Wine market datapoint of the day

By Felix Salmon
July 8, 2009

Some good news is coming out of California:

Total U.S. wine sales rose about 5% in terms of volume in the first quarter from a year earlier, but wines priced at $25 a bottle and up fell about 12%, estimates Jon Fredrikson, an industry consultant with Gomberg, Frederikson & Associates in Woodside, Calif…

Price cuts are taking a heavy toll on wineries’ cash flows, and could make it difficult for them to raise prices in the future. “If you’re a $90 wine and all of a sudden you’re on the Internet at $50, how do you ever become a $90 wine again?” says Elliot Stern, chief operating officer of the Sorting Table, a Napa Valley-based wine distributor.

It’s long overdue that consumers of California wines — not least Californians themselves — became a bit price-conscious. The number of $90 California wines which are actually worth $90 on any kind of sensible global scale is minuscule: most $90 California wines were priced that high simply to stroke the winemaker’s ego and keep up with the winery next door. There’s also the fact that much California wine-growing land is astronomically expensive, or was; prices coming down on that front will also be a good thing.

What we’re seeing is some kind of two-way market finally asserting itself: volumes increasing, as Economics 101 suggests they should, as prices decline. Let’s hope this continues for a while.

Comments
6 comments so far

California wines are tremendously overpriced. It is almost certainly a phenomenon tied to the excess cash in the Bay Area’s top 10%, and the fact that it is a two hour drive to Napa/Sonoma.

But how does one exploit that market anomaly? You can’t short overpriced zinfandels(and ridiculous chardonnays), and you can’t short “Estate Vineyard” parcels.

I hate a bubble I can’t pop.

Posted by Dollared | Report as abusive

“I hate a bubble I can’t pop.”

@Dollared: Can you imagine how much Bordeaux would cost today if it weren’t for all that Bay Area (and Wall St) excess cash chasing the $100 Napa Valley stuff? Felix, you are too kind. They are not just poor values, they are oak aged jug wines. Keep this a secret. Keep the bubble going.

Posted by maynardGkeynes | Report as abusive

Sigh. Still can’t afford Bordeaux, except for the occasional birthday party and quinceanera.

But you’re right on all counts. I’ll keep buying Spanish for special occasions…

Posted by Dollared | Report as abusive

Felix, my old professor writes this up and I think you would get a kick out of it. http://wineeconomist.com/

Dollared: Bordeaux values are available. Check out this article: http://www.examiner.com/x-5811-Michigan- Wine-Examiner~y2009m5d4-Value-Bordeaux-a nd-Burgundy

Posted by Jen | Report as abusive

$90 Napa wines are signalling goods. They don’t cost that much because of their quality. They exist because – when times are flush – some people “need” to show off their wealth and sophistication. That “need” will come roaring back when ostentatious displays of wealth are fashionable again.

Posted by Foster Boondoggle | Report as abusive
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