Making wine is easy.
Squeeze the juice out of grapes and watch what happens. Within a few days natural yeast will have gone to work converting the sugary liquid to alcohol and carbon dioxide gas.
Of course, there are other microbes that also want access to the carbohydrate-rich liquid, but keep conditions sanitary and relatively absent of oxygen and pretty soon you’ll have yourself a version of wine.
However, take that same wine and bottle it, and without a near Herculean effort that includes numerous layers of people, bureaucracy and cash you will not likely sell that wine. The fact is, making wine is easy, but selling it is not — and it’s getting harder all the time.
According to Wine Business Monthly, in 2017 roughly 90 percent of wine sold in the United States came from the 30 top producers, and more than half of the wine sold domestically came from E. & J. Gallo, The Wine Group and Constellation Brands (“the big three”).
The fact that most of the domestic wines sold in this country are produced by a handful of companies is not shocking. What is shocking is that there are now nearly 9,000 wineries competing for the remaining 10 percent of sales, with more than 4,000 of them located in California.
The number of Americans who drink wine is 35 percent of those who drink alcohol, which has hovered around 60 percent since 1939, according to Gallup. Since the U.S. is made up of about 325 million people, that means that about 68 million Americans drink and prefer wine. If 90 percent of them are consuming the top 30 producers, then that leaves about 7 million wine lovers who are up for grabs for all the other wineries.
Good luck to small producers who are trying to sell wine into restaurants or retail shops. The number of distributors is shrinking and the big three mostly run the show, often dictating what wines will be sold and where. And whereas distributors used to look for smaller brands to service their high-end accounts, now they don’t have the time or incentive to do much more than provide a few token offerings.
For small producers to make it “work,” they must basically sell the wine themselves, even when they are paying the distributors a fee. And even “pretty big players” are finding that without at least 2 million or more of case production levels they have no leverage with distributors, resulting in many mid-tier producers who have been on a scramble for the last few years to buy brands and increase production.
Health concerns growing
A recent study funded by the Bill and Melinda Gates Foundation finds that the safest level of alcohol consumption is zero. The Washington Post reports the study’s findings, saying, “To minimize health risks, the optimal amount of alcohol someone should consume is none.”
The worldwide study was co-authored by 512 researchers from 243 institutions and was published in the well-regarded and scientifically and medically respected Lancet. The findings from the study show that “Globally, alcohol use was the seventh leading risk factor for both deaths in 2016, accounting for 22 percent (95 percent uncertainty interval [UI] 15–30) of age-standardised female deaths and 68 percent (58–80) of age-standardised male deaths.”
The study looked at more than 20 different diseases and their association with alcohol consumption and found that drinking one drink per day increases the risk of getting one of these conditions by 0.5 percent, two drinks by 7 percent and five drinks by 35 percent.
An earlier study from the same data that produced a similar conclusion was criticized for not including non-drinkers in the analysis, but this new study appears to have addressed the earlier shortfall.
This study did not look at wine only but included all types of alcohol consumption. There will be those who find flaws with this study, too, but regardless, the younger generations seem to be responding to the headlines already with reduced levels of consumption, which seems evident by a recent spike in non-alcoholic beer and wine sales.
Generation Z (born approximately between 1995 and 2014) will take over the most prominent wine-drinking position in the American population by about 2030. However, they are already showing signs of having less interest in alcohol. A report from Berenberg Equity Research found that 64 percent of Gen Z respondents expected to drink alcohol less frequently than today’s older Americans. Previous generations have looked to wine (and other alcohols) as being healthy when consumed in moderation. However, the headlines linking alcohol with cancer and other diseases are having an impact, maybe not on anyone over 50 but certainly on those in their 20s.
According to the New York Times, American wines make up only 2 percent of the imported-wine market in China. But 10 years ago the number was closer to 10 percent. And the ongoing trade war with China has resulted in a further decline.
At the same time, Australia, New Zealand and Chile have worked with China to solidify their market position, agreeing on free-trade agreements that are either in place or will be in the next year. France has become the dominant exporter of wine to China, which is a little surprising seeing as how they had a serious setback when Xi Jinping became president in 2013 and began an anti-corruption campaign that focused on eliminating illicit gift-giving (i.e., lots of expensive French wine).
Since then, the Gallic nation has worked every angle to dominate the wine ethos in China, initially by devising a European strategy in 2013 to “educate” the nascent Chinese market by flooding them with French winemakers and wine professionals.
Meanwhile, the United States has had what amounts to an incoherent marketing strategy coupled with a combative trade posture. According to the Wine Institute, the recent trade war has increased the total tariff and tax paid on a bottle of U.S. wine imported into China from 48.2 percent to 66 percent, while Chile, Georgia and New Zealand wines enter China tariff-free and only pay a 27 percent combined tax rate. This means that every wine made in America that is sold in China is at a serious price disadvantage.
The number of formally trained wine professionals continues to expand. Statistics gleaned from an Internet search show that a little more than a decade ago only a few hundred wine professionals were launched into the world every year, but now there are more than 2,000 winemaking bachelor’s, master’s and Ph.Ds who graduate from top-tier programs in the United States alone.
Thousands more, through dozens of accredited colleges and hundreds of internships and apprenticeship training programs, are provided some sort of certificate of winemaking.
And it’s not just that winemakers (enology), vineyard experts (viticulture) and paths to become certified sommeliers have become more common. What all these wine experts will do in what is a stagnating market will create challenges for these professionals seeking work. My guess is that more and more will be forced to enter into the sales side, with many joining distributors or forming roving bands of winery representatives.
Canned, Orange, flavored and ‘Pét-Nat’
One thing that all this competition, expertise and concern over consumption has spurred is a resurgence in lower-alcohol wines of all shapes and sizes. The sale of flavored “wine” that comes in cans has jumped more than 40 percent, and any restaurant wine list that does not include Orange or Pétillant Naturel (Pét-Nat, for short) no longer feels complete. These wines typically have lower alcohol content than standard offerings and often compete with cocktails instead of other wines offered at a restaurant or bar.
Here in the Napa Valley, the images from the recent fires have had an impact on tourism, and therefore local businesses have suffered. Just when things were getting back to normal, nearby fires in 2018 have caused haze and smoke to blanket the valley again, resulting in fears of smoke-tainted wine and the national media’s false claim that “California was on fire again.” The result, according to the California State Tourism agency, was that 11 percent of planned trips to our fine state were cancelled in July because of the fear of fires.
The new normal?
As the world of wine continues to change, one thing remains the same — wine is relatively easy to make. As consumer preferences and environments change, so too must the Napa Valley. If you believe that just doing more of the same will save you, then you might want to review the history of every industry on the planet. Everything changes. You could hit the gas and try and make it over the canyon, but since the future looks hazy, instead you might want to slow down and smell the roses (or, perhaps the Pét-Nat).
Originally published in the Napa Register, August 2018