Global Wine Market Update and Opportunities

By Brian Lemay No comments

Just wanted to let you know a little bit about
the Ciatti company. So we’re a brokerage of bulk wine and grapes around the world. We
have eight offices Canada, France, Germany, South Africa, Chile, Argentina and Australia.
And and then here in San Rafael is where we are based overall.
So the company was started by Joe Ciatti in 1971, to sell bulk wine, and he took over
a company that was small and just starting out, but the owner passed away. And he grew
that business with a lot of bulk wines and growing brands. We’re basically just looking
at that because the slide is a little different than I had. So basically look at ourselves
as an information and knowledge company, okay, but we never really figured out how to sell
information and knowledge. So we give the information way. And we try to do the transactions
between companies. So there’s about somewhere between 2 and 4% is our commission rate for
putting together sales, it’s paid by the supplier after the transaction is completely done and
paid for. So it’s very simple open book process. We
also have a craft beer company called John Phillis, where we do the similar attitude
for hops, malt, and used barrels for the craft brew industry. We try to show up in force
because there is safety in numbers, except for me standing alone here. So we have Vic
Gentis is here from South Africa, he covers South Africa, the UK, Holland, and other areas
into Europe. And we have John White sitting there, and he is my partner here in the company,
based in California, but we also have Matt Tiderman his is here from Australia. And we
have Dennis […] in from Canada. So if you have questions from around the world, any
of us can help and there should be about eight of us roaming around today.
So basically, what I wanted to talk about was that, our feeling is it’s really all bulk
wine. And I’m going to have a lot of trouble with three hands here. But my prop here was
just the fact that without knowledge. I really should do Lauren’s job that would
be better, I’d have my iPad set and be ready to go.
What I wanted to say is that, when you start out with the grapes, and you go to a vineyard,
there’s maybe a sign that says who the vineyard is, okay, but there’s nothing that says, in
most cases, this wine makes Opolo. And this one makes […]. Okay, so there’s no branding
in the vineyard. Same in the winery, if you walk into a winery, nobody took you pass the
sign that said Mondavi, you would walk into the winery, and you would see tanks, and you
would see barrels, and it’s all the same. You can have a winemaker that’s focused on
it. And you can have vineyard managers that are focused on it, you can have everybody
focused on it, but doesn’t really become a brand until later. We have wineries that some
of them are just bulk producers. Some of them are just bulk buyers, some of them don’t even
buy, they just put their branded good on something that is been created by someone else. So it’s
a fairly loose and open environment, and I was talking with folks this morning at the
breakfast, about the dearth of brands that we have in the wine business, and that we
keep expanding and expanding and expanding. So it’s been a benefit to many people. And
the thing that makes the industry thrive actually. A brand is simply a product manufactured under
particular name, all of these companies that you see up here, they take advantage of the
bulk market in some way, some are sellers, some are buyers, some renders some just package
for other people, and don’t have any brands themselves. So it’s a fairly open environment.
Private Label, which there is many people that are going to speak to you today, they
know a lot more about private label, and we really just fill the liquid for the private
label. So you look up here and you say are these brands? Are these private labels? They’re
both. So what I’m really up here to talk about is a little trip around the world as to what’s
happening in the different markets in terms of grape, and wine bulk supply, and this gives
you a little idea, the next 10 slides that you’re going to see are all structured in
the same way it’s easy to follow. We’ll just go by country, we will talk about
a key highlight of the country as to what’s going on right now. We’ll talk about some
pricing in the market on varieties, that are kind of key to those countries. We’ll talk
about what opportunities might be available from those countries. And we’ll talk about
the risks that are associated with those countries. Argentina
The key highlight here is that Argentina, after three years of being down is open for
business. Now they have lots of challenges we’ll get to, but the key highlight is that
they’re open. Some of the pricing that you see they’re very big and these are all export
wines. So we are really not going to focus in on a lot of the wines that are not exported.
But generic white has come down considerably when the volume has gone up, same thing with
reds, and you will see generic white and generic red in most of these slides, because that
is a lot of what moves around the world. Ciatti Company moves about a half a billion litres
of wine or 120 million gallons of wine between companies in a given year.
One of the key areas here is on the Malbec is that, wine that was over $2 a litre last
year has come down considerably given the good harvest. And Concentrate, there’s a small
misprint on this slide, Concentrate is actually slid to 1100 dollars a metric ton.
The market is coming down and the opportunities are available on all varieties. Again, Argentina,
very low cost producer, very good quality wines that come out of there, and they’re
having a good winter, so we should anticipate another good harvest next year. Obviously,
Argentina has a huge risk for inflation, which is consistently going, Eduardo Kinneil our
broker from down there was supposed to be here, but I believe the peso devalued, so
far that he wasn’t able to afford his taxi cab.
Then the other part is consumer confidence, on the domestic market, consumer confidence
is a little low just because of the inflation. So it breeds more opportunities for export.
So people are looking for wines, at a low price, good quality, Argentina is the place
to go at the moment. Chile
Chile had a very congested harvest, like we’ve had some times here in California, where all
varieties are coming in on top of one another. So you got to watch out for kind of variable
quality and really research your taste profiles very carefully. Again, you will see the price
of generic white and generic red higher than in Argentina, but they didn’t have as big
a harvest and they have a lot of contracted volumes on two and three year contracts around
the world. So they didn’t need to move their prices down too much because a lot of that
white inventory has been sold. Again, Cabernet, which is a good substitute
around the world, shall we say for domestic products, whether that’s California or Australia,
their prices have been coming down and and they are back in business. And we’ve seen
prices as low as 50 cents a litre three years ago, so it’s dramatically up but can follow
as well. And Sauvignon Blanc another variety that’s
very hot, both domestically and internationally, New Zealand Sauvignon Blanc which will get
to remains hot and and if people are looking for an alternative source, Chile is very good
quality. Again, the opportunity here is stable pricing, we can see that this is moving in
the direction that the pricing will be lower and stable.
The risks, you really have to research what you’re getting at the moment because of the
congested harvest, you have variable quality stuff, some higher level and some lower level.
So I would caution you taste everything, but be very quick in your decisions. If you find
something that works for you. The domestic market is very active as well
as people try to source there are a lot of a decent amount of good size bulk players
so they are moving around the domestic market, buying up lots of wine to maintain quality
and and then re export. They have a lot of global buyers, Chile has been out of the market
for a few years, which has benefited other countries like Australia, but Japan, Korea,
Taiwan, China and the EU are all big markets for them. They are always a net exporter and
they are planting more vineyards as we speak. So they will continue to be a net exporter. New Zealand
New Zealand has really done an excellent job of maintaining their price points all across
the board. And whether that has to do with the cost of land, the cost of farming, the
cost of labor, all those factors come into play. But they have done a really good job
as they’ve expanded their acreage and expanded their harvest. Every year, they’ve also been
able to maintain quality and the pricing. Obviously you won’t see a lot of generic white
or generic red coming out of here. But you do see that M is for Marlborough, HB is for
Hawke’s Bay, on the North Island and CO is for Central Otago.
So you will be able to see that these are obviously in US dollars per liter. Everything
that you’ve seen has been converted to US dollars per liter as of exchange rate of a
week ago. And and we are low from Hawke’s Bay. So the warmer climate up there is producing
some really nice wines. And so we are starting to see more of those on the market.
The opportunity here is that they have consistent demand if you’re creating private labels,
or you’re creating brands, the New Zealand has done an excellent job in maintaining that
cachet that they are the only Sauvignon Blanc on Earth, which is a little frustrating to
other places around the world but the consumer actually goes with that and believes that
it’s a unique style, and in very unique product, that’s great for them.
I think the risk going forward is land availability, for vineyards it’s not so much they’re running
out of land. But as we found around the world, we really don’t strain, move ourselves into
stressed areas, or areas that might produce potentially lesser quality ahead of the need.
So at the moment, there’s probably less vineyards being planted, and more to maintain the price
point and maintain the quality. And so the pricing again, if anybody is looking to try
to do a New Zealand wine at the 299 level or something, it’s going to be really tough
to do for the foreseeable future. But you have a lot of other alternatives, both in
Chile, in California, and South Africa. So there is lots of opportunities. Australia
The key highlight for Australia, and any Australians in the room will tell you that it’s China,
China, China, they have done a great move in China, with Chile being kind of on its
heels with low harvest and lack of availability, the Australian industry really took advantage
of moving into China. And after having been there several times over the past year as
we look to expand our business into that arena, you find that the amazing amount of products
and volumes going into China. Pricing for Australian wines are up and continue
to be up just because the lack of availability due to high demand. So it’s moving. I think
the wine Australia put out a report that just came out yesterday talking about their exports
being up 51% in China and up everywhere else in the world, I think really the only market
that I’ve seen is the US that’s kind of behind, not behind Australia at the moment, for whatever
reason that may be we are the only place not growing at significant rates. So there’s an
opportunity in that because I think there is availability, we are a higher price market,
and cool climate wines which would capture a higher price would be good for both the
Australians and good for the market here. The risks associated with Australia is again
China because if they decide to change course, move in a different direction there is a lot
of eggs in that basket over there, as we have seen when the Chinese have bought a lot of
Burgundy’s over the years and a lot of Bordeaux’s over the years, and then they move on to another
product, it’s been very hard for somebody to duplicate that effort. When somebody drops
out. And they are planting a lot so they have their own products as well. South Africa
I think the key highlight here and my partner Vic might argue with me but I think it’s the
point to be ready to buy they’ve had very tough conditions with drought over the years,
over the past few year suppliers have inventory, but they have held back to see where the pricing
actually lies across the world, so it’s very good to be in there tasting wines talking
and when the wines are released for sale, then be ready to buy.
Again, very good pricing across the board in both generic reds and whites, Sauvignon
Blanc, another great rivals from down there, as well as Chenin Blanc and Cinsaut Rose,
which has been a kind of a good substitute, shall we say for Provence Rose when they ran
short in volume Low cost high quality, but the risks even
though they are getting rain this winter, and the catchments seem to be filling up,
which is very positive little like here in California when we had, a couple years ago
when the drought and we talked about what do we limit what vineyards can use? Do we
limit what consumers can use? So we did that. And but international demand is high, so again
be ready. Europe
I think one of the key things to think about is that, we had kind of the perfect storm
of lack of opportunity, or lack of volume coming out of Europe with the 2017 harvest.
But with 2018 people are feeling that the volume is going to be back and that they’ll
be moving ahead. So the Italians are looking ahead, both for a lot of Pinot Grigio, Prosecco,
red wines, Zinfandels new dovelas are all you know reasonably priced, we could saym
against other players in the market and we see the prices probably will fall a little
bit if the harvest comes in. T here has been a lot of pressure in Europe,
fungal pressure, disease pressure, just because of rains, hail storms, etc. But nothing that’s
really taking the stuffing out of the volume of grapes to be crushed.
Risks around there, they are selling reds into China and that could be a risk for other
people around the world if the Chinese start to buy more of the Sangioveses and counties
and other wines from Italy and that’s a push for them.
And then trade tariffs for here in the US. God knows what’s going to happen from Washington,
we will let that be somebody else’s headache but tariffs could be an issue on the next
countries as we move ahead. France
The spring weather again, as I mentioned earlier, spring weather was very variable, they did
have some hail storms in the south, in the volume areas and they have had rains and some
fungal pressure. The prices have been very stable over the time, but they really haven’t
had any inventory to sell up to that point. There are small pockets of wine and Rose that
people are looking for, the expansion of Rose here in the United States has been dramatic
and really the […] style in that area is a little like the New Zealand Sauvignon Blanc,
everybody’s going to try to get in there and do that but seemingly this style and from
France is what’s desired at the moment. They have good quality reds that I don’t believe
that a lot of people are taking advantage of at the moment. So that should be an opportunity
to look at those wines when creating labels. Again, the risks are mainly the trade tariffs
and I think from an outlook free trade for the wine business would be very good it’s
done very well for Australia, it’s done very well for Chile, I don’t see why it wouldn’t
do very well for here. Spain
Spain was a market that really went into hibernation last year when the crop was very low but the
market is stabilizing and we should see prices fall as the harvest comes on there and people
are contracting now for the 2018 harvest, there probably will be flow back and forth
from France, and Spain, especially in the Concentrate market as well. And as I mentioned
before, with all three European countries, the fungal pressure has a tendency to reduce
the harvest. So prices may not fall as far as some might anticipate, but they will come
down. California
This is the one market I would say around the world where it’s actually fairly sluggish
we do have inventory and why that is? That is a very good question. We drink our own
products, obviously, imports while still 33% of what we drink, and we export about 16%
of what we make, it’s still about very sluggish market, especially in the reds, that we see.
So there’s good supplies ample supplies of Zinfandel, and Cabernet available on the market,
a lot of this may have to do with the premiumization of the mix of producers and and going higher
in price, certainly we’re selling a little less volume or the growth in volume for the
US is not as big as it has been over the years. The pricing has stayed very stable because
the question is, where’s the buyer? So right now, we have a very slow market because there
are no buyers, every buyer last year is a seller today now, that could be as I said
premiumization is a much smaller category, 70% of the grapes come from the Central Valley.
If we’re not driving high volume brands, then we are going to have an oversupply coming
from the valley. Thats where we’re California comes from Cince the opportunity is that we do have supply,
the opportunity will be to create brands or increase the size of brands here grown domestically.
Trade tariffs around the world seem to be the the topic of the moment, whether that’s
a real thing or just a negotiating point. Who knows but at the moment, I think it really
has slowed down a lot of people making commitments for export of California wines so therefore,
we’ll just have to drink more. The only thing I think besides tariffs is
if we have a large harvest, and there are kind of some mixed results coming out from
people walking around vineyards is that the harvest could be larger. Allied came out with
a note that it could be 4.25 million tons. But I don’t think that’s to be too surprised.
4 million tons probably is the state of the California harvest, given the amount of acreage
that we have, and what those venues should produce.
I think something to note, when we talk about what happened last year in 2017, is that the
short European harvest might happen again, it really was kind of a perfect storm of the
three major countries losing a huge amount of volume, and they lost the equivalent of
a California harvest. And there’s no place else on earth that you were going to make
up that volume. Australia had a decent harvest but nothing
bumper, California, again, had a decent harvest but nothing bumper, Chile was down, Argentina
was down South Africa was down, New Zealand was average. So there’s nothing to make up
that loss so volumes just declined. But even though prices went up, they didn’t
go up as high as we might anticipate and that was because at some point, they get to the
price point where it just doesn’t matter, nobody’s going to sell anything, even if it
drop it to the floor, because their tanks are full.
So right now in California, the mode is let’s free up some tanks, because we got another
harvest coming in. So that’s, that’s a risk.

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