“I see the convergence of two factors – the high-end consumer is back and we have less wine to sell. I have a feeling of great momentum.”
—Katie Lazar
“Hitting a Home Run,” Drinks Business US (California Report 2013), 2013:
For all its international reach, California’s fortunes are largely shaped by its domestic market. Roger Morris examines the top 10 wine trends in the US at the moment and what they mean for this country’s largest producer
IF THERE is anything the recent worldwide recession has told us about the American wine market, it is that California winegrowers largely shrugged off the economic downturn, taking a small hit in 2009 before moving on to even greater sales volumes. In the domestic market, California has also been able to meet whatever challenges foreign imports have thrown at it.
“Californian wines have a pretty solid position overall,” says Peter Morrell, CEO of the New York-based Morrell & Company, which runs both a retail store and wine bar as well as a large internet-based sales and shipping business. Katie Lazar, sales and marketing director for Cain winery in Napa Valley, says: “I see the convergence of two factors – the highend consumer is back and [because of recent short crops] we have less wine to sell. I have a feeling of great momentum.”
Statistics from California’s Wine Institute bear them out. The most recent figures supplied by Gomberg, Fredrikson & Associates show US sales of Californian wines rose to 211.9 million cases in 2011, its highest volume ever, up 5.6% from 2010. Estimated retail value of these shipments was $19.9 billion (£12.9bn), up 5.9%. Except for a one-year fall off of a half-billion dollars to $17.9bn in 2009, growth in dollar volume of California’s domestic sales has been steady for the past 15 years. It is the world’s fourth largest wine producer, trailing only France, Italy and Spain, with 3,540 wineries – mostly family owned – and 4,600 grape growers.
That is not to say that there hasn’t been considerable pain to some producers. Those heavily dependent on the hard-hit on-trade or restaurant market or who had not managed their cash flow and inventories well were forced to have “fire sales”, often anonymously and heavily discounted, primarily to the dozens of internet marketing forms.
But wine retailers helped wineries pick up the slack to their own advantage. When many restaurants could not cover their wine allocations, Frank Pagliaro, owner of FranksWine in Wilmington, Delaware, says he and other retailers snapped them up. “I’ve sold more north-of-$100 Cali Cabs in the past five years than I did the previous five years,” he says, “mainly because I could get what my customers wanted.”
There are also several wine trends, generated both domestically and internationally, that seem to be working in the Californians’ favour:
1. Very significantly, changes in state regulations have allowed a bonanza of direct shipping to consumers for Californian producers and for internet-based shippers.
Each of America’s 50 states has its own regulations on how wines can be sold and delivered to customers, and some forbid wine shipments originating outside its borders to consumers. But in 2005 the US Supreme Court ruled that if a state permitted wine shipments within a state, it had to permit shipments from out of state – chiefly California – as well. Since the ruling, some states, though not all, have dropped shipping barriers, expanding wineries’ direct access to customers and providing them with greater profit margins. “That ruling opened the floodgates,” Lazar says. “In general if you look back 10-12 years, many of us increased direct sales by as much as 50%.” Sonoma-based winemaker and winery consultant Paul Hobbs agrees. “We sell a lot of wine through our wine club and though our mailing lists,” he says. Retailer Morrell concludes: “The whole world is now buying online.”
…
7. A combination of “high tech” and “high touch” is a growing customer influence.
Winery personnel from France, Italy and Spain are often amazed on their first visit to Napa Valley by the volume of traffic and the spending power involved in wine tourism. A customer who has a pleasant visit to a winery may exhibit a life-long allegiance. At the same time, a younger generation is more likely to be influenced by their social-media peers – with their constant tweeting and photo snapping of everything they eat and drink – than by traditional wine critics. “Millennials don’t get their information from Robert Parker,” says Lazar, who was herself a top executive at a tech company before going into the wine business, “so we need to connect with the emerging wine drinker. As someone else once said, ‘We need the right combination of high tech and high touch’.”
…
So as the recession ends – or at least pauses – the future for California winemakers looks even brighter. Americans consumed 333m cases in 2012 and that consumption is expected to increase to 373.5m cases by 2016. That will mean about two extra bottles consumed for every American of drinking age.
And as Californian producers already own about 61% of the American market, that is sweet mathematics and sweet music to those in the industry.
By Roger Morris