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California wine: the 2020 outlook

February 24, 2020

Too much wine is chasing too few US consumers, resulting in some California wine grapes left on the vine in 2019. A record California wine grape harvest of 4.5 million tons in 2018 was followed by a 4.1 million ton harvest in 2019, reducing prices paid to growers.

Some Napa Cabernet sold for $1,500 a ton in 2019, down from $5,000 a ton in 2018.

US wine consumption fell for the first time in 2019, provoking a debate about why especially young people are not drinking more wine. Reasons include substitutes for wine such as craft beer, hard seltzer, spirits, and cannabis. Price is also a factor: a serving of wine is often more expensive than a serving of beer or spirits. Baby boomers in their 60s and 70s are the major buyers of premium wines, and many are buying less wine, putting downward pressure on prices.

California wine grape growers may experience another period similar to 2001-02, when the wholesale price of wine dropped to $1 a gallon, equivalent to $0.20 a bottle. The 2001-02 wine oversupply was due to overplanting in the 1990s; 20 percent of wine grape acreage in 2001 was non-bearing. One response was super value wines such as Bronco’s Charles Shaw (Two Buck Chuck), launched in January 2002 at Trader Joe’s for $1.99 a bottle to attract young people to wine.

The wine oversupply of 2020 reflects falling consumption; less than four percent of wine grape acreage is non-bearing. Instead of creating new wines for new consumer groups, wineries may have to reduce prices to stimulate demand among established wine drinkers. The San Joaquin Valley and the Central Coast region from Salinas to Paso Robles may have the largest oversupply problems.

In 2019, almost 70 percent of US wine sold for less than $9 a bottle, and less-than-$9 wine accounted for 45 percent of wine revenue in 2019. Gallo is the largest US winery, and in 2019 Gallo announced plans to buy 30 Constellation wine brands that sell for under $11 a bottle, including Clos du Bois and Ravenswood. Gallo plans to market these wines to millennials, people born in the 1980s and early 1990s.

About 40 percent of US wine is consumed by persons aged 55 to 73, followed by 35 percent consumed by those 39 to 54. About 19 percent is consumed by those 21-38, and six percent by those 74 and older.

Younger people who drink less alcohol, and who prefer alternatives to wine when they drink, is a problem compounded by the rise of e-commerce and a profusion of brands. Wine is normally sold in supermarkets or wine shops, or consumed at restaurants, which means that relatively few grocery deliveries include wine. More meals are being delivered by Uber Eats or Grub Hub, and meal deliveries rarely include alcohol.

Wine priced between $9 and $20 a bottle accounted for 28 percent of wine volume and 45 percent of wine revenue in 2019, while luxury wine costing more than $20 a bottle accounted for two percent of wine volume and 10 percent of wine revenue. Many luxury wines are made by small wineries that produce less than 10,000 cases and aim to sell a quarter of their wine to those who visit tasting rooms and another quarter via wine clubs.

Nielsen data suggest that 15 percent of drinkers drink only wine, 19 percent drink beer and wine, 27 percent drink beer, wine and spirits, and 7 percent drink wine and spirits. The wine-only drinkers account for four percent of alcohol revenue, while those who drink beer, wine and spirits account for 55 percent of alcohol revenue. Nielsen estimates the cost to a restaurant or bar of a 12-ounce serving of beer is $1, the cost of 1.45 ounces of spirits $0.90, and the cost of five ounces of wine $1.50.

Imported wine accounts for 30 percent of US wine sales. Some 11.8 million cases of wine were imported from Australia and sold for an average $5 a bottle in the US in 2019, followed by 10.5 million cases imported from Italy that sold for an average $9.55 a bottle, 3.9 million cases from Chile that sold for an average $5.50, 3.6 million cases each from Argentina ($7.60) and New Zealand ($11.50), 2.9 million cases from France that sold for an average $13 a bottle, and two million cases from Spain that sold for an average $6.50 a bottle.

McMillan, Rob. 2020. State of the Wine Industry. Silicon Valley Bank.

California had a record wine grape crush of almost 4.5 million tons in 2018

The median price for a ton of wine grapes rose fastest in Napa county to almost $6,000 a ton in 2016

US wine consumption doubled from 400 million gallons in 1992 to over 800 million gallons since 2016

Chardonnay and Cabernet sauvignon account for a third of US wine sales; Proseco sales are growing fastest

Nielsen: 15% of drinkers drink only wine, 19% drink beer and wine, 27% drink beer, wine and spirits, and 7% drink wine and spirits

Imports, bottled and bulk, account for 30 percent of US wine shipments. Over 100,000 acres of vineyards were removed from the San Joaquin Valley in the past two decades.