Let’s raise our glasses and toast to cheaper wine. The price of wine is expected to drop to its lowest levels in five years thanks, in part, to a surplus of California grapes, reports CNN Business (Feb. 17, 2020).
Combined with a decreased demand for wine, drinkers can expect to get better value for every drop they drink this year. The cheaper prices may even last up to 3 years. Vineyards in Northern California began planting thousands of acres of new vines in 2016, and with more efficient harvesting methods, it has led to more bountiful harvests of grapes. Having more grapes to make wine sounds good, but if there’s not enough demand to support increased production, the surplus grapes go to waste.
“Since it takes up to 5 years to bring wine to market from the initial planning stages of planting a vineyard, it makes hitting future demand very complicated. In this case, we overshot demand.” said an industry expert. Wine consumption has dropped for the first time in 25 years, with more Americans turning to liquor and ready-to-drink cocktails. “Today, the wine supply chain is stuffed,” says the newest State of the Wine Industry Report. “This oversupply, coupled with eroding consumer demand, can only lead to discounting of finished wine, bulk wine and grapes.”
Prof. Howard Weiss, from Temple U., who sent us this link, has these 3 OM takes on the article:
1. Forecasting. The forecasts did not anticipate the change in the type of alcohol wine drinkers would turn to.
2. Efficiency. We usually think of improved efficiency as a positive, but in this case it led to oversupply.
3. Supply chain. The vineyards have a 5 year lead time in their supply chain between vineyard planning and creating the wine.
Classroom discussion questions:
1. How does this supply chain differ from that in other industries?
2. Why is forecasting so difficult?