The first six months of 2024 have seemingly broadcast a tidal wave of woe for the American wine industry, starting with the release of the 2024 Silicon Valley Bank State of the Wine Industry report in January. After years of sounding the alarm about the industry’s need to adapt to demographic shifts and a slowdown in growth, the latest annual report showed an alarming decline in domestic and international wine sales and laid out the many headwinds facing the industry—namely, declining consumption, inflation, anti-alcohol messaging, competition from other beverages, and an oversupply of grapes and wine.
Soon, more emerged about the U.S. wine industry’s downward spiral, from existential crises among small producers to calls to rip out thousands of acres of grapevines, especially in California’s Central Valley and Lodi regions. But does this torrent of doom reflect the big picture of what’s really happening with wine in the United States—and is this an issue that is impacting the American wine industry in an outsized way?
The answer is complicated. Though overall volume sales are down and many small wineries are struggling, there are bright spots in the market, and some savvy producers are finding ways to weather the storm.
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A Global Wine Industry Challenge
The crisis of diminishing wine consumption isn’t relegated solely to the U.S. market and its domestic wine industry. The OIV State of the World Vine and Wine Sector in 2023 reports that worldwide wine consumption declined 2.6 percent compared to 2022. In the U.S., it dipped three percent, while Europe saw a 1.8 percent decrease.
This report attributes the global decline to several factors, including a decrease in China’s consumption, inflation, geopolitical tensions due to the conflict in Ukraine, and disruptions in the global supply chain that led to surges in production costs and price increases for consumers.
“It’s not just us,” confirms Tacoma, Washington-based wine economist Mike Veseth. “Inflation has risen around the world in all of the major consumer countries, and wine isn’t an absolute necessity.”
Veseth adds that other countries are seeing the same kinds of headwinds that the U.S. industry is experiencing. That includes younger consumers gravitating toward other alcoholic beverages. “Competition is a big thing,” he says, “and it’s not just our thing.”
Data confirms many of the challenges that both U.S. and international wineries face. According to figures compiled by Danny Brager, the head of Brager Beverage Alcohol Consulting and the former head of NIQ’s beverage alcohol practice, 2023 sales volumes declined for global wine shipments, depletions, retail, and on-premise sales; direct-to-consumer (DTC) sales volumes of American wine dropped as well. His sources include Gomberg Fredrikson, SipSource, Wine Business Analytics, and NielsenIQ (NIQ).
“No matter what you look at, it’s not great,” says Brager. “But at the same time, I feel like when you say that the industry is down, people jump to the conclusion that everyone’s doing terrible. That’s also not the case.”
NIQ off-premise scan data of wine sales in the U.S. for the 52 weeks ending May 4, 2024, show a relatively flat market, with wine down 0.5 percent by dollar sales and 3.3 percent by volume. In the first quarter of 2024, dollars increased 0.4 percent and volume declined 2.1 percent compared to the same period the previous year.
Wines under $12 performed worst, continuing the entry-level segment’s downward trend, while sales increased slightly for those in the $35 to $39.99 and $45 to $49.99 ranges.
Brager sees the most strength and stability in the $11 to $25 price category. “The mid-range is where there’s a little more reason for optimism,” he says.
Rob McMillan, the EVP and founder of the Silicon Valley Bank Wine Division and the author of its annual report, points to destocking—the active reduction of inventory a business has on hand—as an area of concern. Many consumers who bumped up their wine purchases during the pandemic have since curtailed their wine purchasing, leaving distributors and retailers with too much inventory and little incentive to take on more.
“It’s really hard to ignore the reality that if you have that much backed up in inventory, discounting is sure to follow,” McMillan says, particularly for high-volume producers. “That’s about the only way you’re going to be able to move those inventory stocks.”
Paying Attention to Dollar Sales of Wine
This data might seem to confirm the picture of doom and gloom that has been portrayed, but there are silver linings as well.
“We ended up having a very good Q4 in 2023 [for premium U.S. wineries] and the premium wine division ended up in positive sales growth territory again,” says McMillan, who generally defines “premium” as lower-production, handmade wines over $12. Though domestic winery visits were down last year, he predicts a comeback now that affluent Americans have gotten European “revenge travel” out of their systems.
A newly released report shows an even brighter outlook. The 2024 BMO Wine Market Report, which aims to capture all wine sold in the U.S. market, presents findings from the BMO Wine & Spirits Group in partnership with bw166 and Gomberg Fredrikson, Wine Business Analytics, and Full Glass Research.
Though volume sales were down for both on- and off-premise channels, dollars increased from $102 billion in 2022 to $107 billion in 2023. This is an important metric, says Karen Daenen, the director of research and consumer insights at Jackson Family Wines (JFW); the wine industry should assess its own health using value sales rather than just volume sales, she says.
“There are absolutely headwinds in the wine industry, but if you can accept where they are and what they actually are being driven by, there’s a lot of opportunity in there.” – Karen Daenen, Jackson Family Wines
“The wine industry has never really focused on talking about dollars, and we actually see that dollars have gone up,” says Daenen. “Looking at off-premise, dollars for domestic table wine are up 56 percent since 2018.” Similarly, on-premise dollar sales increased 65 percent between 2018 and 2023. Daenen and JFW marketing senior vice president Shilah Salmon launched an initiative this spring to provide media and trade with a broader picture of the industry’s health—which includes data from the BMO report.
“We are afraid that this echo chamber of negativity based on partial facts is going to create a self-fulfilling prophecy within the wine industry and it’s going to sabotage itself,” Salmon says. “We already feel that. We see that in some industry layoffs. We see people cutting their marketing spend. We hear it at our distributor level.”
Despite the negative news, sales for JFW’s brands are healthy. “The only places that we have seen downturns are where we have raised prices,” says Salmon, “but we’re seeing positive turns now where we had forecasted.” Kendall Jackson ‘Vintner’s Reserve’ Chardonnay sales are currently up 12 percent over the previous year, following price increases strategically rolled out across the U.S. starting in early 2022.
“There are absolutely headwinds in the wine industry,” Daenen says, “but if you can accept where they are and what they actually are being driven by, there’s a lot of opportunity in there.” Some of those opportunities lie in the on-premise channel, the BMO report suggests, in the form of wine-based cocktails, more affordable by-the-glass options, and new packaging formats.
Daenen also points to positive data about younger generations. A Numerator survey of 90,000 wine shoppers for the year ending December 31, 2023, found that younger generations spend more per bottle. Together, Gen X, millennials, and Gen Z account for 59 percent of sales at $20-plus price points.
The Problem of Bulk Wine Importing
Earlier this year, California vineyards were reportedly being ripped out “en masse” due to poor demand, mainly in the Lodi and Central Valley regions. These areas are the primary suppliers of grapes for the underperforming under-$12 category.
Stuart Spencer, the executive director of the Lodi Winegrape Commission, says declining wine demand isn’t the only reason behind the oversupply. Some large California brands are blending imported bulk wines into their products and labeling them with the American appellation of origin. Federal law allows U.S. wineries to include up to 25 percent foreign wines in appellation products labeled as “American.”
“From their perspective, that may be beneficial and diversify their risk,” Spencer says, “but some of that is being done on the backs of California grape growers.”
According to Gomberg Fredrikson, foreign bulk wine imported by California wineries totaled nearly 68 million gallons in 2022, up from 53 million in 2021 and 51 million in 2020. The 2022 figure translates to about 400,000 tons of grapes, Spencer says, which happens to be the same amount of tonnage growers have been told they need to remove.
He would like to see better labeling transparency, so consumers know what they’re buying. “When you look at the regulatory side of things,” Spencer says, “the American appellation is deceptive.”
Why Boutique American Wineries Are Struggling
Though U.S. wineries of all sizes are experiencing headwinds, many small, independent producers say they’re getting the worst of it. Patrick Cappiello of Monte Rio Cellars in Sonoma County took to Instagram earlier this year to share his struggles and implore the trade to support small domestic producers.
While many of the issues facing American vintners are challenges for global winemakers as well, Cappiello says imports have an unfair advantage over U.S. wines because in many EU countries, the industry receives government subsidies and bailouts in tough years.
“In this country the subsidies go to corn, they don’t go to wine,” he says. “The fact that the agency that controls alcohol is also the one that controls firearms and tobacco is a big statement about how they see us.”
Like many boutique wineries, Monte Rio increased production to meet surging demand during the height of the pandemic. Now, he says, distributors are destocking and small wineries like his are scrambling.
“The reason I came forward is because I started talking to people who had been making wine a lot longer than me, and they were all feeling the same thing I was,” says Cappiello. “This isn’t just one crazy dude complaining on his Instagram about sales.”
In the aftermath of his viral video, more than a dozen winemakers in California, Oregon, Pennsylvania, and New Jersey have contacted Cappiello to commiserate. One such vintner was Olga Tuttle, the co-owner of Teutonic Wine Company in Portland, Oregon, which makes 4,000 to 6,000 cases annually, with 75 percent sold via wholesalers.
Business was great until the summer of 2023, she says, but then sales to distributors suddenly took a dramatic dive. Tuttle panicked and began slashing prices by 20 to 30 percent. By the end of last year, she was thinking of taking a second job to keep the winery going. Instead, she laid off Teutonic’s lone tasting room employee and took on the extra work herself.
“Sales are picking up a bit now, but I am still miles behind on where we should be,” she says. “I had to take on an additional loan to pay some bottling and fruit bills, putting me more in debt.”
Fortunately, Tuttle and her husband Barnaby have a line of credit that gets them through rough patches and helps when large bottling bills come due. “I think we’re okay,” she says, “but I’m still not comfortable.”
Brian Scott, the national sales manager at Quivira Vineyards in Sonoma County, has spent much of the past year traveling the country, talking to distributors and account representatives about the market situation. The winery makes around 18,000 cases per year and distributes its wines in 25 states.
“The goal for most of the industry is to remain flat in 2024,” he says. “Gone are the days of increasing goals by 20 percent.”
One reason for the stall, Scott notes, is price increases. After years of holding steady, wineries had to raise prices to cover rising costs for everything from glass to labor to logistics to barrels. “There was no other choice but to bring up prices,” he says, “and this put distributors into a panic.”
Scott says he hopes the industry will heed Cappiello’s call to rally around local wines. “Everybody’s got to get together and promote your region,” he says. “Wherever you live, you have to get your crew together.”
With collaboration in mind, Cappiello is organizing a “Judgment of Paris”-style showdown between U.S. and European wines to reaffirm the quality of American wine. “I just feel like if I do the right thing for our community,” he says, “we will work together to make things better.”
Pivoting Business Practices Can Help Wineries Cope
Some small wineries have managed to weather industry challenges by reading the room and making adjustments. William Allen, the cofounder of Sonoma County’s Two Shepherds, reports that the winery’s DTC sales for Q1 2024 reached their highest level in five years, and as of the halfway point of Q2, sales were up 31 percent compared to the previous year. Distribution has already exceeded Q1, and is trending up seven percent from the same period in 2023.
“There are just too many brands. It’s too easy with custom crush for people to come in with a hope and a dream and a prayer, with no clue of what to do and no capital,” Allen says. “The market can’t sustain all these distractions and competition for retail shelf space.”
Rather than experiencing an extinction-level event, he believes the industry is seeing a correction. “It’s sad that some people won’t make it. But I think it’s needed,” he says. “We intend to be mammals in the Ice Age and survive.”
Allen has cut back on expenses by reducing tasting room hours, and handling fulfillment and compliance in house. In the last two years, Two Shepherds has shifted its glass, cork, and label suppliers to a central location near the winery, so Allen can pick up supplies and save on delivery costs.
Another strategy is bottling several times a year instead of all at once. Not only does this allow Two Shepherds to bottle wines only when they’re ready, he says, “It’s been a godsend for cashflow.”
Rob Sinskey, the co-owner of Robert Sinskey Vineyards in Napa Valley, has also made changes to better position his family’s winery for the future.
In 2023, he sold his Silverado Trail winery and tasting room, and bought a farm in Carneros. In recent years, he cut annual production from 20,000 cases to around 10,000. “I saw a slowdown coming,” he says, citing generational shifts in wine consumption among the warning signs.
The sale allowed Sinskey to cut expenses and invest more in Earth-friendly farming. Eventually, he plans to open a tasting room and restaurant in downtown Napa, supplied by produce from his farm.
As Napa wineries grapple with skyrocketing costs for farming and insurance, and the uncertainty of fire seasons, he says, “The new abnormal is hard to predict.”
Jim Law, the cofounder of Linden Vineyards in Virginia’s Shenandoah Valley, counts the winery’s 4,000-case size and long standing reputation as advantages. “We are in a good position compared to so many other wineries,” he says. To keep up with market shifts, the winery has diversified its sales channels, including adding a new wholesaler last year to target high-end restaurants.
“The demographic shift for us is a big one,” Law says. “We’ve always depended on the baby boom generation. There’ve been our major buyers and visitors, mainly from the metro [Washington] D.C. area. But things are falling off, perhaps more quickly than I had anticipated.”
To help replace older customers who are cutting back on drinking or are retiring to other parts of the country, Law is turning to the next generation. Since his daughter and son-in-law joined the business a few months ago and added social media to the marketing mix, he’s already seeing a shift in tasting room demographics.
“I am optimistic [about the industry’s future], though perhaps not as optimistic as I was five years ago,” Law says. “As our distributor, who’s been around for a long time, says, ‘You just have to work harder.’ That’s all it is.”
Dispatch
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Tina Caputo is a writer based in Northern California who covers wine, beer, food, and travel. She was formerly the editor in chief of Vineyard & Winery Management magazine, and her work has appeared in Wine Enthusiast, Visit California, Sonoma magazine, the San Francisco Chronicle, and many other publications. She also produces the podcast Winemakers Drinking Beer.
