State of the US Wine Industry

The annual State of the US Wine Industry Report from Silicon Valley Bank is out. Shipping data will be  covered in the next post. Following are highlights on the rest. Their data is based on wineries responding to a survey.

click on graph to enlarge for readability

 

Sales

Preliminary estimates for 2023 show U.S. sales volume down 2% with a slight increase in dollars spent, largely because of higher prices.

Tasting Room visitation has been declining for the past two years. The money spent per visitor is also down. Is this post-Covid adjustments or the start of a larger trend? When everything first reopened, visitation, wine club sign-ups, and sales skyrocketed as everyone was just happy to get out again. Then inflation hit.

Most premium wineries rely on tasting room sales and their wine club for over half of their revenue. Direct-to-consumer sales from visitors, wine club members, and shipping via internet sales are critical for smaller wineries because they aren't sharing profits with a distributor and retailer.

Oversupply

While the overall wine market is down, premium wines are doing okay. It's the lowest priced wines that are hurting. This is what you see when times are good. The reduced traffic to tasting rooms hurts. 

There's a glut of wine on the market now. I haven't seen data on the price breakdown on the oversupply. That is, how much of it is cheap wine vs. premium. This isn't just a U.S. problem as other big producers, like Spain, France, Italy, and Australia have the same issue.

Oversupply is nothing new. The American wine market is historically full of short-lived trends. Merlot, Muscat, and Syrah in the past. Maybe rosé and Pinot Noir in the future. Yeah, rosé is made from red grapes, but it seems there are increased plantings of Rhone reds with the plan to use them to make pink wine. 

The biggest issue with these trends is the expense and time lag, especially for red wines. You have to clear land, plant vines, give them at least three years to mature before picking grapes. The process of getting it to market can take months or years, depending on the wine. By that time, whatever trend you were following might be over. Oops.

The current oversupply for California is primarily red wine, and mostly Cabernet Sauvignon. Per the 2022 California Grape Acreage Report, half of the non-bearing red wine grapes planted, 3,671 acres, were Cab. That's 900,000 cases of Cabernet, though some of it is the replanting of existing vineyards which may or may not have originally been Cab fruit. Why was so much planted? There's a global forecast for an increase in Cab sales for the next several years.

Inflation

Only 15% of the wineries said they were able to fully recover their increased costs due to inflation. The other 85% said they recovered part of or none of the increased costs.

The 2024 forecast says wines over $70 will show the biggest price increases. Under $50 shows some price decreases, especially in the under $15 wines, so that could be good news for most of us.

The biggest price increases in 2023 percentage-wise were in wines from Oregon and Washington. In dollars, it was wines from Napa, where a bottle that cost $53 in 2010 is now $84.

Consumer Changes

For alcohol, the younger you are, the more likely you are to drink something besides wine. Also, the younger you are, the more likely that you believe moderate drinking is bad for your health.

Over the past two decades, the percentage of income spent on wine has dropped significantly for those under 25.

Why are people buying less? The top reasons are to cut back on drinking and the cost. For the people cutting back for their health, could low- and no-alcohol wines reverse this? Where cost is the issue, there's no easy answer for wineries facing inflationary cost increases. We might be seeing some consumer pushback on high tasting room fees, though you have to include the increased costs of lodging and eating out as part of the problem for those visiting wine regions for a few days. Also, there are more alternatives to wine -- craft beer, hard cider, cannabis, etc. though this has been an issue for several years.

There will be fewer people buying wine by generation as the Boomers age out of the market. Other generations are smaller, though the total population of the country continues to grow.

The Big Question

The economy went out of kilter during Covid and is still recovering. How much of this is related to that vs. long-term trends?

Future growth of the organic wine market
according to Vision Research Reports