Exports continue to gain

Wines & Vines, July, 2004 by Larry Walker

Total exports of U.S. wine showed solid gains of 6% in value and 6% in volume for the first quarter of 2004, according to numbers from the U.S. Department of Commerce (DOC), as prepared by Gomberg, Fredrikson & Associates. Gains for bottled wine were 5% in value and volume. California wines make up about 95% of all U.S. exports.

These numbers are significantly down from total 2003 numbers as reported by Wine Institute (WI). WI reported a gain in total exports of 22% and a 19% gain in bottled exports to 29.7 million cases, based on raw data from the DOC.

There is some mistrust in the wine industry when it comes to numbers released by the DOC. The gap between DOC numbers and numbers developed by analysts working with tax records from the state of California are farther apart for 2003 than usual. Jon Fredrikson, in his Gomberg-Fredrikson Report, puts California bottled wine exports at 23.2 million cases, a gain of 6%, which is a significant difference from DOC numbers but in line with first quarter reports.

The problem is, the DOC keeps a much closer count on imports into the U.S., since taxes are collected on those wines, than it does of outgoing shipments, which are untaxed.

There is also a discrepancy in numbers reported internally in Europe and exports numbers from the DOC, chiefly due to transshipments from one country to another, which may produce inflated figures from the U.S. Department of Agriculture due to some shipments being counted twice.

Most agree that the dollar, which began to decline against the euro and other major world currencies in mid-2003, was the key factor in the export figures both for year 2003 and the first quarter of 2004. Paul Molleman, who directs California's export efforts in Europe for Wine Institute, put it this way: "If it were not for the dollar rate, exporting would not be difficult, it would be pretty impossible."

Molleman said that exports to Europe experienced solid growth in all markets. "A lot of the increase in exports is wines in bulk that find their way to the European supermarkets in the below five euro category," he said.

There are some concerns in the U.S. that opposition to Bush administration policies in Iraq and elsewhere in the Middle East may lead to European consumers rejecting California wine. Molleman doubts that is happening.

"The people of Europe seem to be able to keep politics and wine pretty much separated. We also make a point that we are winemakers from California and not policy makers from Washington. There have been a few comments from people but overall, I think it is fair to say that there has not really been a negative impact on the California wine industry and its exports," he said via e-mail.

E. & J. Gallo is far and away the most important exporter of California wines. The folks at Modesto (Gallo's headquarters in California's Central Valley) don't willingly hand out shipment numbers, but industry sources estimate that Gallo exported almost 12 million cases of wine in 2003, up perhaps 600,000 cases. That would keep Gallo well ahead of Diageo's Blossom Hill, which shipped just over 4 million cases as the runner up, and Constellation brands at about 1.6 million cases.

Why is Gallo so consistently successful? There are no deep, dark secrets. Gallo does well in the international market because it does a good job of looking at opportunities and meeting those needs, and a better job than most at building brands. A good example of reading the market well is the recent decision by the company to limit sales of its Turning Leaf brand in screwcaps to the UK market (Tesco) and not expand into the rest of Europe. The company tested the market and found that consumers were just not ready for the screwcap outside of the UK.

Nicole Dowsell, the international public relations manager for Gallo, who is based in California, said the UK remains the top market for Gallo, followed by Germany, Canada and Japan. She identified Poland and "the rest of Eastern Europe" as an important emerging market for Gallo.

Robert Nicholson, an industry consultant who heads up International Wine Associates in Healdsburg, Calif., said he believes the long-term trend for California wine in Asia is good. "I've been going to the Asian market for more than 30 years and I must say, I am cautiously optimistic," he said.

The UK continued as the top market for U.S. wine in 2003, with an 11.9% gain in value to $188.75 million dollars. Volume sales gained about 7%, with sales of just over 10 million cases. The Nielsen numbers, which track off-trade sales, were even stronger, showing a gain of 15% in volume and 13% in value for a market share of 9.5% by value.

The UK market fell back in the first quarter, with a 3% loss in volume; however, there was a 3% gain in value, with the average price per case rising from $18.52 in the first quarter of 2003 to $19.75 first quarter 2004.

John McLaren, Wine Institute's man in London, cited a number of California brands that are doing well in market. "Corbett Canyon and Delicato have consolidated nicely. Coming up on the outside: Echo Falls from Constellation, Seventh Moon from BRL Hardy/Constellation, Leaping Horse from Ironstone and Ravenswood Vintner's Blend, also Constellation."