Moscato madness grips U.S. wine industry

Runaway success of sweet wine tickles taste buds and bottom lines

By Matt Andrejczak August 19, 2011
They call it "moscato madness" around the headquarters of E. & J. Gallo Winery. And for good reason.

Gallo is selling at least six times the amount of sweet-tasting Moscato wine than just three years ago. Moscato, a take on its Muscat origins, is the fastest-growing varietal in the U.S. wine business, making it a sales boom for Sutter Home, Beringer and Robert Mondavi's (NYSE:STZ) Woodbridge label.

Moscato's phenomenal rise in America has been stunning. It's revived prices for the once-lowly grape, strained available vine supply in central California vineyards, and lured a new generation of wine drinkers.

Big wine companies are scrambling to make as much as possible, with some buying bulk Moscato wine from Spain and Italy to quench demand.

Hip-hop culture lent Moscato some street cred several years ago when sales of the wine were weak. Lil' Kim once sang "Still over in Brazil/Sipping Moscato," while more recently, Compton artist Kendrick Lamar rapped "We need a bottle of Moscatooo/Puts me in the moment for your lovin."

"I've never seen something like this in my professional career," said Stephanie Gallo, who joined the family business in 1994. "What makes this so exciting is that it's bringing new users to the wine category."

Gallo said her research shows 30% of Moscato drinkers are the up-and-coming Millennial Generation, an age group the wine industry is starting to put on its radar screen. Overall, 50% of Moscato drinkers are under 45 years of age, Gallo said.

Cheap, sweet and on fire

Most top-selling Moscato's sell for under $6.50 a bottle and are quite popular in stores around Los Angeles, Atlanta and Chicago, according to SymphonyIRI Group, which tracks point-of-sales data.

In 2010, total Moscato sales at U.S. food retailers were $105.5 million on 1.6 million cases sold. That's a huge jump from 2008, when sales were $32 million on 492,105 cases sold, SymphonyIRI data shows.

Gallo, which sells White Moscato under its Barefoot and Gallo Family Vineyards labels, controls 43% of the market, followed by Sutter Home at 27%, according to SymphonyIRI.

It's been a boon for Barefoot. Its Moscato sales jumped to $31 million last year from $3.3 million in 2008. Over the same period, Sutter Home's have more than doubled to $37 million and Woodbridge's have leaped 10-fold to $2 million. Other brands priced between $11 and $20 have seen brisk sales too, such as Beviamo and Saracco, both Italian producers.

Demand is hot for Moscato so far this year. Sales are tracking at 90% above 2010 levels, Symphony IRI said.

"Moscato is on fire," said Francesca Schuler, chief marketing officer for Treasury Wine Estates (ASX:AU:TWE), home to Beringer and 53 other wine brands sold worldwide. "We're making as much as we can."

Treasury's latest twist is a Beringer "red moscato" that adds zinfandel and petite syrah for some red and black cherry flavor. Gallo is considering selling a slightly more expensive Moscato under its Mirasui and Echo Domina labels. Those would sell for $9 to $10.

Woodbridge Marketing Director Stephanie Jackel said they intend to take production up to 250,000 cases this year, up from 175,000 a year ago.

Cameron Hughes, whose wine is found at places like Costco (NASDAQ:COST) and Safeway (NYSE:SWY), hadn't planned to sell a Moscato until he heard it could be a hit.

"To be honest, Moscato was never really on my list of wines to seek out. Last year, however, one of our big buyers told us they sold boatloads of Moscato and asked if I couldn't find an 'ultra-premium' Moscato for them," Hughes wrote in a recent email to his customers promoting his Lot 228 2010 Sori Moscato d'Asti. It's from Piedmont, Italy.

Behind the craze

Several reasons explain the Moscato craze, according to industry insiders.

The super-fruity grape, often perceived as a dessert or aperitif wine, is taking the place of white zinfandel as the gateway into wine for first-time drinkers. There's also a trend toward sweet dessert wines. It's being uncorked by hip-hop artists, and it's finding its way onto restaurant menus.

Muscat, along with Riesling and Gewurztraminer, pairs nicely with spicy Asian foods, said Karen MacNeil, author of the popular "Wine Bible" book.

She likens the smell of Muscat wine to a "big fruit salad." It can burst with flavors of peach, honey and citrus. Yet not all Muscats should be mistaken for big tropical fruit bombs. Some can taste far more dry and elegant.

Heidi Peterson Barrett makes one called Muscato Azul under her La Sirena label. She ships them to steak houses in Texas (who don't want just another Chardonnay on their wine list), oyster bars and Vietnamese restaurants. She says people are usually shocked when they first taste it.

"I call it a fake-you-out wine," said Barrett, an acclaimed Napa wine maker. "It's not what you expect. You think it will be sweet. It's fruit and crisp, silky in the mouth. It's just easy and delicious."

Muscat, according to MacNeil, is one of the oldest grape families known to mankind. It goes back 2,000 years to ancient Greek and Roman times.

It sprouted like a weed. There are approximately 30 genetic mutations of Muscat. France is known for its Muscat d'Alsace and Muscat Ottenel, while Italy is famous for its Moscato d'Asti that is lower in alcohol than most other white wines.

The grape was probably brought to America by Italian immigrants in the late 1800s, MacNeil speculates.

Gallo used to make a Muscatel during the 1960s but discontinued it. The wine got a brief mention in the Pulitzer Prize-winning "A Confederacy of Dunces," a satirical novel published in 1980 and set in New Orleans.

Out of the basement

Nat DiBuduo, president of the Allied Grape Growers in Fresno, Calif., said his family decades ago used to ship Muscat grapes to the East Coast and Canada to basement wine makers. His family still sells the grape.

In California, the majority of Muscat grapes planted and crushed are called Muscat of Alexandria. There's also a small amount of Muscat Blanc and Muscat Orange. Last year, federal records show 71,462 tons of Muscat Alexandria were crushed. That's up 25% from 2008 and 150% since 2004.

Amid soaring Muscat sales, "The challenge over the last two years has been securing enough supply to meet that demand," Stephanie Gallo said.

DiBuduo is at ground zero for the Muscat rage. In the early 2000s, he said, Muscat grape prices fell on hard times, dropping to as low as $150 a ton on the spot market. Last year, some buyers paid up to $400 a ton.

California's Central Valley is seeing a big uptick in vineyards planting Muscat, with Gallo, Delicato and Constellation inking long-term contracts with growers, DiBuduo said.

New acres planted to Muscat for all of 2010 and 2011 could rise between 2,000 to 3,000, he calculates based on his conversations with farmers as of Aug.1

But this won't alleviate current supply tightness. Those grapes won't be ready to be crushed until 2013 or 2014. (It takes three years before vines produce bottle-worthy grapes.)

It's costing $10,000 to $12,000 per acre to plant the new Muscat vineyards, said DiBuduo, who believes the grapes will be sold for around $200 to $250 under the new contracts.

These vineyards are expected to squeeze more grapes per acre than older Muscat planted in the region. He put the figure at 15 to 20 tons per acre, compared to the 10 to 12 tons per acres for older sites.

By spending the dollars to secure future supply, California's bigger wine producers are betting Moscato is more than a fad.

"The wineries acknowledge that it's a new market, but they think its sustainable," DiBuduo said. "Otherwise they wouldn't be spending all this money.