The new year is starting off on a sour note for the winegrowers, as the recent boom cycle shows signs of turning to bust. It’s hard to predict how this will affect us as consumers — perhaps prices dip a little in the short term, but shifts in the market could result in less variety and more consolidation as small and midsize wineries take the hit. We should be worried.
Through much of the country, 2019 will be considered a good year in terms of quality. Nearly 70 percent of respondents to the Silicon Valley Bank’s annual survey on the state of the wine industry said they had a good harvest, with nearly a quarter of respondents calling it their “best year ever,” according to Rob McMillan, the bank’s wine sector analyst. (McMillan will release his full report Jan. 14.)
In California, however, the optimism was tempered with a strong sense of angst. The Golden State has had several high-volume vintages in a row, so there is lots of wine in barrel rooms and tank farms waiting to hit the market. Demand, however, is falling, and sales have flattened at all price levels as consumers turn to craft spirits and hard seltzers, the malt liquor of the 21st century.
“We have now reached the point where we have a large and unhealthy excess in grape supply in all price segments,” McMillan wrote on his blog, SVB on Wine, in early September. Wine sales “are close to hitting slack” and close to “negative volume growth” for the first time since 1994, he wrote.
Those cyclical market trends were magnified by a mega $1.7 billion deal announced in April, in which Constellation Brands agreed to sell 30 of its less expensive wine and spirits brands to E&J Gallo. The deal was held up because of antitrust concerns. At harvest time, hundreds of grape growers throughout California had no idea who they were supposed to sell their grapes to, so many of them did not harvest. (Constellation recently announced a restructured deal to help the sale go through.) There were even reports of vineyards — including old-vine zinfandel — being ripped out to be replanted with other crops.
We’re not just talking about jug wines. “There’s a saturated market, and luxury chardonnay and pinot noir have hit a plateau,” said Erin Brooks, co-owner of Ernest Vineyards, which specializes in wines from the western parts of the Sonoma Coast region. (To put “luxury” in context, Ernest wines sell on the company website from $18 to $69 a bottle.)
“This has probably been the hardest year in my career for selling wine,” said Alison Smith Story, co-owner with her husband, Eric Story, of Smith Story Wine Cellars, also based in Sonoma County. Like many small wineries, Smith Story relies on its relationships with independent growers, the same people being pinched by the grape oversupply and the fallout of the Constellation-Gallo deal. They decided to maintain their support of family growers despite sluggish demand and the pressure on their own profit. In a more robust market, they might have purchased more grapes. Smaller wineries that depend on direct-to-consumer sales have also been hurt by a decline in tourism to Northern California wine country over the past two years because of wildfires.
Smith Story attributed the decline in demand in part to the growth of the cannabis industry, as well as a neo-prohibitionist focus on wine as detrimental to health. The Dry January movement and the keto diet fad have also had an impact. And don’t get her started on White Claw.
The Trump administration’s trade policies have also had an impact. Smith Story Wine Cellars produces a riesling in Germany that currently sells here for $20. Proposed tariffs would hike that to $26. The couple have put on hold similar projects they were developing in France’s Loire Valley and elsewhere because of the tariff threat.
“We could bring the wine over in bulk, in bladders,” she said, referring to large collapsible bags like the smaller ones used in boxed wine. “That may not be subject to tariffs, but then bottles are expensive. We used to get cheap glass from China, but the trade war has made that more pricey. The U.S. bottle market is dominated by Gallo — get in line!”
A glut of wine, big-brand consolidation, declining demand and political pressures from international trade are putting a financial squeeze on independent family grape growers. We don’t see the growers directly, but we do see the boutique family wineries such as Everest Vineyards and Smith Story Wine Cellars who depend on those growers. If these businesses become casualties of a market downturn, we will have less access to distinctive, quality wines. That would be a shame.
We have a voice in this with our purchasing decisions — and that is to support small, independent farmers.
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