WinEconomy semi-annual update

It has been about six months since I wrote about pricing and supply trends in the wine industry so I figured it might be a good time to update wine consumers on those trends. When we last wrote retail prices for wine were coming down quite relentlessly due to an over-supply and the general economic trends in the country.

Most of that trend is continuing, albeit with some minor changes. We are still seeing discounting at the wholesale level being driven by either distributors cutting prices to thin inventories or by wineries cutting prices to distributors in order to move off older vintages as more recent releases start piling up in their cellars. It is moderating however.

Some of our favorite markdowns from last fall are not seeing the same level of discounting going into the last quarter of this year, like the Ehlers Estate Merlot and the Landmark Overlook Vineyard Chardonnay. It remains to be seen if they still may be marked down as the end of the year approaches. Also the best most sought after producers are again consistently commanding top dollar for their wine.

Some other wines are still being heavily discounted as some wineries are entering bankruptcy or failing completely. In many cases this is the result of constriction in the credit markets for business loans.

In short, banks are not lending to smaller and newer wineries just as they are not lending to small businesses. This lack of bank lending is being partially driven by a hostile regulatory environment at the Federal level, according to some bankers the worst such environment ever.

So the question for consumers remains, what is likely to significantly change this trend and lead to higher wine prices? Another question that may be even more important to wine consumers is how long are we likely to see compelling prices for such good wine?

While less wineries surviving and starting up is one way to change the trend in pricing, it will still result in the same harvest level for grapes. With fewer wineries to buy the grapes however, it is likely that prices will continue to deflate due to raw material costs staying low.

A more important catalyst could be the caliber of the 2010 harvest. As I have recently written, the 2010 harvest is iffy at best due to a cold wet spring in the Northwest and the possibility of an early and wet fall. In California wine grape growers experienced the coldest summer in 50 years. Northwest growers have gained some ground in the last couple of weeks with the warm dry spells.

California however has not gained any ground on the late harvest, as they need warmer conditions than Washington State due to the shorter days.

In California this may result in the growers "dropping" even more fruit to spur ripening on the remaining bunches. The same could happen in the Northwest if fall comes on strong in the near future or if the grape growing regions experience a hard freeze.

If less fruit is harvested, this will drive up raw materials costs just from restricted supply.

A bigger factor could be the 2010 vintage being not very good, causing wineries to make less wine and resulting in consumers not buying the wines produced this year. While initially it will drive prices through the floor for the 2010 vintage, it will result in increased demand for wines from previous and subsequent vintages driving prices higher.

The near term advice then for consumers it to continue to look for bargains, they are out there with no sign of sustained higher prices coming anytime soon. Prices at the retail level however are likely to stabilize and not see much downward pressure from here. Finally, don't be afraid to ask your favorite wine professional for what deals are out there, as we are likely to bring in wines that are good and priced compellingly and pass that price break on to you.

If there is a topic you would like to read about or questions on wine you can e-mail George@thedinnerpartyshop.com or make suggestions by contacting the Healthy Community section at the Coeur d'Alene Press.

George Balling is co-owner with his wife Mary Lancaster of the dinner party a wine and table top decor shop in Coeur d'Alene by Costco. George is also the managing judge of The North Idaho Wine Rodeo. Information: www.thedinnerpartyshop.com