It’s Not All Bad News for the Wine Industry

Lately, conversations within the wine industry have been punctuated with doom and gloom. Sales are erratic, the climate is unpredictable, overproduction is rampant and drinkers are hesitant to spend.

Wine is in trouble, news reports say. Sales are down across the industry. Vineyards are being ripped out en masse in California, Australia and Bordeaux. Sobriety is hip, and the World Health Organization announced last year that it considered no amount of alcohol consumption safe. At the same time, it seems Gen Z is more slowly warming to wine than previous generations—hard seltzers and marijuana are far more appealing vices. According to Reuters, these winds of change have global wine demand reaching a 27-year low.

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“There’s an emotional cloud that’s hanging over the industry,” says Sam Bogue, the beverage director at San Francisco’s lauded Flour + Water Hospitality Group. “We’re really feeling the pressure—if you look at the data showing up in the news, it’s years of no growth.”

But Bogue, along with many of his peers across winemaking, distribution and importing, is dubious that the end is near. Many reports are frantic and fear-riddled about the future of wine—but are they factual or fear-mongering? Should we actually be freaking out?

Over-Demand, Then Over-Compensation

Despite bleak headlines, the recent BMO Wine Market Report, a wine industry analysis by the major Canadian financial institute, noted that the American wine industry has surpassed $107 billion in sales over 2023—an increase of 46% since 2018. In fact, the report is threaded with cautious optimism: Case sales and volume sales are slumping—particularly with budget bottles—but premiumization persists. In 2023, sales of wines over $10 in grocery stores rose to $4.8 billion, which is 34% more than in 2019. Seventy percent of wineries reported that they expect increased sales growth in the future.

Still, there’s no doubt that the wine industry is in a state of uncertainty. An acute wine oversupply has challenged producers in California and Washington, and the Silicon Valley Bank expects it will linger through the next calendar year. Last year, France spent over 200 million euros destroying a surplus of wine and as a result, thousands of hectares of vines in Bordeaux were ripped out. In California, Allied Grape Growers have called for vineyard plantings to be reduced by 12,000 hectares to help move inventory. And in Australia, millions of vines were destroyed to help rein in overproduction.

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Some industry members argue that there are logical explanations for many of these instances. In Napa Valley, vines are often pulled up as part of their life cycle, not as symptoms of a struggling industry. “It’s not because producers are freaked out—it’s because the vines were plagued with disease or old age,” says Kellie Duckhorn, a Napa veteran and the general manager at Baldacci Family Vineyards.

Bo Barrett, CEO of the historic Chateau Montelena, says he’s seen this fuss before. “Any agricultural school will teach you about these economic cycles,” Barrett claims. “One of the rules of agriculture is that any agricultural commodity that makes any money will always get overplanted.”

“Did people grow too many grapes? Sure. Did they make a little bit too much wine? Sure. That’s a normal agricultural commodity cycle,” he continues. “People forget that this is farming, and these cycles come and go. I’ve seen this seven times before.” That said, he notes this cycle is amplified by the force majeure of recent climatic disasters—the fires of 2017, the light crop of 2022, heat waves and more. The list goes on.

The Pandemic Bubble Bursting

The haze and craze of a global health crisis also made sales numbers ricochet. In 2020 and 2021, stuck-at-home drinkers stocked up. When they were allowed out of their house, they went out and they spent.

“There was this extreme pent-up demand,” says Bogue. “This once-in-a-lifetime blip in sales. It was a massive market—people were purchasing at high volumes. Now? We’re seeing regression; a much-needed correction in the market.”

Many retailers weren’t wise to the fact that the frenzy would end. Now, they’re stuck with excess product purchased when markets were hot. Sales have now returned to normal and the surplus is sitting unsold—the retail equivalent of showing up to the party with magnums when everyone has gone home.

“Distributors and big-box retailers had a rosy perspective on alcohol consumption,” says Duckhorn. “They bought long, anticipating interest rate hikes. Depending on how inventory was financed, many are recalculating costs to find it’s higher than expected. If you’ve already sunk a ton of capital into inventory, the best way to get that capital back is to sell it at a discount.”

The slump in sales? She finds it’s due to overcompensation and overcorrection. “Wine is just moving at a slower tick than what most people anticipated.”

Media Frenzies

But many news stories don’t acknowledge these growing pains. Instead, they point fingers at young drinkers who have yet to embrace wine. “It’s not that people don’t like wine,” says Duckhorn. “It’s more that the industry set expectation benchmarks on unrelated and unrealistic bases, like the pandemic.”

Negativity within the wine media is not new. Sensational headlines sell papers and drive clicks, which keep publications profitable. With these consistently negative reports, “it feels like we’re creating this self-fulfilling prophecy,” says Shilah Salmon, senior vice president of marketing at Jackson Family Wines, a wine conglomerate spanning staples like Kendall-Jackson, La Crema and cult-followed producers like Brewer-Clifton and Lokoya. The group recently implemented an internal campaign focused on debunking headlines and investing into analytics that are more reflective of the positive side of the industry.

“I don’t really know any other industry that likes to tear themselves down like this,” says Salmon. “The concern is: We can chat about these concerns in the trade sphere, but what happens if it gets out to the consumer? They may begin to think that wine isn’t cool.”

Been There, Done That

The drastic numbers make more sense if you contextualize them. In 1960, 62% of Americans consumed alcohol. That number has ebbed and flowed over 80 years. The Mothers Against Drunk Driving campaigns of the 70s and 80s curbed drinking significantly. Then in the 1990s, a 60 Minutes segment on the “French Paradox,” a.k.a. the health benefits of red wine, helped sales recover. By 2023, according to Gallup information, 62% of Americans still consumed alcohol.

Headlines from earlier eras mirror current hand-wringing media reports. Perhaps this sounds familiar: In February 1998, New York Times writer Frank Prial reported that “young people, the 21- to 29-year-olds, are turning away from wine… For the $13-billion-a-year wine industry, the loss of so many potential consumers couldn’t come at a worse time.” In 2016, similar sentiments played out in The New York Post with the headline, “Millennials are ruining the American wine industry.” Now, Gen Z drinkers are the wine industry’s antagonist du jour.

“Remember when millennials got all this hate?” says Miller, a Gen Z digital assistant account manager at wine communications firm Colangelo & Partners. “I think people tend to think change is trying to ruin the industry. But change is normal. It’s what you need to do to survive and succeed.”

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This need for change extends beyond young drinkers. A recent study by WineGlass Marketing noted that both Gen X (age 44 to 59) and millennials (age 28 to 43) are increasingly looking to connect wine with social, relaxed and casual experiences. “We saw an ongoing thread rejecting the ceremony and precious luxury of wine presentation within this group,” says Susan DeMatei, founder of WineGlass Marketing.

Baldacci has seen consistent sales growth across all categories except one: case sales. So she dug into why. “Here’s another freakonomics thing—no one stores anymore, because everybody’s a renter,” says Duckhorn. She asked her team (“they’re all under 35”) what they wanted from a winery. The answer? Flexibility and smaller units. “They don’t want to buy a case—it’s harder to drink and it’s harder to store.”

So she remains flexible, trying to catch new trends and follow what drinkers, especially younger ones, want. It’s a matter of survival. “We have a lot of wine club members who are over 60, but once they cycle out, there’s no one replacing them,” she says.

Embracing New Faces

In a recent speech at the U.S. Sustainable Winegrowing Summit, Dr. Liz Thach MW pointed out that while the changing generational guard is a hot topic in the industry, the industry hasn’t done much to welcome new drinkers. Wine importer Dale Ott adds that “we’ve been actively antagonistic to younger generations and new demographics for decades.”

According to the Wine Marketing Council, 66% of wine drinkers are white; 11% identify as Black; 15% identify as Hispanic and 5% identify as Asian. If wine sales are down, why aren’t we diversifying who’s drinking?

Ott and her husband founded Nossa Imports to shine a light on lesser-known Portuguese and Mexican wines. “When we started importing Mexican wine, we assumed our Portuguese portfolio would move faster—it’s easier to understand,” she says. While Mexican wine regions are growing in quality and popularity, wine has never fit into the country’s drinking culture—beer and agave spirits reigned. “Thirty years ago, the annual average consumption per person in Mexico was a glass and a half a year,” says Ott. “Now? It’s up to a liter and a half per person.”

“Mexican wine has been one of the biggest surprises of my life,” she says. “The Mexican-American populations are super down with wine—you just need to make space for them.” Recently, they hosted a Mexican wine festival in Phoenix, bringing in DJs and driving Mexican cheeses across the border. The event sold out within minutes. The crowd? Mexicans and Mexican-Americans—people the wine industry has largely ignored.

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Over the last two months, Nossa Imports has expanded to seven more states to keep up with demand, specifically from Mexican-Americans. They’re selling out of inventory, without a single major off-premise retail or grocery store presence.

“You have an industry run by people who have been in the industry forever, and they’ve been catering to the same demographics,” says Jess Druey, a member of Gen Z and founder of Whiny Baby. “There’s not a lot of people at the table who are members of Gen Z or of a diverse background and are decision makers.”

“I’m positive our generation has what it takes to love wine,” says Colangelo & Partners’ Miller. “We love information, travel and experiences and we’re open to new ideas and trying new things.”

A recent McKinsey report dubbed Gen Z the “True Gen,” a generation motivated by individual expression and causes they believe in, specifically sustainability. In step, The IWSR has noticed promise in the growth of “alternative” wines, including natural, sustainable and biodynamic bottles. Natural wine bars are popping up in major metropolises at a speedy clip, offering rainbow pours of orange wines from Georgia, chilled reds from Slovenia or fizzy pét-nats from California crush pads.

“Alternative wines—in a pessimistic wine landscape and under growing economic pressure—continue to offer opportunities for growth,” says Richard Halstead, COO Consumer Research at The IWSR. “The typical consumer audience is younger legal-drinking aged wine drinkers who have positive associations with the segment and are willing to pay for products that align with their needs and values.”

Jenny Lefcourt, a stalwart importer of natural wines, has seen sales jump up 20% over the last few years. These numbers flattened during Covid-19 (“there was just too much wine in general,” she says), but the last few years ushered the category into full bloom. She now has distribution across all states and is placing bottles on shelves beyond the buzzy New York boites, including the Hudson Valley, Alabama, Oklahoma and Montana. “I’m really optimistic about the future of wine,” she says.

Looking forward

Flour + Water’s Bogue considers that “maybe we’ll look back on this 20 years from now and reflect on how the market was demanding more thoughtful practices. This is a great moment for us, as an industry, to go back to the drawing board. Things are going to get a little bit worse before they get better, but that’s needed to breed innovation.”

Wine is in a period of growing pains. Living organisms—including grapevines—are engineered to evolve when change is required of them.

Chateau Montelena’s Barrett isn’t worried at all. “There was the craft beer movement 20 years ago. That was definitely going to crush the wine industry. Craft distilleries? Craft tequila? That’s going to crush wine. Sweet fizzy drinks in cans? That was going to crush wine.”

“After those cans are empty they’ll want a nice glass of wine with the dinner,” says Barrett. “We’ll get them in the long run.”

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Published: May 31, 2024