As we move into the second quarter of the year, California’s bulk wine and grape markets are proceeding steadily, with some particular areas – namely Napa and Sonoma – commanding high interest while other areas are quieter. Overall, while retail sales from the first quarter of 2022 are assessed, inflationary input costs are adjusted to and spring’s clusters are counted and dissected, some degree of caution pervades buying behavior. 

Rabobank’s latest Wine Quarterly report cites a “perfect storm” of five challenges facing the wine industry in the US and globally: Rising shipping/ trucking costs, rising gas prices, rising labor costs, five years of geopolitical uncertainty (tariff wars, COVID-19, the Russia-Ukraine conflict) and “relatively tight” inventories after two-successive short crops in 2020 and 2021. Rabobank references a “regionalization of supply chains” in response to rising trucking and gas prices, with companies moving production closer to the end-consumer. 

What we are seeing at Ciatti might be termed “supply chain parochialism”. While some buyers are expanding sourcing options in a bid to maintain margin, others are ruling-out wines or grapes located at a distance across California – even if the pricing is more attractive – because of trucking costs and/or speeds. Freight, once some way down the list of concerns during transactions as it could be taken for granted, is now in some cases the first discussion point. 

The annual inflation rate in the US hit 8.5% in March, a 40-year high. Suppliers of wine to retail are seeking to take up shelf price to cover the increased cost of doing business and how consumers – dealing with their own inflationary pressure – respond will become clearer through the year. 

SipSource analysts Dale Stratton and Danny Brager have presented some interesting slides which showed that December 2021-February 2022 table wine sales volumes were down versus December 2020-February 2021 by 9.7% in the under $8/bottle category and by 10.9% in the $8.00-10.99/bottle category. Sales volumes at $11.00-14.99/bottle were down by much less (-2.5%) while $15+/ bottle volumes were up 6.8%. This shows the pantry-stocking spike inspired by 2020’s Shelter in Place orders is receding further into the past on the lower priced categories, while the higher-priced wines saw good growth in 2021 – a post-Shelter in Place boost in consumer confidence – and are continuing to outperform the rest of the market. The question is: Amid the economic headwinds this year, will sales volumes on higher-priced wines fall back, and, if so, will it necessarily benefit the lower price categories? 

All the unknowns are serving to make the grape and bulk wine markets – outside the most in-demand appellations – what we characterize as “choppy”: Buyers and sellers are struggling to gauge the markets they are operating in, leading to a lack of cohesive trends in terms of buying and selling behavior. Ciatti can draw on its decades of experience to help you navigate this dizzying time – don’t hesitate to get in touch. Read on for more on the bulk wine and grape markets, and stay safe.

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