Extreme heat, droughts and inflation hit winemakers hard

When we think of natural disasters, we usually conjure up images of hurricanes, floods, or tornadoes. It’s all somewhat predictable, though still devastating. But wineries are also dealing with events that were once unusual but are now becoming commonplace.

The first of these, forest fires, is strongly linked to the second: heat. The hotter an area gets, the greater the risk of wildfires, and they have plagued California in recent years and caused widespread devastation in wine country. So far this year none have erupted, but the summer is just beginning. Unfortunately, this is not true for Europe. Forest fires are currently burning in France and Portugal. The damage to the grapes is not yet known.

Also in France, spring brought devastating hailstorms that lasted four days. Then in early summer, temperatures hit over 100 degrees Fahrenheit and last week hit 115. Wine grapes can handle high temperatures, but not for long periods of time. Without sufficient irrigation, the grapes dry out and die.

And, as if the heat weren’t enough, California continues to experience the worst drought in its history. State Governor Gavin Newsom has dealt a crippling blow to some wineries by restricting access to the Russian river water supply.

As if these disasters were not enough, wineries now also have to deal with inflation. Wineries that own vineyards have a small buffer, but those that don’t need to deal with the cost of higher contracted grape prices, as well as glass, closures, packaging, fuel and transportation.

Wine production is a capital-intensive business and rising costs cannot be passed on easily. At what moment of the price increase will the consumer rebel? I haven’t seen dramatic changes on store shelves for wines under $20, but the cost of wine by the glass and bottles in restaurants has certainly increased, and restaurants that want to maintain price stability had to resort to lower quality offers. Even the rich are holding back, with Bordeaux futures for the 2021 vintage down 60%.

As part of a long-term plan to reduce costs, two major trends currently playing out in California are the consolidation of wineries and the elimination of vintage and varietal designations. Foley Family Wines and Boisset went on a buying spree and even a French conglomerate LVMH just bought the Napa Icon Joseph Phelps.

Some cellars, meanwhile, have begun to remove the vintage designation in order to make a more consistent wine and save money, a practice commonly used in Champagne. Varietal appellations, such as Cabernet Sauvignon, have been drifting away for some time as red blends have become popular. Again, this allows the winery to use cheaper grapes.

Another more troubling aspect of inflation for wine producers is the flight to other beverages. As rents, mortgages, fuel and other costs rise, will young drinkers choose wine or other beverages? According John Gillespie Wine Reviews, a wine.com survey found that 44% of new customers since the Covid-19 crisis are millennials or younger, and the prices they pay are higher than any other generation. It seems there is hope.

Bob McGinn has spent his entire career in the wine industry – forming wine clubs, working in wine sales marketing and engaging in all facets of the winemaking process, including vineyard management, fermentation and yeast analysis. He has developed wine programs for companies such as Marriott, Sheraton and Smith & Wollensky, and consults local restaurants. You can read more about McGinn’s work at www.gulfcoastwinejournal.com.

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