ADVERTISING: Advertorial — Right sizing the U.S. wine industry

For a bit over a year now the United States has topped the world in total amount of wine consumed. On a per capita basis the U.S. doesn’t even crack the top 15! As far as production the top five wine producing countries are Italy, France, Spain, the United Sates and Chile. As the saying goes “lies, damn lies and statistics.” When you combine these statistics with much anecdotal information and more importantly knowledge of what is going on in the wine industry a very interesting “snapshot” starts to come into focus, and somewhat sadly it is not a pretty picture for the domestic wine industry.

The simple and most discernable fact is that the U.S. is producing too much wine. Drill down a bit deeper and the conclusion emerges that we are producing too much wine in some specific categories. That would be the low and mid-priced tiers of wine that it seems fewer and fewer of us as wine consumers want to drink. This is supported by the fact that the average 750ml bottle of wine purchased in the U.S. has crossed $13 per bottle, it only passed $10 per bottle in 2017.

Anecdotally you can see evidence of this trend toward Americans drinking higher end wines when you look at what is going on in the merger and acquisition activity in the wine industry. In the wine press there is a constant flow of larger wine companies selling off lower priced brands. At the same time higher priced wineries, vineyards and brands are being snapped up regularly. In just the last year we witnessed the purchase of Napa Valley “royalty” including Shafer, Joseph Phelps and most recently Rombauer, just to name a few.

Further evidence comes from talking to grape growers and winemakers about bulk prices of grapes at harvest. In the more expensive vineyards of Northern California, we frequently hear of small wineries being out bid on grape contracts by higher end producers. At the same time, we hear of grapes in Washington state being unharvested or nearly given away at harvest as the supply of grapes in the Northwest is far exceeding the demand.

There is even more troubling information we have garnered from contacts at wineries around the Northwest. Just in the last couple of weeks we have heard from multiple sources that a large Washington winery made the painful, unusual and highly telling decision to dump “hundreds of thousands of gallons” of made wine they simply had no market for. We don’t know if the wine was already bottled or if it was still stored in bulk but the fact remains that pouring out this much wine is a very troubling decision.

There is one more “story” from friends in the wine industry that is illuminating. We have heard in just the last two years of more than five Northwest wineries that have started up second label brands that will only be distributed around the country. In all five cases the wineries are actually rebottling or relabeling their higher end wines, just to move them off at lower prices where they are hoping to break even.

All of this begs the question of how do you right size an industry that is currently over producing? We suspect we will see and would encourage the areas of the Northwest and also areas of the central coast and inland California to stop planting more vines until consumption can catch up to the grapes already in the ground.

Additionally, from a retailer’s perspective I would advise our winery friends that are working in the mid-tier price categories and lower to simply dial back production. We have active and robust markets for good wine at fair prices, however if you move below the $10 per bottle retail price point most wine consumers simply don’t care. Our sense of the consumer is they want to drink better wine, their tastes are becoming more sophisticated over time and the “cheap stuff” just isn’t cutting it.

This more sophisticated customer that now dominates U.S. wine buyers is very value conscious. You can’t just put a higher price on a bottle. The juice in the bottle has to support that price. If it doesn’t wine drinkers will move on until they feel the price and value proposition is in balance.

One last note that supports the overall health of the wine business at the higher end. The ultra-premium segment of the market continues to hum along and function well. The most sought-after bottlings, those that are highly allocated are selling great. It is a model for all winemakers that if they craft really good wine, it will find a buyer. The wine though does need to be high quality and unique enough to stand out among a sea of just ok wine. We need to reduce the amount of just OK wine if the industry is to remain healthy and be the right size.

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George Balling is co-owner with his wife, Mary Lancaster, of The Dinner Party, a wine and gift shop in Coeur d’Alene by Costco. The Dinner Party has won the award for best wine shop in North Idaho twice, including for 2018.

George is also published in several other publications around the country. After working in wineries in California and judging many wine competitions, he moved to Coeur d’Alene with Mary more than 10 years ago to open the shop.

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