California’s 2020 crush is underway amid the unique conditions created by COVID-19, with bio-secure protocols being followed in the vineyards and in the wineries. The vineyards appear in excellent condition this year across the state: so far there has been very little disease pressure and few if any climate extremes. The crop size at this early stage looks lighter than average: for a detailed harvest update see below.
The state’s overall bulk wine inventory continues to be steadily utilized (see our updated bulk wine inventory graph), given the growth of sales in the off-premise. Off-premise sales are still running at or around +20% per week in terms of year-onyear dollar sales. Nielsen estimates wine’s off-premise dollar sales were up +26.6% between the start of March – when COVID-19 first hit the US – and July 25th. All the while, the on-premise/tasting room sector remains greatly inhibited by the virus.
A recent Gomberg Fredrikson webinar analysing key trends in the current US wine market projected that the overall revenue of US wineries will be down 6% in 2020. While revenues from sales in the three-tier off-premise (+16.2%) and DTC shipped (+14%) would rise slightly, sales revenue from the three-tier on-premise (-49.2%) and DTC carry-out (-53.8%) would slump by half. Gomberg expects a shift back in 2021 to some degree, with off-premise sales growth slowing and on-premise sales rebounding – but the on-premise is forecast to return perhaps only to 75% of its pre-COVID-19 strength, with fewer locations open, slimmed-down menus and less consumer demand due to unemployment levels/economic damage.
For now, the continuing strength of off-premise sales versus negligible on-premise sales is leading to the bulk wine market’s bifurcation – whereby bulk wine is selling at California pricing but not at Coastal pricing. This is now starting to feed through to the grape market where activity on Coastal grapes at Coastal prices is very limited: nearly all the action is at California pricing regardless of whether the grapes are from the Interior or the Coast. With the trend, even before COVID-19, for the termination or non-renewal of grape contracts, it is going to be another tough year for Coastal growers who possess uncontracted fruit, facing low prices on the spot market. Should they consider crushing the unsold grapes into bulk wine? Read on for our view.
The focus for growers now will be the harvest. The latest forecast from Dr Gregory V. Jones of Oregon’s Linfield University suggests August in the western US will end up and warmer and drier than average. The three-month forecast suggests average precipitation levels from August through to October, likely shaking out as a dry first 90 days and seasonal thereafter. Wineries have warned that their adherence to COVID-19 protocols means they will be operating at a slower pace this year, so everyone needs to be extra patient and communicative as the crush proceeds through this unique time. We wish you a bountiful – and most importantly safe – harvest season!