July 2018 Issue of Wines & Vines

Budgeting for Barrels

Due to demand and limited supply, new French oak barrels might double in price in five years, French miller says

by Stacy Briscoe

It's hard to say how the wine barrel market is tracking because this year there's a lot of wineries with leftover barrels from last year," said Chris Hansen, sales manager for Seguin Moreau Napa Cooperage. According to his clients, due to the low yields harvested in 2016, some larger wineries have as many as a hundred unused barrels.This was a common comment from coopers during interviews.

Yet, data still suggests that the U.S. remains the largest purchaser of wine barrels overall. "Larger than France but a little less than Europe as a single market," said Elizabeth Van Emst, general manager of Cooperages 1912 Napa. "Why? California wineries dominate the super-premium and up categories in the U.S., and much of this is barrel-aged."

French oak prices continue to rise
French oak continues to be in the highest demand among premium wine producers. And as that demand continues to increase, so do the barrel prices. According to Van Emst, whose company sources from various French forest regions, the French National Forest Office (NFO) owns about 85% of the French oak supply. Because of the controlled supply, many French coopers have increased prices an average of 2% to 3% annually over the past four years. This, in conjunction with the rising demand for French oak, means higher prices for barrels.

When talking about the French oak market, one also has to take into consideration the fluctuation of the euro exchange rate - $1.23 as of Van Emst's interview with Wines & Vines versus $1.07 a year ago. "That 15% swing affects not only the cost of importing barrels, but also the cost of French oak staves for the domestic producers making French oak barrels domestically," Van Emst said.

Josh Trowbridge, vice president and general manager of Tonnellerie Ô and Creative Oak in Benicia, Calif., reported that one of his French millers estimates that because of this trifecta - the growing world-wine market, the consistent rise in demand for premium French oak, and the poor euro exchange rate - the average price of French oak barrels will double within the next five years.

Phil Burton, owner of Barrel Builders in St. Helena, Calif., said due to the inconsistency in the euro exchange and rising costs of raw materials, he, too, has adjusted the prices of his French oak barrels. "Our top-end Esprit French oak 48-month air-dried barrel cost 1,020 euros ($1,132) in 2016. This year the price is 1,065 euros ($1,243)," he said in an email to Wines & Vines. "The exchange rate makes a big difference."
Still, "French oak will always be the 'cat's meow' in Napa," said Burton, who's noticed that most clients making premium wine feel the pressure to invest in the more expensive, tighter-grained barrels. In his opinion, this isn't completely necessary.

Burton said medium-grain barrels are a viable option, especially for those aging red wines for 20 or more months. "It's more economical, and they'll see similar results as those aged in tight-grain barrels," he said, stating that his current medium-grain barrel prices average 820 euros ($957). "It's time to rethink that tighter is better."

American oak market stabilized
In our February 2015 issue, Wines & Vines reported on increasing prices for American oak barrels, driven by surging consumer demand for Bourbon and other oak-aged spirits.

In response, barrel producers such as TFF Group, which owns Tonnellerie Francois Freres, Tonnellerie Radoux and other major cooperages and barrel brands, expanded cooperage production to serve the Bourbon market. According to the company's annual report, TFF has surpassed its business goals to serve the bourbon-specific market. "Bourbon has proven to be the major growth driver that I had announced," said CEO Jerome Francois in the report. "The year 2017/2018 is looking promising with a full order book that should allow us to double our activity."

With major coopers like TFF responding to the spirit industry, along with other, spirit-focused coopers entering the market, the added pressure on American oak wine barrel suppliers has eased. "Most spirits guys are now trying to get barrels from those guys and aren't coming after us," said Seguin Moreau's Hansen. "We do have a few craft distilleries on the West Coast that do some purchasing from us because we're local and they want a top-notch barrel, but there's not as much demand as years past."
While the competition for American oak has decreased, the price does continue to increase, though minimally. Hansen reports that the cost for raw materials has risen slowly over the past five years and that Seguin Moreau has responded with a minor increase to its American oak barrels, priced at $520 this year. Burton cited an increase in Barrel Builders' American oak barrel prices, from $510 per barrel in 2016 to about $560 per barrel in 2018.

Burton calls American oak "a relative bargain" compared to French, but aded that because of the barrels' strong characteristics and "aggressive" effects on the aging wine, the market for American oak still remains specific to certain wine producers - such as those working with hearty Zinfandel or looking to craft an "oaky" Chardonnay. So it is that American oak maintains an "alternative oak" reputation.

Tonnellerie Ô's Trowbridge reports that his company is working toward creating a higher-end American oak market. "We currently create single-mill barrels by isolating the wood source, sorting the wood for the finest grain, and seasoning it for 36, 48 or 60 months." The next phase, what he calls the "American barrel revolution," will be to approach large, private American landowners and ask to manage their forest property. "We'll put their family name on the barrels, much like they do in France. It'll be our 'crème de la crème.' "

Less demand for Eastern European oak
When it comes to alternative oak sources, it seems that Eastern European oak is a bit of old news. "I would venture to say that Eastern European oak has flattened out at a certain market share. Most people have tried it and found a place for it in their program or moved on," said Cooperages 1912's Van Ermst, who also reported that the price gap between French oak and Eastern European oak has lessened in the last few years. Thus, those wineries that may have once looked to Eastern European oak as an economic alternative to French oak barrels no longer see the advantage and are paying the few extra dollars for the traditional French oak.

Seguin Moreau's Hansen stated that his company sells only a few hundred barrels a year of Russian oak, with an average price of $800 per barrel. When asked about Hungarian oak, he said that while the company does sell a European oak blend, it is no longer buying oak from Hungary. "Trials with Hungarian oak in the late 2000s had mixed reviews, so most people are opting for French oak."

Burton said Barrel Builders continues to seek out alternative European oak sources. "Oak from the south of Ukraine is the same species as the Hungarian oak, and it's considerably cheaper than French oak," he said, adding that these barrels can sell anywhere between €650 and €750 euros ($793-$915). He said the company is also working with wood staves from Armenia, "arguably the oldest wine region in the world," but these are still in the "experimental stages."

Alternative oak solutions and other trends
Tonnellerie Ô is part of the Cork Supply group, which also includes the barrel alternatives supplier Creative Oak. Trowbridge said the use of alternatives - including staves, chips and powders - has increased across the wine industry. "It's crept up from wines with an average price of $10 to wines priced around $30," he said.
While he noted that wines aged with alternative oak treatments priced between $10 and $30 are "seeing the most success" in the consumer market, Trowbridge also mentioned, without naming names, that he has one client who sells wine with a $50 price tag and 90-point score.The high-scoring, premium red wine was aged using only staves.

He doesn't want to name names because it seems that, high scores aside, it's still a bit of an industry faux pas to admit using the products. "It'll be interesting to see if that changes," he said, mentioning that Tonnellerie Ô makes forest-specific oak alternatives that can home in on specific flavors and textures and create good-quality wine - for significantly less money.

Looking toward the future, Trowbridge said that Tonnellerie Ô plans to start a "question everything" research-and-development program. The new program will bring on young coopers as well as winemakers who want to be part of the committee and steer those questions being asked. "We feel strongly that we're making good barrels that customers love based on tradition and intuition," he said, "but we want to look at those traditions and challenge them and either prove or disprove them, and evolve accordingly."

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