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Sunday, January 31, 2010

California Wine is Upside-Down

I'm looking at a story in the LA Times about California's wine sales for 2009. Take a look. I've excerpted some of the pertinent bits (I'm snipping quite a bit here, but not to shift the context! Do go read the full story):

California's wine industry saw its shipments fall in 2009 -- for the first time in 16 years.
Consumption of wine is up 2.1% nationally, but...the American public was opting for cheaper bulk wine imports from overseas winemakers.
Last year, the state's seven largest producers saw sales overall grow by nearly 7 million cases.
But...overall...California wine shipments fell almost 4%, or by nearly 4 million cases of wine...
Nationwide, the domestic wine market dropped by 3 million cases compared with a year earlier. (Restaurant sales were sluggish too: Wine sales dropped as much as 10% at restaurants across the country.)
Wines from countries such as Argentina, Chile and Australia...bubbled up 87% last year, cornering about 32% of the U.S. market.
I find it fascinating that wine's experience is just about the exact opposite of beer in this economy. Small, high-end brewers are booming, and the big guys are sucking wind. Those high-end beers are selling in more restaurants than ever, including national chains, like Ruby Tuesdays and ESPN Zone. Sales of imported mainstream lagers are generally declining.
What's that mean? Well, for one thing, maybe brewers should be careful about following wine too closely. I've encouraged many craft brewers to read Paul Lukacs's American Vintage to see the blueprint of American wine's success -- focus on quality, talk to chefs rather than managers, develop a language of flavor -- and I still think it's a good idea, but I'm reminded of something Benton Fraser said in Due South: "Never follow a man over a cliff." California specialty/boutique winemakers may have focused too closely on the high end to survive a slowdown, a cautionary tale for some brewers.

Stop making pricey beers? No, absolutely not: it's working...for now, and the money's good. But should you think about adding other strings to your bow? Definitely. The little mammals beat the dinosaurs, you bet. But you don't see mammoths, sabretooth tigers, and giant beavers around any more, do you?


Matt said...

Exotics, big flavors, triple belgian IPAs, etc. are all great, but a bit on the boutique side to build a business on. IMHO, a craft brewer that wants to go bigtime needs a great session-type beer.

Cooking Lager said...

No offence to Californian wine, it is a quality product, but most table wine is much of a muchness. The others you mention are also a nice drop.

Any product that becomes a generic commodity will be subject to price pressure. Many craft beers are unique and the market small enough to maintain prices. It doesn't make them better than the generic lagers, just different enough to occupy a niche.

I'm surprised with the global economy and a weak dollar that domestic wine representing better value isn't a more popular drop.

jp said...

My 2 cents: Because the US Domestic wine market is so much larger than the niche craft beer market, it is a lot more susceptible to the broader cyclical effects of the economy just like the broader domestic beer market. I think currencies also played a role as the Chilean peso was hammered in the beginning of 09 end of 08 same with Arg. Seems to me comparing the a multi layered large mature market with a relatively new fast growing small niche market is kind of like apples and oranges. On the whole, domestic wine volumes decreased, just like domestic beer did. I am sure if you look closer at the domestic us wine market you will find smaller segments (niches) that grew during the same period just like craft beer.

jp said...

a little of topic but related is the generational gap between boomers, gen x, a Millennium generation, as i understand it, Wine growers/marketers have pretty much given up on gen X who drink a lot less wine than their baby boomer parents and instead focused on this GenY / Millennium generation who are drinking a lot more wine. As Gen X enters its peak earning years i am betting they are the ones drink the lion's share of craft beer and pushing this growth. In 15 years as Gen Y hits their stride I wonder what it will look like

jp said...

Tom E said...

I see giant beavers around all the time.... Wait a second, wrong blog. Sorry.

Russ said...

As somebody who's fairly ignorant when it comes to wine, I'm wondering how far the comparison extends. Specifically, do most smaller boutique wineries offer both $60+ cellarable wines as well as $10-$15 table wines? It seems to me that one of the things that helps most breweries survive is the fact that most offer both $15-a-bottle "extreme" seasonals as well as $10 six-packs of more sessionable beers. Like Matt above suggested, I would think a craft brewery with a quality six-pack selling for less than $10 will be relatively adept at weathering economic storms. But if the experience of Cali vintners suggests otherwise, it certainly makes sense to learn from their mistakes.

Unknown said...

@Cooking Lager,

I don't mean to speak for Lew, just thought I'd throw my $0.02 in.

'Domestic Beer' in the US spans a continuum from $0.30 cans of fizzy yellow adjunct lagers marketed by the Big 3 macrobreweries to $100+ bottles of Sam Adams Utopias and the like. So, beer's 'image' among the various social classes can vary considerably depending on which end of the continuum we're speaking about.

Products at the low end are most certainly still widely viewed as 'working class' beverages - and I don't think its consumers (or anyone else) would argue that point.

However, as one approaches the middle ground of 'premium domestic' & mainstream craft beer and continues toward the other extreme (e.g. high end, limited production/seasonal/specialty craft) beer in the US seems to be increasingly viewed as an acceptable (or, often, *prefered*) alternative to wine - especially among the middle to upper-middle classes.

I suppose there will always be a few die-hard oenophiles who cling to the notion that wine is the only fermented beverage worth drinking and, among this group, all beer drinkers *might* be viewed as philistines regardless of their choice of ale or lager.

And, conversely, there are some working class folks who would scoff equally at the thought of a $20 bottle of beer OR $$$ wine.

That said, I think more people in the US are open to the wealth of choices presented by the American craft beer movement than ever before (as evidenced by craft sales figures and the increasing number of breweries, brewpubs and restaurants pairing food w/ beer).

Thus, the lines between what the working class and upper classes choose to quaff are bluring a bit more each day.

Lew Bryson said...

Joe? I think you meant to make this comment in the other wine post. I'd move it if I could, but Blogger doesn't let me do that!

Unknown said...

right you are, Lew. I was having problems with the 'word verification' picture loading (all I'd get was the dreaded 'red x'). So I copied my comment to clipboard, then hit refresh. That took me back to the main page. I must have clicked the wrong 'comment' link and pasted the text back in too hastily.

Oh well! Sorry for any confusion I may have caused.

Lew Bryson said...

Hey, Joe, if that's the worst thing that happens to us this week, we're doing great!