine consumers.
Sacramento, Calif.—A normally cautious spokesman for California grapegrowers gave an uncharacteristically upbeat prognosis about the financial health of vineyards for 2011 at the bustling Unified Wine & Grape Symposium on Wednesday. Nat DiBuduo, the president of Allied Grape Growers, said that demand for winegrapes has increased and that growers responded by planting between 14,000 and 17,000 acres during the past year, after about five years of bulldozing vines to plant other crops like almonds.

DiBuduo and two other speakers spanned the whole chain of wine production, marketing and consumption during the symposium’s State of the Industry session. Most of their news was good for grape and wine producers—but not necessarily great.

Growers planted more currently hot grape varieties including Muscat Alexander, Pinot Noir and Riesling as well as perennial favorite Cabernet Sauvignon, DiBuduo reported. Total U.S. table wine sales grew to an estimated 278 million cases in 2010, and domestic wines beat back their foreign competition, according to Danny Brager from The Nielsen Co. Even restaurant diners began opening wine lists again. But to really boost sales, wineries need to take a new approach to marketing, according to Francesca Schuler of Treasury Wine Estates.

The speakers all found good signs of recovery, but they warned not to expect a return to the roaring consumer spending of the mid-2000s—at least not for several more years.

    Grower of the Year: Ledbetter Family

    At the end of the State of the Industry address, speaker Nat DiBuduo of Allied Grape Growers, awarded the Ledbetter family of Lodi, Calif., the first-ever Grower of the Year award. The family owns Vino Farms, tends more than 13,000 acres, and employs 150 full-time staff.

    DiBuduo cited the multi-generation family for its dedication to sustainability, commitment to good viticulture, industry and community involvement, employee relations and its long history in farming. Kim Ledbetter Bronson currently chairs the California Association of Winegrape Growers, one of the organizers of Unified Symposium.

Harvest of 3.18 million tons
DiBuduo estimated the 2010 California winegrape harvest at 3.18 million tons, down by 14% from 2009, but in the neighborhood of the 2006-08 crushes. Since consumption has continued to grow, this was “well below the need,” he said. “Unless something changes, we are going to be significantly short of grapes to supply the demand for California wine.”

The news might seem perverse to the minority of grapegrowers in the coastal counties who found no buyers for a portion of their crops of relatively high-priced grapes and decided not to harvest some of their acreage. But California’s interior valley accounts for a high proportion of the state’s grape production, and there the demand was high.

DiBuduo’s numbers for newly planted acreage came from the Allied Grape Growers’ Nursery Survey. Participating nurseries accounted for about 75% of all major varietal vine sales in California, but they were somewhat weighted toward vineyards in the interior.

Red winegrapes accounted for 65% of the new plantings, and white accounted for 35%. Cabernet Sauvignon claimed the biggest share of new vines planted at 23%. Chardonnay was second at 18%. Interestingly, the blender grape Rubired was third, with 17% of the growth and Muscat Alexander was fourth, based on soaring sales of Moscato wines.

Muscat and Rubired
Muscat Alexander and Rubired now have the biggest percentage of non-bearing acres planted, and Pinot Grigio is close behind, so a wave of new supply will be available in a few years when those vines begin to produce commercial crops. DiBuduo estimated that 99% of the Rubired plantings are under winery contracts.

He said, however, that planting has slowed significantly in the high-end wine districts including Napa and Sonoma counties. There, much of the planting is due to replanting of old or diseased vines.

The message turned cautious when DiBuduo presented the Allied Grape Growers 2011 Cost Survey and a model that considers land costs, production costs, prices paid per ton and return on investment in several California growing districts. With an ROI goal of 8%-9%, almost no district had the average grower getting paid enough or getting a high enough yield to meet that goal.

He noted that costs continue to increase for vineyard acquisition, development and production. When considering those costs, “Today’s market prices for grapes are mostly economically unfeasible.

“I think that the farmer needs to work closely with the winery,” he added. “The closer we work together on the issues that affect both of us, the more successful we’ll be as an industry.”

Wine was No. 3
At the other end of the chain, Brager of The Nielsen Co. said wine was No. 3 in dollar growth in 2010 out of 117 categories of consumer packaged goods that Nielsen tracks. Only snacks/spreads/dips and yogurt beat wine. Wine, with 4.5% growth in dollars at off-premise locations, also beat beer and spirits.

Continuing high unemployment probably held back wine sales from higher growth, Brager indicated. Of the top 12 wine-consuming states, five representing 36% of wine consumption—California, Florida, Illinois, Ohio and Michigan—had very high rates of unemployment.

While the high-earning households that consume the most wine were not as hard-hit by unemployment, those households have stayed more cautious and pragmatic about their purchases since the recession began. Trading down in price was the trend from 2007 to 2009, while in 2010 trading up resumed.

Brager said on-premise wine sales, which are difficult to measure, are heading up again. He noted that the dining scene started to worsen in 2008 and got even slower in 2009. But same-restaurant sales trends were up 1.9% in the third quarter of 2010 compared to a year earlier.

As for marketing
Schuler, chief marketing officer of Treasury Wine Estates, said that after years of treating wine like an exclusive society, it’s time for the wine industry to talk to consumers the way they want to be talked to. Speaking to a standing-room-only crowd, Schuler invited the audience to “bring the consumer into the room”—in other words, imagine what advice customers would give to wine executives about reaching out and generating sales.

According to Schuler, consumers could list five ways that they would like to get messages from the wine industry:
1. Give me a unique experience.
2. Speak to me—not yourself.
3. Discovery rules—rediscovery is equally important.
4. Life is sweet.
5. Talk to me where I’m listening—not where you’re listening.

Give me a unique experience
While yesterday’s luxury spending was all about bigger and better goods, Schuler said that today’s consumer sees the overall experience as being the real luxury. Since not every person who picks up a winery’s wine can run off and have her very own wine country experience, it’s incumbent on the winery to relay that experience to consumers.

“No one ever just says, ‘I had a great glass of wine,’” Schuler said. “They say, ‘I was out to dinner’ or ‘I was at a party.’…They always associate it with a memory.”

Speak to me
Rather than telling consumers what wine professionals think they should know, wineries should consider what the general public would find interesting. “Consumers remember fun facts, not residual sugar levels,” Schuler said.

Walking into a wine shop and being surrounded by hundreds of options can be daunting, and using trade lingo just makes it more so. Those looking to really sell wine to consumers would be wise to turn off the trade-speak and adopt a more consumer-friendly voice.

Discovery rules
Much like wineries that approach consumers from a seasoned industry perspective rather than a consumer vantage point, tasting room staffers often forget to introduce consumers to their core wines and skip instead to unusual and showy varietals that more experienced wine drinkers would enjoy.

For the past three years, wine industry marketers have been falling all over themselves trying to cater to Millennials and drum up oddball varieties that can make them stand out, Schuler observed. And while it’s true that today’s wine drinker is more adventuresome than ever, she warned against forsaking the old standbys that got people to like wine in the first place. “The core varietals are the biggest part of our market, and they’re still growing,” she said.

Throwing out the wine club’s favorite Chardonnay program to jump on a trend is shortsighted. Think instead if there’s something missing from the wine portfolio that might be a good addition to already popular products.

Life is sweet
Consumers like lighter, sweeter wines, and they’re drinking them for increasingly more occasions. Schuler asked vintners if their wine offerings work in a variety of situations. If the answer was no, it doesn’t mean they should pull up their acres of old vine Zinfandel, but rather consider how winemaking choices could take existing assets and cater to new consumers. Wineries should take the opportunity to sell them sweeter wines.

Talk to me where I’m listening
Word of mouth drives choice, and consumers look to sites like Yelp! and subscription services such as Daily Candy to inform their wine decisions. Schuler also mentioned Twitter Moms, a 30,000-member social media group that, once a month, chooses a type of wine and encourages members to discuss it using Twitter.

Such types of exposure are tremendously valuable. Even wineries without a variety of social networking accounts can’t afford to opt out of hearing what consumers have to say about them and their products. Yelp and Twitter offer unbiased reviews about how customers experience certain brands’ wines.

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