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