Bumper California harvests won't mean oversupply, says Constellation

  • Thursday 9 January 2014

The chief executive of Constellation Brands has rejected a suggestion that consecutive large harvests in California will lead to an outpouring of cheaper wine from the US region.

Mondavi

Barrels at the Constellation-owned Robert Mondavi winery. Image: Constellation/Robert Mondavi Winery

An analyst on the Robert Mondavi wine producer's financial results conference call yesterday (8 January) asked whether extra supply from California's bumper harvests in 2012 and 2013 would lead to price wars between brands and retailer own-labels.

Exact figures for California's 2013 grape haul are not due until 10 February, but the harvest is expected to match 2012 at around 4m tonnes following good conditions in most regions. Decanter.com previously reported on some wineries' need for more tank capacity to store the extra wine.

'In the areas that matter to us, I would say that we're not expecting an oversupply that would drive lower pricing,' Constellation's chief executive, Rob Sands, said. 'I think that we see a pretty balanced situation.'

Bob Ryder, the wine firm's chief financial officer, added, 'consumer demand for wine continues to be very robust. We actually need more supply just to satiate demand.'

Glenn Proctor, California-based partner at global wine and grape broker Ciatti Co, largely agreed. 'There's an optimism about sales growth. Five years ago, everybody was burying their head in a hole and saying "Oh my God".'

He said most wineries understand that it would be 'a recipe for disaster' to cut prices on brands because of extra supply. But, in the short-term, 'we might see some private labels and one-offs if there's bulk available that's good quality'. 

Despite reports that some California grape growers are ripping out vines in favour of more lucrative crops such as almonds, Proctor said around 12,000 hectares of vines have been planted in the last two years. Most growers are profitable at current grape prices, he said.

In its results statement, Constellation said fiercer-than-expected price competition means full-year operating profits for wine and spirits may only equal last year, at best.

Still, Constellation's net wine sales rose by 3% in the three months to the end of November versus the same period a year earlier, to US$711.9m.

Its share price jumped by around 10% on its results statement, which also showed a near-doubling of overall net income and sales for the quarter driven by its acquisition of 100% of the Crown Imports beer business, which sells Corona in the US. Beer accounted for around half of Constellation's profits in the quarter.

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