The California wine industry, which includes the state’s wine grape growers, is facing challenging times, according to two highly respected annual industry reports.
Simply put, Americans, particularly younger Americans, are buying less wine than at any time since 1991. This data comes from the authoritative annual report from John Moramarco, a partner at the Gomberg Fredrikson wine industry consulting firm and editor of the firm’s Gomberg Fredrikson Report newsletter.
In the report, Moramarco says wine entering distribution was down 8.9 percent in 2023.
Moramarco’s data is mirrored by Rob McMillan’s annual 2024 State of the Wine Industry Report. McMillan, the executive vice president of Silicon Valley Bank’s wine division, says growth in overall wine consumption in the U.S. has stalled. Americans actually bought less wine in 2022 than in 2021, according to the respected annual report. This is the first annual drop in wine consumption in many years.
California rules the U.S. wine industry, producing a whopping 90 percent of the total American wine supply.
There are over 4,200 wineries in the Golden State, ranging from small boutiques and medium-sized operations to global giants like Modesto-based E. & J. Gallo Winery, which is the largest wine corporation in the world. California is the fourth largest producer of wine in the world. France is number one, followed by Italy and Spain.
California also grows the vast majority of wine grapes in the U.S. In 2022, about 5.51 million tons of grapes were grown in the state. An estimated 615,000 acres are devoted to growing wine grapes, according to the most recent California Grape Acreage Report.
There’s some positive news when it comes to California Wine. For example, high-end premium wines continue to sell extremely well. Additionally, U.S. wine exports are growing in value, according to industry trade group the Wine Institute. For example, wine exports grew by 10.6 percent in 2021, the highest jump in exports since 2013, according to the Wine Institute.
But according to McMillan’s annual report, the central issue or big problem facing the wine industry is a demographic one. Younger consumers aren’t buying wine. Millennials, including the oldest millennials who are now in their 40s, and members of Gen Z, aren’t choosing wine.
In other words, wine just isn’t cool to younger people, who prefer new alcoholic drinks like canned ready-to-drink cocktails, hard ciders and the like. Here’s what McMillan says in the 2024 report: “Fewer U.S. consumers have been drinking wine. Instead, they have selected alternatives such as RTDs, spirits, cannabis or have been abstaining all together.”
According to McMillan, younger consumers see wine as a celebratory rather than an everyday beverage. This used to be the case with all consumers but beginning in the 1980s the wine industry set out to change that through marketing and advertising. Over time the efforts were successful, which suggests a similar campaign is needed today, focusing on millennials and Gen Z.
Moramarco’s report concurs with McMillan’s that the wine industry has a problem with younger consumers not gravitating to and buying wine.
Wine Grape Production Depends On Consumer Demand and Sales
Grapes, including wine grapes, are number two in production in California at nearly $6 billion. Dairy products and milk are number one.
California wine from the field to the glass is estimated to be a nearly $60 billion industry.
Last year was a mixed bag for wine grape production in California. For example, Napa Valley had its best year in many years in terms of both yield and quality thanks to the abundant rain. Growers in other regions though, such as Sonoma County and parts of the Sacramento Valley and Central Valley, didn’t fare as well.
Wine grape production in California is huge. Nearly 6,000 winegrape growers produce more than 110 varieties in California’s 138 American Viticultural Areas (AVAs). Wine Grapes are grown on 608,000 acres in 49 of 58 counties.
In his report, McMillon says wine grapes are severely overplanted in California and the rest of the U.S. This is good news for consumers because it will keep wine prices down and offers an advantage (supply) to wineries but portends bad news for grape growers because it could mean reductions in the price they’re paid for their grapes. Excess supply (of wine grapes) with lowered demand (for wine) tends to be the formula for lower prices paid to growers. This is something growers should pay close attention to.
California wine grape demand is dependent on consumer demand and sales of the finished product, which gets us back to the need for the wine industry to attract younger consumers.
The majority of wine today is bought by people over 55 years old. Baby boomers are the core wine consumer, according to McMillon’s annual report, and they’re starting to age out of the market.
This is the major longer-term challenge to the California wine industry. Younger people aren’t enthused about wine and aren’t buying it. The industry needs to figure out a way to reverse this demographic trend.
Industry Tailwinds
Despite this major challenge, the California wine industry shouldn’t be underestimated. Here’s the positive news from McMillan’s report; what he calls the “tailwinds” helping the wine industry move forward:
- Premium wines continue to sell well.
- Three consecutive small vintages in California mean that inventory levels are low which will help balance supply and demand.
- Harvest quality in California has been good the past two years.
- It’s easier than ever to buy wine and for wineries to deliver it.
- The baby boomers that the industry increasingly relies on are sitting on a lot of cash that they didn’t spend for two years because of Covid.
Another bright spot for California wine are exports, which as I mentioned earlier have been on the upswing. There’s plenty of opportunity to grow exports of California wine, including to China, where the country’s middle class is increasing its consumption of wine, particularly premium and imported wines.
Increasing exports also will take up some of the slack that will continue to come in the form of reduced domestic sales – dollar sales of wine are up by a couple percentage points because of inflation but volume sales are down – due to the fact that the majority of younger people currently aren’t wine drinkers.
The California wine industry has gone from zero to around $50 billion in 250 years. That’s a huge achievement on a global scale.
The wine industry’s future can be bright but it must figure out how to attract younger consumers. Key to that is to go back to the industry’s agricultural, cultural and marketing roots, which is to focus on the pairing of wine with food.
Additionally, the industry needs to create new and innovative wine-based ready-to-drink canned beverages similar to the popular ready-to-drink cocktails, increase its focus on sustainability and transparency, and launch an industry-wide marketing and promotional program (Got Wine?) similar to what’s been done with milk, almonds and other crops produced in California.
My Job Depends on Ag Magazine columnist and contributing editor Victor Martino is an agrifood industry consultant, entrepreneur and writer. One of his passions and current projects is working with farmers who want to develop their own branded food products. You can contact him at: victormartino415@gmail.com.
