Wine prices inch back up

After years of enjoying discounts on fine wines, consumers are finding prices have begun to inch back up.

They can partly blame themselves. Feeling slightly more confident about the economy, wine drinkers who traded down from mid-priced varietals during the recession are increasingly willing to pay $20 or more per bottle, according to a new report by Moody's Analytics.

North Coast wineries, in turn, are slowly raising prices. Wine prices increased in July for the first time in 31 months, climbing 0.3 percent compared to a year ago, Moody's reported.

The uptick in prices signals a welcome change for Sonoma County, which relies heavily on wine for its economic vitality, economists said.

"Wine is our calling card," said Ben Stone, executive director of the Sonoma County Economic Development Board. "It's what makes our tourism thrive, and it adds to the aura of the area for recruiting employees and companies ... so it's great that things are looking better."

Mother Nature is also partly to blame for prices in the wine aisle. After two short harvests in Northern California's Wine Country, there are fewer bottles of wine to go around. Growers, in turn, have been raising prices for their grapes. In Sonoma County, grape prices rose 4 percent last year, according to Moody's, adding to the pricing pressure.

"There's no question that discounts have been reduced, as the wine supply has really tightened overall," said Jon Fredrikson, president of Gomberg, Fredrikson & Associates, a wine industry consulting firm based in Woodside.

Wine sales grew 5 percent by volume in the U.S. in 2011, while revenues from those sales grew 6 to 7 percent, Fredrikson said.

A sampling of Sonoma County wineries with case production ranging from 100,000 to 2 million per year showed 2 percent growth in revenue in the past year, but only 0.3 percent growth in case shipments, according to Nielsen data. That indicates price increases are helping to drive revenue growth, said Mike Collicho, client business partner with Nielsen.

"For the domestic table wine category, all price segments above $9 are growing with the strongest growth seen in $20 and above," Collicho said in an email.

Sales of wines priced over $50 grew 11 percent in revenue and volume, he said.

Many wineries were forced to cut prices during the economic downturn. Wine prices dropped about 1 percent annually over the last two years as consumers pulled back, according to data from Moody's.

"During the recession and the recovery, Sonoma County got hurt," said Eduardo Martinez, senior economist for Moody's Analytics. "There was a flight to value. People weren't going to buy the same amount of wine for the same price."

That left wineries, especially those that charge more than $10 a bottle, with excess inventory. And some boutique wineries took to discounting their wines to move products off the shelves.

But that inventory of unsold wine has largely cleared out over the last six months.

At Oliver's Market, which stocks a broad selection of wines from Sonoma County, wine buyer Richard Williams has noticed prices inching up.

"I think the main driving force is having two very tough vintages," Williams said. "They were wonderful years, but they were short crops. And that really meant they had to raise their prices to compensate."