When the going gets tough the industry circles the wagons and shoots inward
Anyone in the wine industry knows that the industry is suffering from a serious decline in sales, which started in 2018, albeit with a brief respite during the pandemic. But over the last two years the decline has become increasingly serious. To quickly recap, all alcoholic beverages are witnessing a decline in sales due to a decline in consumption among younger generations, an aggressive neo-prohibition movement pushing negatively distorted health news, industry consolidation, and a crowded beverages market heavy with competition.
There have been attempts to find good news amid the flood of bad. The “good news” is that consumers are buying less but, when they do buy, are buying more expensive wines. Even though sales quantities and dollars are down across the board, what sales there are happen to be of the more pricey bottles. This glimmer of hope is mostly negated by the recent wave of inflation and costs pushing prices up regardless of consumer purchasing trends. Especially in California, where recently enacted minimum wage laws are in effect, costs are increasing dramatically – a hard burden to bear in a bear wine market. Higher prices don’t always translate into higher margins or profits. Jeff Bitter of Allied Grape Growers said it succinctly:
“The amount of overhead created by the costs involved with increasing inputs and labor over the years” is substantial, Bitter said. “We have not seen commensurate price increases in commodity prices or grape value,” he said, adding that “for most areas of the state, average winegrape prices are no better than they were 20 years ago.”
That latter point about winegrape prices not going up is somewhat misleading; both wine-growing and winemaking costs have increased. Prices on wines have gone up, but not prices for wine grapes; winegrowers more often than not are asked to sacrifice their profitability for the rest of the production and sales channels.
Initially, the industry just tried to ignore the bad news. Unfortunately, a permanent change in the market is slowly eroding that denial. Younger generations are drinking less. Inordinate health concerns and market competition from non-alcoholic adult beverages are suppressing wine sales. Consumer buying patterns are changing due to the influence of ecommerce retail giants. The antiquated regulatory mess regarding alcoholic beverage sales between states continues to frustrate both consumers and wineries. The drunken spree of mergers and acquisitions among big wine producers, multi-state wholesale distributors, and big box chain retail stores has constricted or closed traditional routes to market for most small and mid-size wineries, creating a homogeneity of mass-market brands across the U.S.
The wine industry is slowly moving past the denial phase, skipping anger, and just getting on to bargaining, depression, and acceptance. It has resigned itself to bankruptcies and a much smaller market. When the going gets tough, the wine industry is responding by:
- Reducing vineyard acreage.
- Preying harder upon those producing the grapes and wines.
- Marketing more heavily to existing consumers.
- Denigrating innovative wine products and brands that consumers enjoy.
- Diversifying into other products and non-alcoholic adult beverages.
Reducing vineyard acreage may seem like a logical solution to address the oversupply of wine, but it is unlikely to be an effective long-term strategy. This approach fails to address the underlying issues that are driving the decline in demand, and it could have unintended consequences that further exacerbate the problem. Furthermore, it inflicts the pain mostly on those with the worst financial stability, increasing the proportion of vineyard ownership to the biggest wineries and conglomerates even more.
One of the primary drawbacks of reducing vineyard acreage is that it does not address the changing consumer preferences and behaviors that are contributing to the slump in demand. As consumer tastes and preferences evolve, the wine industry needs to adapt and find new ways to appeal to these changing demographics and preferences. Reducing vineyard acreage will simply lead to a smaller overall market, without addressing the fundamental shifts in consumer demand.
The industry though, sees this as inevitable:
Bitter also said that the industry will see a decline in acreage due to the various economic factors contributing to the decline in alcohol consumption, citing an eight percent decline in shipments each year. He recommends reducing California wine acreage to less than 540,000 bearing acres by 2026, which could happen naturally as growers go out of business.
Instead of swinging into action to create demand, the wine industry is quite willing to let fellow vineyards and wineries just go Chapter 13. This is all the more galling when one takes into account that the big U.S. wine producers are importing big quantities of cheap, foreign, bulk wine to blend into their inexpensive big-box, chain brands instead of supporting U.S. grape growers. The Lodi Winegrape Commission recently published several posts outing the big wine producers as complicit in creating the surplus of bulk wine currently bedeviling the California wine market. The amount of foreign bulk wine imported by US wineries in 2023 roughly equaled the amount of tonnage not harvested in Californian vineyards due to “lack of demand.” Our federal government, which subsidizes U.S. food crops such as corn and soybeans to bolster production and stabilize pricing, is unfairly subsidizing big wine producers over independent winegrowers through duties drawbacks on imported bulk wine.
The distressed U.S. grape and bulk wine market creates the situation where the big and strong are merrily taking advantage of vineyards and wineries stuck with the industry’s “excess stock.” Currently in mid-harvest here on the west coast, grape prices are plummeting due to the market’s lack of demand, with many wineries waiting out vineyards as harvest becomes inescapable to squeeze the lowest possible price out of them. The fact that most independent vineyards are now feeling pressure to sell their grapes well below their farming costs doesn’t matter. One of the largest big wine companies is letting some of their own vineyards go fallow, all the while importing more cheap foreign bulk wine and pressuring independent winegrowers for lower prices.
This pricing squeeze continues despite the fact that the industry, from vineyard worker to sommelier, knows the above reality, “We have not seen commensurate price increases in commodity prices or grape value … .” Farming costs have been increasing for decades, accelerating even more recently as minimum wage laws have raised the cost of labor, wildfires have raised insurance premiums through the roof, property taxes have soared, and climate change is forcing costly mitigation efforts.
Some analysts, environmental activists, and even wine aficionados view the reduction in vineyard acreage as a positive development. They suggest letting the land return to nature or using it to grow food crops. However, this outcome is highly unlikely. Due to the high cost of the land, it is not feasible to cultivate other food crops with significantly lower returns on investment. Instead, the land is more likely to be sold for housing development. As vineyard acreage declines, McMansions likely will sprout in their place.
This exploitation of distressed vineyards and producers permeates through the three-tier sales chain. Bulk wine producers face intense pressure from négociants and brand producers to sell well below cost just to move inventory. Wholesale distributors are providing less support to their suppliers to create higher margins, and they are no longer willing to share price discounts demanded by outlet buyers. Meanwhile, retail and restaurant buyers are pushing for even deeper discounts to boost their profit margins, knowing that if one brand doesn’t concede, many others will. Brand loyalty has become a quaint, bygone concept.
But rather than nurture a fair and profitable industry for all participants, the industry – for the most part – has decided it is every company for themselves. Educating wine consumers about the true cost of making and selling wine while supporting fair working wages and environmental sustainability efforts isn’t on the agenda of how to turn the industry’s sales decline around.
As previously written, the US wine industry is really two industries: big wine producers, and premium mid-size and small wineries. They have two different missions: big wine producers provide mass market brands consistent in quality and broad availability for affordable prices. Premium wineries are focused on producing high-quality wines reflecting the producer’s philosophy, grape sources, and vintage. Big wine producers often make premium, flagship wines, but most premium wineries’ cost structures prevent them from making competitively priced, mass-market brands.
Because of this dichotomy, the wine industry does not have a uniting industry promotional organization. California’s Wine Institute and WineAmerica, the National Association of American Wineries, are both lobbying groups that focus on national policy and regulation. The Wine Market Council is a research organization for members. Free the Grapes is a lobbying organization focused on direct market access. There is no National Cattlemen’s Beef Association creating a “Beef: It’s What’s for Dinner” marketing campaign or California Milk Processor Board launching a “Got Milk?” advertising campaign for the wine industry.
No uniting directive combined with onerous regulations regarding marketing wine make it difficult to create effective national promotional campaigns. Premium wineries don’t have the capital to fund industry-wide marketing initiatives, and big wine producers are content to spend their marketing dollars on themselves. Past industry initiatives suffered from marketing wine with elitist messaging to existing wine drinkers.
The industry continues to market to existing consumers, no matter how much buzz is happening in the industry media about developing new, more diverse, and younger consumers. There seems to be no ideas on how to create such a broad, simple promotion on wine and get the industry rallied around it. The current campaign of Come Over October is commendably designed to counter the neo-prohibition evangelism surrounding Dry January and Sober October (and yes, the industry should get on board). It does seem to be gaining traction in the industry. But its message implies that one is already a wine drinker and to not forsake its pleasures, just enjoy it more moderately. The Wine Market Council’s grammatically awkward social media campaign, “Wine Is …”, primarily targets existing, casual, wine consumers by suggesting new occasions to drink wine. The Napa Valley Vintners Association ran a “Why Wine?” social media campaign that seemed only to present their members’ raison d’être, so is hard to discern its appeal to potentially new or young consumers.
These industry efforts again stress premium wines’ notability, when new consumers more often encounter mass-market brands and wine-based beverages first. Very few wine drinkers start by drinking fine, premium, expensive wines. Most new consumers first experience a wine served cold, often sweet, and often with bubbles. While some do move on to more premium wines over time, the majority of consumers are content with a simple shopping list of mass-market brands and wines they know they like.
The wine industry – wine reviewers, sommeliers, merchant clerks, etc. – often discourages, or outright dismisses these off-dry/sweet, bubbly, cold wines and their fans. The number one selling wine last year was Stella Rosa’s Pineapple & Chili Semi-Sweet Low Alcohol Wine but you will not find a mention of it in the serious wine publications. Even the industry’s most fervent consumers are harsh towards traditional wine brands that casual and new consumers enjoy. There is no end of vitriol today towards the likes of Caymus Cabernet Sauvignon, Rombauer Chardonnay, and Meiomi Pinot Noir in consumer wine forums and off-record among industry professionals. Some sommeliers and wine merchants push ABC – Anything But Chardonnay/Cabernet – even though these are the two most popular varietals in the U.S.
Sadly, this follows a long tradition of bashing whatever casual wine drinkers enjoy: wine coolers, White Zinfandel, oak-aged Chardonnay, Moscato, off-dry red blends, and spirit-barrel-aged wines have all received the backlash of the wine industry’s disdain. Furthermore, an evangelical faction in the industry goes further and disparages traditionally made wines made with conventionally farmed grapes and/or modern winemaking techniques. The most vociferous promoters of “natural” wines along with organic, biodynamic, regenerative, et al farming philosophies wrongfully claim that most modern wines are “unnatural” and therefore bad for one’s health. The internecine sniping in the wine industry doesn’t provide consumers with confidence. It adds to their confusion and wine’s reputation that it is too complex, elitist, and difficult to simply enjoy.
While companies like Stella Rosa and BeatBox work to meet consumer demand for innovative wine products and create new ones, many of the biggest wine companies are deciding that diversifying out of the industry is the better route. Others are focusing on pre-made cocktails and ready-to-drink (RTD) beverages. However, wine is too expensive and inflexible to be a base alcohol for most pre-made cocktails and RTDs. Malt liquor and neutral grain spirits are much cheaper and easier to manipulate. Wine will never be a significant player in this drinks sector.
Alternately, many are reacting to the health-scare mongering by developing low and non-alcoholic beverages. While a laudable effort, currently very low and no-alcohol wines are not very “wine like.” They lack body, often lack aromatics, or are one-dimensional. This is both due to the removal of alcohol, a major flavor component in wine, and the use of low-quality grapes. The brands touting low/no alcohol are heavily manipulated in their production to remove and compensate for the lack of alcohol.
There are excellent low-alcohol wines; naturally low alcohol wines such as Vinho Verde and Prosecco have decades of tradition and experience in their production that provide higher quality made in a much more natural way.
In the end, though, the wine industry should be promoting not only its traditional low-alcohol wines but moderation as key to enjoying wine. The main message should be a glass of wine with dinner adds enjoyment to both palate and conviviality. It should be working to promote the true cost of good wine made by an industry that strives to provide fair wages for workers and sustainably farm its vineyards. It should be welcoming of new wine products, new packaging alternatives, and new occasions to enjoy wine. It should applaud what consumers enjoy while promoting the marvelous diversity of wine. The industry should be joining together with cider, beer, and spirits to grow the consumer base by sharing consumers, teaching them that different occasions are enhanced by different beverages.
Otherwise, the winner in this industry downturn may be the housing developers.