Two years ago, Allied Grape Growers’ president Jeff Bitter made waves by calling for a 30,000-acre reduction in West Coast wine grape acreage to correct an oversupply of the fruit.
Growers responded by taking out about half of those acres, mostly on marginal ground where it was more difficult to turn a profit. But two short crops in 2020 and ‘21 cured the glut and stabilized the industry, at least for now.
“With us having another short crop last year, things have changed,” Bitter told a conference audience on Jan. 26. “Based on bearing acreage, we can produce 4 million tons again for several years, so in the future there could be a cause for concern. But right now, the industry is stable.”
The recovery of prices that followed two years of wildfire- and drought-hampered vintages provide some breathing room for the industry to focus on its long-term challenges, including an explosion in alcoholic-beverage options marketing to younger generations of consumers who don’t drink as much as their parents.
The uncertainty underscored presentations by economic and marketing experts in their always-anticipated “State of the Industry” seminar at the Unified Wine and Grape Symposium. This year’s gathering was held Jan. 25-27 at the SAFE Credit Union Convention Center in Sacramento, Calif.
Channeling the Charles Dickens classic A Tale of Two Cities, Danny Brager of California-based Brager Beverage Alcohol Consulting said the past year has brought “the best of times for many and the worst of times for some.” Overall U.S. retail wine sales dropped 6.2% in 2021, but sparkling wine sales rose 11% and sales of premium wines costing more than $50 jumped 46%, Brager said. Off-premise sales from the Napa and Paso Robles regions were pacesetters for the West.
The sales figures continue a trend of flat consumption over the past several years as people have been branching out to different drinks and flavors, often accompanied with entertainment. Consumers can choose among a potpourri of beer, hard seltzers and ciders and even cannabis-infused non-alcoholic drinks, and many tend to view wine as more of a drink for special occasions, industry leaders say.
Most wine drinkers consume other alcoholic categories, which “are doing better than wine,” Brager said. Only 17% of wine drinkers consume wine exclusively, he said.
Coronavirus-related tasting-room and restaurant closures have accelerated the growth of e-commerce since 2020, Brager said. In 2021, wineries moved 2 million more cases via online direct-to-consumer sales than in 2019, and these transactions now represent 10% of all sales, he said.
But while on-premise sales are recovering as many wineries have reopened, these onsite sales are still 23% below where they were before COVID-19, he said.
“Some of it’s coming back, but not all,” Brager told the symposium. “And some of these losses could be permanent losses.”
As inflation and supply-chain issues such as a glass bottle shortage make producing wine more expensive, the industry faces a threat of younger consumers switching to cheaper alcoholic drinks, he said.
“I think premiumization is great,” he said, “but not so if it prices people out of the market. We know that price increases are going to come.”
Industry marketers must create more “on-ramps,” particularly for younger, multicultural consumers, he said. While the beer industry spent $1.4 billion on marketing last year, wine spent a little more than $80 million, he noted.
On the growers’ side, Bitter suggested the industry could rediscover its “sweet spot” by shedding a few thousand more bearing acres, adding that 3.6-million-ton crops aren’t “the new normal” but “the world would be in a pretty good place at 3.85 million tons.” Right now, the industry's prognosis is "stable with a chance of overssupply," he said.
The industry is trying to rebound after a two-year global glut of grapes caused prices to collapse to the point where some growers were trying to sell Cabernet for $1,700 a ton, barely covering harvest cost, according to a Silicon Valley Bank industry report. Growers on the North Coast, without the ability to switch to another crop, couldn’t take down their grapes.
While the shorter crops eased downward pressure on prices, observers say huge crops this year or in the future could bring about another oversupply problem.
Built with the joint input of growers, vintners and allied industry members, the Unified Symposium has served as a clearinghouse of information important to wine and grape industry professionals for 28 years.
The symposium returned to downtown Sacramento for the first time in three years, as the 2020 event was held at Cal Expo, home of the California State Fair, because of a convention center expansion project. Last year’s symposium was held virtually because of coronavirus-related restrictions on public gatherings.
This year’s event included more than 850 trade-show vendors and drew an estimated 7,000 attendees, down from the roughly 12,000 who normally register, according to organizers. The conference required vaccination or a negative COVID-19 test for entry and required masks inside the venue.