The trade is ‘cleansing’ but lemonade won’t replace wine
A well-publicised surplus in the global wine trade is causing a ‘cleansing’ of the sector – but consumers won’t ever mark major celebrations with soft drinks, believes industry veteran and Joseph Phelps CEO David Pearson.
Pearson, who has worked in Napa fine wine production for almost 30 years – 16 of which were spent heading up high-end brand Opus One – has witnessed many changes in the wine industry, a trade he continues to take an active role in as head of top property, Joseph Phelps Vineyards.
So, when asked about the current state of the sector, and whether a rebound was taking place after a three-year slowdown in wine sales worldwide, Pearson offered a valuable perspective, which he was willing to share in a podcast with db at the end of last year.
Beginning his answer, he admitted that “the market is oversupplied” before commenting that while this is undesirable, it’s not new.
“We’ve had oversupply situations before,” he stated, referring particularly to the Californian wine industry, before drawing attention to reasons for their disappearance.
Overcoming a wine lake in the 80s
One of these excess situations was in the early 80s, when Californian winemakers were faced with a ‘wine lake’, such was the scale of the surplus, although it was absorbed with the development of ‘wine coolers’.
Although their existence pre-dated the surplus, brands such as Gallo’s Bartles & Jaymes – “a carbonated fruit-flavoured, wine-base drink” – helped absorb the excess as it was “pretty darn good in the summer”, said Pearson.
At the time, he recalled, “People said they [wine coolers] were going to kill the wine industry, that it would be done, but of course, they didn’t – they just soaked up the surplus.”
Dealing with an excess in the 2000s
Twenty years later, there was a similar challenge, with a huge excess of wine in California emerging in the early 2000s.
This time, a brand of wine, called Charles Shaw – dubbed ‘Two Buck Chuck’ – performed a similar role to the wine coolers two decades earlier, and helped shift the excess of wine.
For those that weren’t in the trade back then, or have forgotten, the Charles Shaw brand had been bought by the Bronco Wine Company and sold through US retailer Trader Joe’s for around US$2 a bottle – an extremely low price made possible due to the glut of grapes from the Central Valley.
Making the headlines for its value for money, within a couple of years, the wine brand was shifting 5 million cases – a level of annual sales first reached in 2003.
“Having a surplus is not new, and historically, California has been the most innovative [in dealing with it],” said Pearson, having mentioned the above two examples.
The challenges in Napa today
Nevertheless, Pearson also highlighted the dire situation for Californian growers right now, even for those who are handling high end grapes in Napa.
“Last year [2024], if you had a gallon of Napa Valley Cabernet, which is a good quality gallon, you could sell it for about $60 a gallon, which might cover your costs – and that was the market” be began, by way of example.
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Continuing he told db in late September, “Today, if you have the same gallon and you want to sell it, if you can find a buyer, you’ll be lucky if you get $19 per gallon for that.”
He added, “And the problem is, is that unless you have a sufficient cash flow, that can squeeze you because you’ve put a lot of money into growing those grapes and making that wine, and if you’re selling your bulk wine at a loss, or you go into the market and you discount by 30% to 40% to chase sales, then the cash flow is the issue here – and wineries are under enormous pressure.”
Two more years of tough times
Consequently, he recorded, “So we’re seeing some wineries close doors; we’re seeing some wineries do desperate cost control, cash flow control measures, and it looks like this will last for maybe two more years, possible three.”
Such attempts to raise money quickly may explain the advent of discount supermarket Aldi’s ‘cut-price Napa Cab’, which was written about by Jancis Robinson MW in The Financial Times over Christmas.
Pearson then said, “With every vintage that now comes in, we’re all not wanting big harvests, and in the meantime, it’s about supply and demand – so if the demand surges, then that changes the surplus equation, but we’re in a surplus globally, Bordeaux’s got it, we’ve all got it in different ways, and I don’t know if there’s a rebound that’s going to take us back to where we were before.”
Having said that, Pearson added, “But nor do I think that after 8,000 years the wine industry is done; and nor do I think that celebrating great moments in life with a special bottle of wine is going to be replaced by lemonade or something else.”
‘We all need to go back to basics’
However, he commented, “We all – France included – need to go back to the basics.”
Indeed, it is Pearson’s opinion that producers and brand owners have become “a little bit self-centred”, which has led to consumers believing that you must be knowledgeable to buy wine. In short, Pearson thinks that there is now “so much detail that’s become a hurdle that we don’t need.”
“I think we need to reconnect with people about the basic pleasure [of drinking wine],” he said, be that “an expensive glass of wine in a fabulous restaurant that we never forget”, or “just a picnic with a really nice rosé”.
“I think that we need to step up and say wine matters and has a unique role that cocktails – God bless them – just don’t have,” he added.
“We’ve had the Covid revenge-purchasing, which many people mistakenly thought was real business, but it wasn’t – so we’re now crashing off of that – but my experience has been when I go out and meet with people, they’re still enjoying wine,” he recorded.
As for benefitting from that, Pearson said, “You can find it [a demand for wine], but you have to go get it; you can’t sit back and think they’re going to come get you. And in California, you know, sadly or not, lower quality producers, non-competitive producers – they will go out of business. And that’s part of the healthy cleansing of industry, which has made California very successful for decades.”
Turning his attention to elsewhere in the wine world, he then said, “And in parts of Europe, I’m the biggest Francophile you will ever meet – I love France – but oftentimes, they’re slow to do that: to let that cleansing happen… But that’s what they have to do.”
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