Volume 2 | Issue 2 | Year 2006

As the 2006 harvest delivers continued positive signals suggesting California is well positioned to capitalize on a growing U.S. wine market, we also see an accelerating trend towards global wine sourcing by a few U.S.-based wine companies. This has challenged wine grape growers to better understand the global market and figure out what they can do to foster consumer loyalty for wines produced from grapes that reflect California’s unique natural resources and diverse growing regions.

Positive Indicators

Coming out of the Unified Wine & Grape Symposium, the country’s largest conference and trade show for the wine business, and other events earlier this year everyone glowed with the good news. Wine sales are up and the U.S. is in position to become the world’s largest wine market as early as 2010. Consumers are buying more wine at higher price points. According to mid-year reports, even though economy (jug) wine sales in the U.S. are down, premium wines (priced at $7 and up) are expanding at double-digit rates. This is especially good news for California producers, especially with the sizzling growth in food stores of wines in the $10 to $14 category.

Gallup surveys in 2005 and 2006 suggest wine is rapidly closing the gap on beer as the preferred adult beverage of choice. The 2005 U.S. Supreme Court decision on direct shipping holds the promise of giving consumers more access to their favorite wines. Consumers are pressing for more options and progress is being made in many states across the country to accommodate the consumer desire to purchase wine from more producers.

According to the Wine Market Council, the core base of baby-boomers (ages 45-60) and the up-and-coming wine-drinking market – the millennial generation (the adult segment is 21-28 years of age) are driving increases in per capita consumption. Per capita consumption has increased every year since 1994 when it was 2.1 gallons. Based on annual growth rates, per capita consumption should reach three gallons per person in 2006.

Import Concerns

Despite all these advantages, there is the nagging concern about the increased market share for imports and the pressure it puts on prices – especially the thumping of a certain kangaroo brand driving wine sales for another New World wine producing country! Introduced in 2001, Yellow Tail from W.J. Deutsche sold one million cases in the month of November, 2005, making it the most successful wine brand launch in history.

One out of every four bottles of wine sold in the U.S. is imported. New World wine producers, led by Australia, have made remarkable gains in the U.S. market in recent years. Despite the high value of the Euro this year, European wine imports have bounced back in the first half of 2006 with Italy and Spain leading the way.

Most surprising has been the significant increase in bulk wine imports. By May of this year, bulk table wine imports totaled 2.6 million equivalent cases, up 229 percent from a year ago. The concern for growers dedicated to producing high-quality California wine grapes is that this increase follows California’s record-breaking 2005 harvest. Compounding the challenge of absorbing this huge crop was the federal government’s announcement of regulatory changes that increase from 5 percent to 15 percent the amount of wine that can be blended from other years to qualify for a vintage date. This effectively allows wineries to carry over more of a large crop than previously permitted.

One driver of the trend to import foreign wine is the need to fill gaps in supply created by hot consumer demand for varietals like Pinot Noir, Pinot Grigio and Riesling. Another driver is the willingness of consumers to try wines from around the globe to match the flavors of the world in the cuisines popular on today’s menus. Well-known, trusted brands are responding by sourcing wines from every continent to complement their portfolios and maintain their relationships with distributors and retailers.

Focus on Promotion

Guided by the vision of CAWG board chairman, Rodney Schatz, our organization has recently undertaken a project to evaluate communication programs and invest in wine grape grower strategies that can add value to the California brand and the Buy California message. Based on research, we believe growers can enhance the message by connecting place, people and practices to the product in a way to match the values of today’s consumers.

The most important thing we can do is give consumers another reason to choose California wine. Our state is a special place to grow and make wine thanks to California’s weather, soils and talented growers and winemakers. California winegrowers are leaders in the development and implementation of sustainable practices that produce consistently high-quality grapes, preserve the environment and are good for our employees and communities.

No one has a greater stake in fostering consumer appreciation and loyalty for California wine than the families who own and farm the vineyards of our state. The diversity of California’s 20 wine growing regions assures a varietal and price point for every palate and pocketbook. As we reach out to consumers across America, let’s be sure the integrity, quality and price of our products justifies the consumers’ trust.

Karen Ross is president of the California Association of Wine grape Growers (CAWG), an advocate for farmers, providing leadership on public policies, research and education programs, sustainable farming practices and trade policy to enhance the California winegrape growing business and our communities. Reach her at karen@cawg.org or visit: www.cawg.org.

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