High End California Wines Set To Rebound Strong

It appears the stars are aligning for the market in high end California wines to soar.

Though it is unlikely this surge will equal the staggeringly ridiculous run up in prices for California wines seen between 1998 and 2000, it appears that the economic ground has been laid to see the sales and prices of high end luxury wines increase.

Consider the macroeconomic factors at play. Home values as well as the stock market have continued to rise throughout 2004, with the stock market beginning its real run in the summer. Add to this reports that luxury goods have done very well this holiday season, continuing a trend that started well before the shopping season began. It appears that those who drive sales in luxury goods, the wealthy, are spending.

Fine dining is up. Sales of luxury vehicles are up. The major auction houses have had an outstanding year. Consider the stock prices of the Champagne producers. They have outperformed the CAC-40 index of French stocks by a considerable amount.

And, consider that just today, the Consumer Confidence Index soared after being in declined for 4 months. Add to this the instability that is no longer out there surrounding who will be the president over the next four years.

There are other indications from within the wine industry itself that the future of high-end wine is looking very bullish.

The gulf between supply and demand of grapes has narrowed considerably as the excess wine is being slurped up by low end brands and as grapes have been ripped from Central Valley lands. Fine Dining receipts are up across the country. Recently, Winebid.com, the largest online wine auction house announced it will move to weekly auctions, doubling the number of auctions it holds in 2005. In December we saw a number of wine auctions that sold well over 95% of their lots, many at record prices. And who can forget the bottle of 1847 Chateau d’Yquem that sold in LA earlier this year for over $70,000–a record price paid for a bottle of wine in the Untied States.

Finally, supply for the best wines will be slightly down after three consecutive vintages in California of lower yields.

The combination of a healthier economy (at least at the top of the economic ladder), a more stable political environment, the perception that the economy is moving, fewer supplies of bulk wine on the market and the rich spending at a fine pace and you have the development of a boom in the highend California wine market.

Based on this, I can predict the following:

-More difficulty finding the high end wines that seemed to have sat on shelves the past 3 years.

-Slightly increasing prices for wines in the $40+ range

-Increased interest in well-cellared, older California wines

-Pressure on the “2-buck chuck” type wines as the surplus of grapes disappears from the Central Valley and elsewhere.

-Continued acquisition of well-known premium wine brands producing 50,000 cases or more.

-Increase in advertising pages in wine publications

It is always possible the unseen events can derail a trend. However, given the circumstances currently in place, it appears that high-end California wines are back in the saddle.

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