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Would you stop drinking wine for health? 0:31
(CNN) - Let's raise our glasses and toast for cheaper wine.
The price of wine is expected to fall to its lowest levels in five years thanks, in part, to the surplus of California grapes.
Combined with a lower demand for wine, drinkers can expect to get a better value for every drop they drink this year. The price reduction can even last up to three years.
Rob McMillan, founder of the Silicon Valley Bank wine division and author of the annual report on the state of the wine industry, predicts that US wine consumers will enjoy the “best retail prices for wine in 20 years".
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There are too many grapes
Vineyards in northern California began planting thousands of acres of new vines in 2016, and with more efficient harvesting methods, which has resulted in more abundant grape crops.
Having more grapes to make wine sounds good, but if there is not enough demand to withstand higher production, excess grapes are wasted.
Jeff Bitter, president of Allied Grape Growers, told CNN that surplus grapes may reach the secondary market, where they are used for brandy or as a grape concentrate. But that market does not usually provide sustainable returns for producers.
"The main cause of the excess supply today is the culmination of some years of slowdown in the growth of wine delivery, with a large wine grape harvest of 2018 as an exclamation point," said Bitter. “Until 2015, wine shipments had grown, almost predictively, for two decades. The slowdown in growth has taken the industry by surprise, ”he said.
Since it takes up to five years to bring the wine to the market from the initial planning stages of planting a vineyard, it makes hitting future demand very complicated. In this case, we exceed the demand, ”he added.
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For the market to be back in balance, California producers must reduce the production of acreage of vines.
With the flattening of wine demand by consumers, unless the vineyard acres are removed, the balance will be difficult to find, ”McMillan told CNN. “The balance will be found first in Napa, followed by other premium regions in California. The price of the grape will take at least 2-3 years to stabilize. ”
Unprecedented value in 2020
Wine consumption has fallen for the first time in 25 years, and more and more Americans are turning to ready-to-drink spirits and cocktails, according to the IWSR industrial group.
"The industry should be rightly concerned," said McMillan. "We are not committed to the millennial consumer, and the boomers that have boosted wine sales over the past 30 years will not live forever."
McMillan believes that the largest 'millennial' population has not yet accepted wine, which is the biggest growth opportunity for this sector. But he believes that a better value in wine could lead millennials to become "more consistent wine buyers."
"Today, the wine supply chain is full," McMillan wrote in his report. “This excess supply, together with the erosion of consumer demand, can only lead to a discount on finished wine, bulk wine and grapes. US wine consumers they will discover unprecedented retail value in 2020 and should buy. ”
CNN's Jordan Valinsky contributed to this report.
Wine