In every major wine-drinking country of the world, the bulk wine market is now an important part of the overall industry.
In fact, the size of the bulk wine market is much bigger than it’s made out to be – even in countries such as France that have a world-class wine industry of their own – and the numbers reflect this. In 2016, bulk wine (incl. containers >2 litres) accounted for 38% of global wine trade in terms of volume and 10% of total value (OIV, April 2017).
There’s a good reason for this – the bulk wine market is a way for buyers and sellers to establish an equilibrium between supply and demand in the marketplace. Because grape harvests can vary widely from year to year due to weather, it is not always possible to predict the exact supply of a particular varietal from a particular region or country. Moreover, it’s important as a way to keep up with consumer demand for a particular varietal over an extended period of time.
Supply and demand in the bulk wine market
Thus, it’s important to see the bulk wine market as a true marketplace, much like the commodities market or the stock market. There are buyers and sellers, all attempting to get the best price possible for a product that is in demand at any point in time. And it is truly a global marketplace, with bulk wine growers around the world, in markets like California, Italy and Australia.
The greatest increases in the volume of bulk exports between 2015 and 2016 were recorded in New Zealand, Italy and Portugal, and to a lesser extent in South Africa and Chile. It should be noted that, in 2016, the bulk market share in terms of volume was the biggest in South Africa, Spain, the United States and Chile.
In terms of product type, outside Spain (62%) and South Africa (88%), the countries exporting a higher bulk share than the global average (38%, as mentioned above) were Australia (56%), Chile and the United States (44%).
As with any market, one key to the success of the bulk wine market has been the entry of brokerage firms that help to standardize the buying and selling of these bulk wines. Thus, for example, a firm like Turrentine Brokerage often puts out trend reports on a regular basis, helping buyers and sellers see what’s available and at what price from a specific region. This lets both buyers and sellers see the overall market dynamics at work. It’s also important to keep in mind that the bulk wine market is two-sided: there are buyers and sellers, and sometimes the same winery can act as both buyer and seller.
It’s perhaps easiest to understand the dynamics of the bulk wine market from the perspective of the seller. In one scenario, a winery may have a surplus of wine. One way to “offload” this wine is to sell into the bulk wine market, where the winery can receive market prices for this wine depending on a number of important factors, such as grape varietal, appellation, vintage and quantity.
It’s also important to keep in mind the correlation between vintages that’s driven by the geographic locations of some wine markets. For example, a wine produced in South Africa (in the Southern Hemisphere) would potentially give another country (in the Northern Hemisphere) a one-up on vintage, and that is an advantage for both buyer and seller.
By taking a look at a Turrentine Brokerage report, you can immediately see the bigger trends at work in the marketplace. For example, a 2012 California Zinfandel may have 10,000-25,000 gallons available for sale, while a 2011 Cabernet Sauvignon from Mendocino County may only have 500-1,000 gallons available for sale.
The prices in the market can also differ dramatically, depending on the quality of the bulk wine provided. For example, prices for Napa Valley Cabernet can be in the neighborhood of $20 to $40 per gallon, while a generic California Cabernet might only sell for $4 to $8 per gallon. At a glance, you can see how the market views the perceived quality of Napa Valley wines!
The link between bulk wines and private labels
And what about from the buyer’s perspective? What exactly would you do once you buy 10,000 gallons of a California Zinfandel or pay $40 for a gallon of Napa Valley Cabernet? One answer is to create a private label and sell wine under that new brand and label. This is often referred to as the private label market, and it is one good reason why many people often consider the bulk wine market and private label market to be inextricably linked. Essentially, you have one winemaker taking another winemaker’s grapes and creating a slightly new wine that is geared to the tastes of consumers.
Here’s just one example: E. & J. Gallo Winery created the “Apothic” brand as a private label to appeal to young male millennial drinkers. The goal was to create “heavy reds” and “black reds” that are made by blending together varietals like Pinot Noir, Merlot and Petite Syrah. For Apothic, then, the goal of using the bulk wine market would be to source the right mix of grapes for its brand extensions like Apothic Red and Apothic Dark.
And sometimes popular brands may not even be recognized as private labels. That’s also the case with “19 Crimes” (from Treasury Wine Estates) and “Dark Horse” (from E. & J. Gallo Winery). If you read the wine label for “19 Crimes,” for example, you may get so caught up in the brand that you don’t realize that it’s made from a mix of wine varietals, and then sold under the “19 Crimes” brand. The same is true for “Dark Horse,” which offers, for example, a Big Red Blend made from a mix of Tempranillo, Malbec and Cabernet Sauvignon.
The bulk wine market as part of a winery’s business model
It’s important to keep in mind that wineries that already have trusted relationships in the marketplace can buy and sell wines in bulk as a routine part of managing inventories. For a rapidly growing brand, the bulk wine market may not be an immediate path to value, since not just any winery can quickly jump into the bulk market. However, if new winery entrants know which varietals are in demand, and have the capability to offer a quality product to address that demand, then there is definitely an opportunity.
Moreover, for some wineries, the bulk wine market can be a way to reduce the overall Cost of Goods Sold (COGS) – since there’s no bottling and no marketing, you can immediately see how the whole process of getting wines to market is much more affordable. (The downside, however, is that whoever buys your wine may be able to sell it for much more than you ever thought possible if it’s marketed well or hits a hot consumer niche).
The wine industry can have dramatic yearly changes in supply and demand, sometimes due to factors that have nothing to do with wine. For example, if you read the January 2017 “World Report” from Ciatti, a global wine and grape broker, you’ll often feel like you’re reading a report on current political and economic events.
For example, the UK’s Brexit may seem like a political event that only impacts Great Britain and Europe – but it also has ramifications for the global bulk wine market. That’s because the UK takes 25% of the California bulk wine market. Due to political and economic uncertainty in the UK – especially when it comes to foreign exchange rates and how they would impact prices – there was increasing concern that the California bulk wine market might be facing a real decline in demand.
Links between regional markets in the global bulk wine market
World-wide harvest predictions are also a key factor that appears in the Ciatti report. For example, consider the Malbec wine varietal. Traditionally, Argentina has been a major supplier of Malbec wines to the world. But due to a much worse harvest than predicted in 2016, Argentina was struggling to meet the demand in the marketplace. And so Ciatti specifically noted that the California bulk wine market for Malbec was suddenly very much in the spotlight – if buyers couldn’t meet their demand in Argentina, they would meet it with California bulk wines instead.
In its January 2017 report, Ciatti provides a region-by-region breakdown of the 2015 and 2016 harvests. This can help to give a quick snapshot view of how important different regions are to the global bulk wine market. For example, the California harvest was 3.69 million tons in 2015 and 4.0 million tons in 2016. That’s nearly twice the size of Argentina’s harvest, which came in at 1.75 million tons in 2016. By way of comparison, Italy had the world’s largest harvest (46-47 million hectoliters), which was higher than France’s (43.2 million hectoliters) and Spain’s (41-42 million hectoliters).
Even within each individual country, though, prices can vary greatly on a month-to-month basis depending on varietal. For example, VINEX makes available some market pricing data on a country-by-country and month-to-month basis. The France Varietals Price Index for August 2017 shows that French Sauvignon Blanc fetches the highest prices, while French Chardonnay fetches the lowest prices (in fact, ever since mid-2015, Cabernet Sauvignon, Shiraz and Merlot have largely kept pace with Sauvignon Blanc, but Chardonnay prices have tumbled). In Spain, however, the Spain Varietals Price Index shows that it is Cabernet Sauvignon that fetches the highest prices, and Shiraz and Merlot that have struggled to keep up.
Those numbers should give you a good idea of why the bulk wine market is considered an important part of the global wine industry. It’s a way to offset the factors of supply and demand. In addition, it offers a number of advantages for wineries both large and small. For any buyer or seller of wines, the bulk wine market is interesting to consider from the perspective of how it can help to optimize a business model for the current market environment.
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International Bulk Wine and Spirits Show London is brought to you by Beverage Trade Network, the leading online platform dedicated to connecting the global beverage industry.
Beverage Trade Network (BTN) successfully connects wineries, breweries, distilleries and brand owners with international importers, distributors, brokers and beverage industry professionals on a daily basis. Strong partnerships with international and US organizations have helped BTN establish IBWSS as a premiere sales and marketing event committed to connecting the private label and bulk beverage industry.