University of California, Davis
Posted by Pat Bailey-UC Davis on September 22, 2015
California’s wine industry leaders predict some serious challenges, but also foresee arise in overall consumption and a growing emphasis on premium, rather than economy, wines.
Challenges remain in the form of consolidation in the distribution and retail arms of the industry as well as in water and other environmental issues, survey respondents say.
Researchers report their findings from two surveys of wine executives and industry professionals today at the Wine Industry Financial Symposium at the Napa Valley Marriott in Napa, California.
“We’re going to be scrambling for water. We are going to be scrambling for grape supply”
“The good news is that as consumers become more knowledgeable about wine, they are trading up for premium wines and pulling the entire wine market up with them,” says Robert Smiley, professor and dean emeritus of the University of California, Davis, Graduate School of Management.
“This means that, more than ever, competing wineries need to be investing in their quality lines and in branding,” Smiley says. He notes that this could be challenging for some companies because the cost of land and grapes is now higher than ever, partly due to a recent wave of outside investors that have set their eyes on the wine industry.
The 13th annual wine executives survey reflects the opinions and projections of the heads of 24 wine companies. Those firms include 18 California wine producers, one Washington state producer, four wine marketers, and one vineyard-investment company.
Most of the executives surveyed noted a definite “premiumization” trend among wine consumers, who are buying more of their wines above the $10-per-bottle price point.
“The market’s moving upwards; it’s enormous,” says one respondent. “It’s growing very fast.”
The wine executives expressed concern about the effects of continued consolidation among wine distributors and retailers.
Following the federal repeal of Prohibition in 1933, state-by-state regulations generally require that wine move through three tiers on its way from the vine to the consumer. Grape growers and wineries make up the first tier, wholesale importers and distributors the second, and restaurants and retail stores are the third tier.
Direct-to-consumer wine shipments have presented an alternative, although relatively minor, way for producers and consumers to connect.
Recent years have seen increasing consolidation in tiers two and three, creating greater competition among wine producers as they jockey for shelf space in retail outlets. With continued consolidation into fewer chains, some wine executives reported that it was becoming more difficult to place all of their brands in stores, especially for smaller producers.
“We grew up in an age where we worried that the manufacturers had monopoly power,” said one respondent. “Today, monopoly power is at the retailer. Now they are doing private labels that are disenfranchising our national brands.”
Image courtesy of futurity.org