About two weeks ago, Will high-end wine sales rebound? was published by the Santa Rosa Press Democrat (in the heart of Sonoma wine country). The headline is not specific to California but the article and the point of view of the newspaper is. As you might imagine, I have an opinion.
Selective pain for producers
Before I dive in, it's worth noting that the difference of opinion about the future of CA high-end wine sales noted in the article is directly related to the uncertainty about the future state of the economy. History shows that there's always a rebound and most market-watchers are confident this time is no different. But if one steps back from the macro-level picture, the future recovery will not be felt equally by individual California wine producers.
Top cult brands ($250+/bottle) will recover
The top, established cult brands will be fine. WinePrices.com's California 100 Index of the most frequently traded California wines at global wine auctions is up 7.1% year-to-date through June (new stats incorporating the September start of the Fall auction season will be calculated by mid-October). The index's value is still down about 22% year-on-year to June 2009 but it's climbing back. It's worth noting that the 100 wines in the index include 20 different producers although 5-6 dominate half the list.
Fate of those selling above $100/bottle will vary
How many readers know a wealthy individual who started a winery in the past five years to produce a high-end California cab? I know plenty but I also suspect there will be a lot fewer such people going forward and that many of the "less committed" among them will throw in the towel. That's good for the rest of the players as one of the problems in this $100-$250/bottle category is too many producers, all with a "story," well-known winemaker, expensive packaging (heavy bottles, wooden boxes), and a high price tag. It used to be that new producers earned their stripes (and price increases into the $100+ range) through delivering consistent year-to-year quality at fair price points instead of skipping to the head of the line by opening the cash spigot to create a high-priced trophy wine in record time.
Wine collectors who buy these $100-$250 wines will open up their wallets again as the economy enables them to (as some part of many purchases in this price range is the status it signals to others) but there will be less blind faith in speculating just to have the latest wine your friend doesn't. Anyone paying this price also expects quality every time so inconsistent producers in this price range will have nowhere to hide.
Feast or Famine at $50-$100
This zone is "drinking territory" for many wine collectors but also where wine collectors have far more choices on where they spend money. I suspect there will be many "feast or famine" circumstances where those producers with strong longer-term customers will be fine and others with shorter track records will be scrambling to sell their productions absent some strong reviews that provide some confidence of a sound purchase.
Bottom line: Wine collectors of California wine are in for a period of relative price stability as the opportunity for producers to raise prices (as many did year after year given abundant demand) is not likely to return for several more years. But I believe spending on high-end California wines will return with the domestic economy and forward-thinking California producers (even modest sized ones) will begin cultivating foreign consumers more aggressively (especially in Asia).
