Bailout

Wine market datapoint of the day

By Felix Salmon

Some good news is coming out of California:

Total U.S. wine sales rose about 5% in terms of volume in the first quarter from a year earlier, but wines priced at $25 a bottle and up fell about 12%, estimates Jon Fredrikson, an industry consultant with Gomberg, Frederikson & Associates in Woodside, Calif…

Price cuts are taking a heavy toll on wineries’ cash flows, and could make it difficult for them to raise prices in the future. “If you’re a $90 wine and all of a sudden you’re on the Internet at $50, how do you ever become a $90 wine again?” says Elliot Stern, chief operating officer of the Sorting Table, a Napa Valley-based wine distributor.

It’s long overdue that consumers of California wines — not least Californians themselves — became a bit price-conscious. The number of $90 California wines which are actually worth $90 on any kind of sensible global scale is minuscule: most $90 California wines were priced that high simply to stroke the winemaker’s ego and keep up with the winery next door. There’s also the fact that much California wine-growing land is astronomically expensive, or was; prices coming down on that front will also be a good thing.

What we’re seeing is some kind of two-way market finally asserting itself: volumes increasing, as Economics 101 suggests they should, as prices decline. Let’s hope this continues for a while.

Full post as published by Macroprudential on July 08, 2009 (boomark / email).