NEW YORK, Sept. 28 /PRNewswire/ -- According to a new report by
Rabobank, the wine market in the United States is steadily growing, but
California faces challenges from imported wines to keep its market share.
The report, "The future of the California wine industry: A 'perfect
storm' of imports brewing?" states that since 1995, imports have grown 184
percent. However, while California produces 90 percent of U.S. wine, and
the growing consumption of wine has benefited California more than any
other state, the current market is not without challenge.
"Currently, nearly all the major wine-producing countries are
developing plans to increase sales to he U.S. market, targeting the
high-value market, where California producers have had more success fending
off competition in recent years," said Rabobank Food & Agribusiness
Research Vice President Stephen Rannekleiv.
Domestic Supply and Demand
The United States is emerging as one of the most attractive markets in
the world for high-value table wine due to the size and continued growth of
the industry. Between 1994 and 2006, consumption rose more than 50 percent,
with the strongest growth among wines valued at over $9 a bottle and
particularly at those over $12 a bottle. Below $9 a bottle growth was sloth
and low value jug wines had negative growth, but still is the largest
segment of wine sales by volume.
There are three main trends driving consumption:
1. Health consciousness: Wine has benefited from growing evidence that
states moderate wine consumption (1-2 4 oz. glasses per day) can have
beneficial effects. Between 2000 and 2006 the percentage of the
population that claims to drink wine at least once per week increased
2. 'Trading up': Higher incomes have lead many to seek out affordable,
everyday luxuries. This is evident in the growth of higher-value wines,
while lower cost wines have decreased.
3. Eagerness for new products: Consumers are expanding their horizons and
experiencing different cultures by trying new products.
"Supply of U.S. wines has also been strong, but faces a complex set of
challenges, including surpluses and shortages as pressure on prices, due to
increased competition from imports, and rising production costs,"
The 2005 California harvest was more than 20 percent above the average
yield and 34 percent higher than the average yield of previous years.
However, this appears to be a short-term fluctuation and in the process of
righting itself as the reserves began to be sold off in 2006. "This
phenomenon appears to be stifling market signals of shortages of key
varietals that would normally stimulate an increase in production,"
Instead, some evidence suggests that there is a pending shortage of
Chardonnay, Zinfandel and Cabernet. The key remains that most of the
opportunity to increase production will be for higher-quality wines
particularly in the North Coast - Napa and Sonoma where higher quality
grapes are grown, but only accounts for 10 percent of the state's total
production. Grapes from this region are worth 1000 percent more than the
grapes from the Central Valley, where 70 percent of California's wine
grapes are grown - mainly for basic wines. Additionally, the Central Coast
enjoys average grape prices that are approximately 500 percent higher than
Central Valley prices.
And while demand for wines from these regions grows, the cost of
expansion is prohibitive. California faces some of the highest average land
costs of all the competing wine producers in the world. An acre of land in
Napa costs an average of more than $150,000 with virtually no land
available to expand. Additionally, increased border patrols and efforts to
control illegal immigration make it difficult to find low-cost labor. As a
result, many must hire labor full-time rather than seasonally to ensure
"The pending shortage of specific varietals combined with California's
challenges for expanding production of ultra premium wines may be creating
an opportunity for imports to gain further share of the U.S. market,"
Rannekleiv said. "European imports made significant process in gaining
share of the super and ultra premium segments. This trend may be poised to
continue, as most wine-producing countries are focusing their efforts at
selling higher priced wines into the U.S. market."
Over the years, imported wines have been consistently increasing their
share of the U.S. market. Last year, imports outperformed the overall wine
market with a 9 percent growth in volume and 10 percent in value. The trend
of import growth appears to have accelerated in the first quarter of 2007,
as California wine sales were flat (-1 percent) compared to the first
quarter of 2006, while imports rose 24 percent.
The leading sources of imported wines are Italy, France and Australia,
which account for 77 percent of the value and 71 percent of the volume of
imports in 2006. Italy is the largest import source in terms of volume,
while France leads in value. Australia is the second largest importer by
volume, but lags in value.
Historically, the market share of imports has been cyclical, and
imports fill gaps that California wines are able to retake eventually.
However, over the years, some structural changes in supply and demand have
altered that cycle. A key change is the consumer as wine consumption from
the Millennial generation (born 1977-1994) has embraced wine consumption
more quickly than previous generations.
While only about half of the generation is of legal drinking age, they
are increasing their wine consumption more quickly than other generations.
"Millennials are very internet savvy, regularly read reviews, educate
themselves about different wines and enjoy experimenting. As these
Millennials research their wines, they often feel that California wines are
not the best value - finding equally good from other states or countries at
lower prices," Rannekleiv said. As a result, Millennials are drinking much
more imported wine than other generations.
Additionally, wine supply has changed in recent years. Many of the
California wine companies have evolved into international companies, and
are increasingly seeking to offer consumers a broad portfolio of wines at a
wide range of price points. To achieve this, these companies are
increasingly sourcing wines from abroad. A result has been the introduction
of 41 new brands in 2006 alone by the top 10 wine companies - 17 were
"In short, the large U.S. wine companies are now some of the main
importers of foreign wines," Rannekleiv said.
Established growers and wineries on the North Coast are in good shape
for the current context of the U.S. wine market. "At a time when many U.S.
consumers are trading up, the North Coast, particularly Napa, symbolizes
quality and aspiration," Rannekleiv said. However, as demand for
high-quality wine grows, the North Coast faces a significant land
constraint, which opens the doors for importers. The key to success in Napa
and Sonoma is to maintain its premium image, but must be supported by a
The Central Coast may benefit from the shortage of land in the North
Coast. While the Central Coast still has only 3 percent of the California
wine market, its growth rate in 2006 was well above other regions, and even
better than the growth rate of imports. However, it must continue to build
its quality image while improving its production efficiency.
Currently, there is no evidence to suggest that the trends toward
trading up will slow down, which will keep the market for premium wines
growing - baring any major economic disruptions. In general, however,
imports will continue their strong growth and will target the premium
segment more fiercely forcing California producers improve their
Rabobank Group is a financial services leader providing retail and
institutional banking and agricultural finance solutions in key markets
around the world. From its century-old roots as a finance cooperative
founded by Dutch farmers, Rabobank has grown into one of the 25 largest
banks worldwide with approximately US$730 billion in assets and operations
in over 35 countries. Rabobank is one of the few private banks in the world
with the highest possible credit rating from both Standard & Poor's (AAA)
and Moody's Investor Service (Aaa), and is ranked as the world's third
safest bank by Global Finance magazine. In the Americas, Rabobank is a
specialist in sophisticated, customer-driven solutions in the Global
Financial Markets and Corporate Finance arenas and provides banking
services to corporate food and agribusiness clients; retail and commercial
banking services in California; leasing; and a full range of agricultural
finance products to American agricultural producers.