Category: Industry Market Report

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Industry Market Report

Market Report Schedules Spring 2022

Schedule 1 – Snapshot of the Okanagan Valley

A PDF version of this report (including the Schedules) is available for download here.

“The collaborative and creative spirit that fuelled Napa’s pioneers is certainly very evident in BC today” – Jancis Robinson

Of the nine distinct wine regions in British Columbia, the Okanagan Valley represents 86% of local wine production and is the most advanced with “premiumization”. At just under 10,000 acres under vine, its production is tiny on the global wine map but the pioneering passion and huge potential of this spectacular area has caught the eye of local and international investors and observers alike.

  • “Canada’s Napa Valley” – There’s a huge latitudinal stretch of almost 200 kilometers from north to south, offering a wide range of diverse terroirs suitable for many grape varieties. Okanagan Valley sub-regions have comparable growing degree days to Burgundy, the Yarra Valley, Yakima and Napa Valley.

  • Cool climate grapes such as riesling, pinot gris, chardonnay and pinot noir shine in the northern and mid-parts of the Okanagan Valley. Hotter conditions and climate change has allowed late ripening varieties such as cabernet sauvignon to be viable and succeed in the southern part of the region near the Washington State border. Syrah and cabernet franc are coming on strong as future BC signature varieties.

  • Located in the Cascade Mountains rainshadow, the South Okanagan Valley and neighbouring Similkameen Valley (a separate region with less than 1000 acres under vine) have the warmest average temperatures in Canada. During their short, hot growing season they receive 2 more hours of sun per day than Napa and little rainfall. Increased activity here with focused investment and conversion of existing fruit orchard lands.

  • There’s been a population influx as more people move to the Okanagan region to embrace wine country life- style and retreat from big city life on the Pacific Coast or colder parts of Canada. Kelowna or Penticton are
    the two main urban hubs, are serviced by airports and about a 1 hour flight from Vancouver. There’s a growing vibrant foodie and culinary adventure scene specializing in premium “farm to table”, local and organic products. “Vineyard inspired” dining experiences and “supporting local” have continued with domestic consumers during the pandemic and are part of broader agri-tourism.

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Schedule 2 – The BC Wine Industry – Rapid Growth & Increased Global Recognition

Three Decades of Growth

Over the past thirty years, BC vineyard plantings have increased almost 10 times. The number of wineries has leapt from about 20 and is now closing in on 300. The market share of local wine has increased exponentially from 3% to almost 20% (by volume). The local wine industry has risen from being a tiny part of British Columbia’s economy to a critically important part having an estimated $2.8 billion annual economic impact, with strategically important growth focused on agri and wine tourism.

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Influx of International Expertise & Global Recognition

BC wineries have engaged international winemaking and viticulture expertise to create a dramatic increase in quality and recognition. The following are just a few of the international luminaries who have been retained by BC wineries.

  • Michel Rolland (Bordeaux)

  • Olivier Humbrecht (Alsace)

  • Alberto Antinoni (Tuscany)

  • Pedro Parra (Chile)

  • Alain Sutre (Bordeaux)

  • Veronique Drouhin (Burgundy/Oregon)

Increased Focus on Agri-Tourism and Wine Travel

In addition to vineyard plantings, resources have been spent creating wine travel destinations and developing tasting rooms and experiences to cater to increased visitor interest. This ties into the broader movement and focus on agri-tourism and culinary adventure. BC wineries receive an estimated 1 million visitors per year.

With increasing global attention and media coverage on the region, expectations are that this will increase when more domestic and international travel resumes.

Sales Activity

There have been numerous recent transactions in the last few years including:

  • Burrowing Owl purchasing Wild Goose

  • Barbara Banke and Julia Jackson (of Jackson Family Wines from California) purchasing Unsworth Vineyards

  • Changing of hands or investments at Stags Hollow, Stoneboat, Joie Farm, Sea Star, Mount Boucherie, Foxtrot and Time Family Wines

  • Multiple vineyard purchases including rapid expansion by Frind, Phantom Creek and O’Rourke

  • Peller buying Gray Monk, Tinhorn Creek and Black Hills

  • Arterra buying Culmina and Laughing Stock

  • Von Mandl Family Estates buying Road 13, Liquidity, Cedar Creek and opening CheckMate and Martin’s Lane

Please contact us for more detailed information.

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Schedule 3 – Examples of Average Grape and Bottle Prices

According to the BC Wine Grape Council, in 2020 the two highest volume red grapes produced in BC were merlot and pinot noir, and the two highest volume white grapes were pinot gris and chardonnay. While prices will vary widely depending upon varietal, vineyard and farming practices, generally, the average prices were in the range
of $2900-3200 CDN for most red vinifera varieties and in the range of $2200-2700 CDN for whites. Note however that these averages are skewed in that they include pricing for the largest producers. Practically speaking, smaller producers are having to source in the $3500-4000 CDN range and even higher (depending on the variety and amount purchased).

The average retail price for BC VQA wine (i.e. wine made entirely from BC grapes) in 2021 was about $21 CDN (based on an average wholesale price of about $16 CDN (WGBC) and retail markup of 30%). However, this number would include a large amount of wine produced by the large wineries who have significant vineyard holdings of their own and/or long term leases (and thus who would be less affected by grape price changes).

In contrast, more detailed market analysis by Paul Rickett (of VARketing!) indicates that the average current price for 100% BC wine produced by independent wineries is somewhat higher: $18.19 CDN wholesale (estimated $23.65 CDN retail with that same 30% markup). More specifically, it breaks down for BC red wine to $21.70 CDN wholesale (estimated $28.21 CDN retail). And for white wine it is $15.68 CDN wholesale (estimated $20.38 CDN retail). Please contact Paul directly for more detail on this.

Local products made with 100% BC wine have relatively high average wholesale prices which have been steadily increasing (and will likely need to increase to meet input cost pressures).

1% Rule

There is a “rule of thumb” in the North American wine industry that in order to recover production costs and generate a reasonable return for the winery, 1 ton of grapes ought to be priced at 100 times the retail price of the wine bottle that those grapes produce. So for example, a purchase of pinot gris grapes at $2300 a ton, should produce wine that retails for about $23 a bottle. If one uses that test on the grape cost averages above, it indicates that most BC reds should retail between $29-32 and whites between $22-27. Those projected prices are higher than the actual averages just noted. Although there may be some economic effect from “vintage lag”, this suggests that some, or perhaps many, BC wineries are not obtaining the pricing for their wines that would put them in line with North American winery average returns.

As discussed above, increased input costs, the application of excise tax and “short crop” issues will likely have a widespread effect on winery profitability in the next year. Indeed, anecdotal evidence from many wineries is confirming that these issues are of great concern within the industry and that price increases will be inevitable. Producers that own their own vineyards will continue to have an advantage in controlling their production costs.

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Categories
Industry Market Report

BC Wine Industry Market Report Spring 2022

Recent Market Activity & 2021 Vintage (Updated: Spring 2022)

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A PDF version of this report (including the Schedules) is available for download here.

British Columbia’s young wine industry has seen tremendous growth over the past thirty years. Government and private investment, a huge influx of international viticulture and winemaking expertise, rapid growth in vineyard plantings and focused development of the agri-tourism sector has supported increased production, quality and consumer recognition.

But like the other Pacific Northwest and global wine regions, British Columbia (BC) producers faced multiple challenges in 2021, which are continuing into 2022. They have suffered through continued effects of the pandemic, economic uncertainty due to world events, supply chain disruptions, increased input costs, labour shortages and numerous extraordinary climate-related events.

This summary report highlights a few key aspects regarding the BC wine industry’s landscape in 2022 as well as its 2021 vintage. We focus on the Okanagan Valley, BC’s largest wine region both geographically and production-wise. See Market Report Schedules Spring 2022 for more information about the Okanagan Valley wine region generally.

Recent Investment Activity in the BC Wine Industry

There’s been a recent “gold rush” of investment in the BC wine industry. We estimate that well over $500 million CDN has been spent here over the past five years by existing large wineries (Von Mandl Family Estates, Peller Estates, Arterra Wines) and new large players (including Frind Estate Winery, Phantom Creek Estates, and O’Rourke Family Estate) who are developing significant projects and acquiring vast acreages.

There’s also a lot of activity in the small boutique producer space. The average BC winery vineyard holding is only 29 acres (despite this figure being skewed dramatically upward by the larger players noted above). A large number of BC wineries are family-owned businesses, have vineyard holdings of 5-10 acres and produce in the 2,000 to 12,000 cases/annum range. These pioneering niche players are bringing new levels of innovation and focused on raising the quality bar.

Market activity is also generated by strategic opportunities driven by consolidation, further “premiumization” and the upward trajectory of land prices (which seems to have no signs of slowing down at the moment). A spectacular place to live and work, BC is generally viewed as a safe place to invest in an increasingly uncertain world. It is a dynamic place to enter the wine business with new entrants motivated by diverse reasons including the establishment of new family businesses or retirement chapters, the repatriation of assets by Canadians coming home, and foreign investment.

BC Winery Business Sales & Current Vineyard Pricing

Despite the pandemic, the BC wine industry has seen continued acquisition, consolidation and investment activity. See Market Report Schedules Spring 2022 for recent sales activity. Pricing for wineries, and particularly for vineyards, continues to be robust.

Recent activity indicates that planted vineyards in prime Okanagan Valley locations are now selling for close to $400,000 CDN/acre or more. Not all locations will command these prices but pricing continues to scale upward with growth of about 2% per month over the past year. This reflects strong demand from existing producers and new entrants who are purchasing large blocks of existing vineyards and/or farmland to convert, as well as small vineyard holdings changing hands as family winery business proprietors and grape growers retire and smaller producers look to secure their own grape supply. We expect to see continued acquisition and investment activity in 2022.

2021 Growing Season & Harvest Conditions

2021 was a challenging year for grape-growing due to wildfires and labour shortages. Adding to the mix was the early summer “heat dome” which contributed to sub-optimal fruit set resulting in lower than average crop yields. However, the weather was good later in the growing season and quality appears high. As with many other global regions, producers are dealing with less, but in many cases, excellent fruit from the 2021 crop. However, the manner and extent to which wildfire smoke has affected the vintage in certain areas is still being assessed. At least one winery has made the difficult and unprecedented decision to not bottle their 2021 vintage due to smoke contamination.

The winter of 2021/2022 also created additional challenges for the industry with an early and prolonged freeze in December that resulted in temperatures low enough in some areas to cause bud damage. It appears that the effects will likely be felt most strongly in the northern part of the Okanagan Valley, where crop yields are expected to be significantly down in the coming vintage. The end-result will likely be two back to back “short crop” years which will continue to fuel the pressure on grape supply.

2021 Input Costs & Grape Prices

The cost of producing wine in BC continued to rise in 2021 and early 2022, fueled by the strong demand for grapes, labour shortages, soaring energy prices, and increased costs for everything in the supply chain, from shipping costs to packaging to glass bottles. We expect that these pressures will continue throughout 2022 due to general inflationary pressures and continued supply chain problems (especially sourcing glass bottles) which have been exacerbated by recent geopolitical events.

Grape prices continue to be robust, benefiting independent growers and rewarding wineries who own their own vineyards. Anecdotal reports indicate that 2021 grape prices were either in line with previous years, or in many cases much higher due to demand. For vintners dealing with smaller lot production, more “esoteric” varieties or grapes farmed organically, their grape costs were considerably higher than the region’s averages. We expect that supply issues will cause grape prices to increase in 2022, due to an increased demand for grapes and the “short crop” issues discussed above.

We also believe that many producers will need to adjust their product pricing to manage the production cost increases and lower production levels. It will not be sustainable to maintain current pricing if a winery wishes to maintain its margins and revenue levels. See Market Report Schedules Spring 2022 for more information about average grape and retail/wholesale bottle pricing.

Regulatory Changes

Some pandemic related regulatory changes have assisted the industry over the past two years, including the ability to easily expand licensed service areas and the ability to deliver DTC shipments from secondary storage warehouses. It is hoped that these changes may become permanent in the future. Nevertheless, the industry will also experience some regulatory headwinds on two fronts. Firstly, BC wine will lose its longstanding federal excise tax exemption on July 1, 2022. A new program designed to provide off-setting support has been announced but details need to be confirmed. Secondly, wineries were required to register groundwater use by March 1, 2022. A significant number have apparently not done so with potentially serious long-term consequences.

Room for Local Consumer Market Growth

The “support local” movement is strong in BC and has picked up even more steam during the pandemic, especially in the world of DTC sales. There’s still more room for local wine to grow its domestic market share as BC wines currently have about a 19% market share by volume and a 30% share by dollar value. (By way of comparison, domestic wine producers in the United States have about 75-80% market share).

Looking forward, we expect to see more focus to be placed on “premiumization” to match BC’s small niche market position, buoyant property market and the economics around winemaking in the current climate. We also expect that these economic pressures may result in further consolidation.

For more information, see the accompanying Market Report Schedules Spring 2022

Contact Us

Mark Hicken

mark@ttgvine.com 604 868 1375

Tania Tomaszewska

tania@ttgvine.com 250 220 1745

 

Categories
Industry Market Report

BC Wine Industry Market Report Fall 2021

Alca Intelligence Inc & TTGV Advisors Industry Market Report: BC Wine Industry Fall 2021

A PDF version of this report is available for download here

\"AGlobally, the wine industry has suffered through one of the most challenging years ever due to the continued effects of the pandemic, consequential supply chain disruptions and numerous extraordinary climate-related events. The BC wine industry has not escaped the turmoil and continues to face challenges on multiple fronts. This report summarizes and highlights some of the issues, particularly those related to harvest and grape prices.

Input Costs & Grape Prices

The cost of producing wine in BC continues to rise, posing challenges for producers. Input costs have risen considerably over the past year fueled by labour shortages, shipping cost increases and strong demand for grapes. As a result, prices have risen for everything from glass bottles to oak barrels. Grape prices continue to be robust, benefiting independent growers and rewarding wineries who own their own vineyards.

Review of prices last year (in 2020-2021)

According to the BC Wine Grape Council, in 2020 the two highest volume red grapes produced in BC were Merlot and Pinot Noir. The two highest volume white grapes were Pinot Gris and Chardonnay. The average short ton price for Merlot in 2020 was just over $2900. The average short ton price for Pinot Gris was just below $2300. While prices will vary widely depending upon varietal, vineyard and farming practices, generally, the average prices for most red vinifera varieties was in the range of $2900-3200. For whites, the average price was in the range of $2200-2700.

Anecdotal evidence 2021

2021 was a challenging year for grape-growing due to wildfires and labour shortages. In addition, the “heat dome” in early summer contributed to below optimal fruit set resulting in lower than average crop yields. Nevertheless, the weather was good and quality appears high. Producers are still assessing the manner and extent to which wildfire smoke in certain areas may have affected the vintage.  Anecdotal reports from the field indicate that this year’s grape prices will either be consistent with last year’s, or in many cases, higher due to demand. Indeed, for vintners dealing with smaller lot production (e.g. “esoteric” grape varieties or grapes farmed organically), their grape costs may be considerably higher than the averages noted above.

Average Bottle Price and Sales

\"AThe average retail price for BC VQA wine in 2021 is about $19.20 according to Wine Growers of British Columbia (based on an average wholesale price of about $16 and retail markup of 20%). However, this number would include a large amount of wine produced by the “big 3” major players who have significant vineyard holdings of their own and/or long term leases (and thus who would be less affected by grape price changes).

In contrast, analysis by Paul Rickett (of VARketing!) indicates that the average current price for 100% BC wine produced by independent wineries is somewhat higher: $18.19 wholesale (estimated $21.28 retail with that same 20% markup). More specifically, it breaks down for BC red wine to $21.70 wholesale (estimated $26.04 retail). And for white wine it is $15.68 wholesale (estimated $18.82 retail). Paul has produced a detailed report on BC wine pricing which could prove invaluable to wineries who wish to delve into these comparisons in greater detail (contact: pdrickett@hotmail.com). 

1% Rule

There is a “rule of thumb” in the North American wine industry that in order to recover production costs and generate a reasonable return for the winery, 1 ton of grapes ought to be priced at 100 times the retail price of the wine bottle that those grapes produce. So for example, a purchase of Pinot Gris grapes at $2300 a ton, should produce wine that retails for about $23 a bottle. If one uses that test on the grape cost averages above, it indicates that most BC reds should retail between $29-32 and whites between $22-27. Those projected prices are higher than the actual averages just noted. Even if one adjusts the retail margins upward to 30-35%, the numbers come closer but are still below the “100 times” metric. This would suggest that some, or perhaps many, BC wineries are not obtaining the pricing for their wines that would put them in line with North American winery average returns.

Indeed, anecdotal evidence from some wineries confirms that production costs have risen to the extent that price adjustments may be necessary. At the very least, this would indicate that there is some considerable advantage for producers to own their own vineyards and control their production costs. We understand that, in many cases during this harvest, producers purchasing stock from growers received far fewer grapes than they were expecting. Presumably this may also contribute to decreased returns and additional cost pressures for some wineries.

Winery and Vineyard Prices

\"ADespite the pandemic, the North American wine industry has seen continued acquisition, consolidation and investment activity. South of the border, there has been some very significant activity including the sale of Ste Michelle Wine Estates and a successful IPO by Duckhorn Wine Co. In BC, the activity has generated less headlines but has continued (e.g. Wild Goose, Stoneboat, Joie, Unsworth). Al Hudec reviewed some of this activity during a recent AIDV Canada webinar (https://www.aidv.ca/aidv-updates/).

Pricing remains strong, particularly for wineries with significant vineyard holdings. Recent activity indicates that planted vineyards in prime areas are fetching about $300,000 per acre. Prices have been consistently edging upward with growth of about 2% per month which is reflective of strong demand from existing producers and relatively new entrants, such as Frind Estate Winery which now has hundreds of acres of BC vineyard holdings, rivaling the established “big 3”.

We expect to see continued acquisition and investment activity throughout the remainder of this year and into 2022.

November 17, 2021

Contact:

Mark Hicken: mark@ttgvine.com 604 868 1375

Tania Tomaszewska: tania@ttgvine.com 250 220 1745