Yes, there is a grape glut

So what happens next? Your guess is as good as mine

The long forecast grape glut has officially been acknowledged. On Sept. 8, noted wine critic John Mariani wrote on a Forbes website: “there is an astoundingly large wine glut in the world. …” On Sept. 12, Mike Veseth, the Wine Economist, wrote: “The world is awash with wine. …”

This comes on top of a freelance piece I wrote last week for Meininger’s, the wine trade magazine: “As US demand drops, California worries about an excess of grapes.”

Which leaves us with two questions: Why is there a glut and what will happen to prices?

Who knows? This is the wine business, after all, whose behavior has been so irrational for so long that even the experts are baffled.

One thing most agree on: The glut has been caused by a drop in demand, and not from an excess of supply from too many big harvests, as is usually the case. In fact, this supply situation is quite unusual; the last time it happened in the U.S. was 30 years go.

The drop in demand is true not only in the U.S. but around the world. In Australia, Veseth reports, the excess is being measured in the number of Olympic-size swimming pools. Consumers everywhere are buying less wine, so more wine is stacking up on retail shelves, in wholesaler warehouses, in winery storerooms, and at bulk suppliers.

What’s less certain is why the drop in demand. Most of the wine industry people I talked to suggested the usual reasons: the Neo-Prohibitionists and less interest in wine among younger consumers, who have so much more booze to choose from. Interestingly, most discounted the effect of premiumization and higher prices, which really didn’t surprise me. Wine has gleefully yoked its future to higher prices, so how could that be the problem?

Mariani cites the the generation gap, as well as political complications in China and Russia. Veseth, who shoots a couple of holes in the generation gap theory, isn’t so sure: “I would be more satisfied if there were an economic theory to explain the economic fact of wine’s over-supply.”

There is, Prof. Veseth. It’s called too high prices. Explanations don’t get more economic than that, though there is still no guarantee that the glut will drop prices. Because, of course, wine.

Also worth noting: In the 1990s, the last time we saw less demand create an oversupply like this, some very smart people at Bronco Wine Co. worked with Trader Joe’s and invented the Charles Shaw wines – the legendary Two-buck Chuck. Hopefully, there are still some very smart people in the wine business who can figure something like that this time.

Photo: Bango via Morguefile.com