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Price Becoming "No. 1 Weapon" in U.S. Wine Market

Expect the wine shelves to be filled with cheaper wine
© Fotolia | Expect the wine shelves to be filled with cheaper wine
Rick Kushman reports from the Unified Wine & Grape Symposium's most-anticipated session: the State of the Industry seminar.

Here’s the good news for consumers: as the number and range of outlets selling wine proliferates, prices are not likely to rise any time soon. In fact, wineries may end up cutting prices in a bid to win shelf space, meaning a lower bill for shoppers at the checkout.

The bad news – maybe – is that producers could also lower their prices to compete with each other, with fears that the end result will be lesser-quality wines in the long term.

Those were among the forecasts from experts assessing the wine industry at the Unified Wine & Grape Symposium in Sacramento, California – North America's largest wine trade show – on Wednesday.

Naturally, the biggest buzz among the 13,000 people attending was over a rainstorm landing on the parched region after more than 50 days without rain.

The drought was on a lot of minds, and one speaker, Nat DiBuduo, president of the Allied Grape Growers, even suggested that the State of the Industry panel should do a rain dance.

“What are today’s issues?” he asked. “It’s water. It’s water. It’s water.”

DiBuduo predicted lower yields in 2014 because vineyard managers will cut back vines and canopies to deal with the water shortage. But, he said, after two big harvests in the state, the industry here is in balance.

“There is no shortage of wine,” declared DiBuduo.

There is also, apparently, no shortage of retailers selling wine. That suggestion came from both Jon Fredrikson, president of the consulting firm Gomberg, Fredrikson & Associates, and Francesca Schuler, chief marketing officer of BevMo California.

“Everyone who can sell wine is out there selling wine,” Schuler said. “Who would’ve thought Bed, Bath & Beyond would get into the wine business?”

Schuler cautioned that the competition among big-box stores, supermarkets and outlets selling bedspreads and bathmats might not be entirely positive.

“Price is becoming their number one weapon,” she said. “It’s going to cause the quality of the wine to go down. Ultimately, the consumer is going to lose.”

That drop in quality, particularly for lower-priced wines, isn’t something she expects to see in the next year. But Schuler warned wineries and retailers that they need to find ways to compete for consumers by being original or exciting, not just on price.

Hundreds fill the room to listen to the State of the Industry seminar
© Unified Wine & Grape Symposium | Hundreds fill the room to listen to the State of the Industry seminar

Fredrikson, whose firm monitors wine industry sales, is already seeing wines in the $10-and-under range slowing their growth or even losing ground to other alcohol drinks like craft beers, flavored spirits and ciders. For instance, sales of $3-to-$7 chardonnay in U.S. food stores were down nearly 3 percent in 2013 from the year before, he reported.

“That’s our bread and butter. That’s the industry’s foundation,” Fredrikson said. “It makes me nervous to see this.”

He claimed the recent boom in sweet moscato sales seemed to be over, providing another example of how some wine drinkers, particularly newer consumers, were wandering off to other alcoholic beverages.

“There are a million things out there and only so much shelf space,” he observed during a news conference after the presentation. “There’s every kind of cocktail, every kind of spirit with every flavor you ever thought of. There are so many options for people to jump to.”

Together, the combination of factors affecting the industry means that all but the highest-end wineries are having trouble raising prices, according to both Fredrikson and Schuler.

“It’s so darn competitive out there,” Fredrikson declared. “If you try to go up [in price], there are a hundred competitors who will step in.”

At the same time, they said, some wine drinkers are moving up to more expensive wines on their own, resulting in growth for most major varietals in wines costing $10 and more.

“That’s different,” Fredrikson said. “As people move upscale, they feel they can spring for another two bucks for a better wine. The good news is they are moving up.”

“I’m optimistic,” Schuler added. “Wine is one of the most attractive consumer categories. That’s why everybody wants to sell it.”

Related stories:

2014: A Good Year For Buying $15 Wines

Don't Panic! Almonds Not Replacing Californian Winelands

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