Some nice photos of ripening Mourvèdre
Harvest, Week of September 15th: Watching and Waiting

United States wine consumption and production changes (and what they mean for California wineries)

You probably have heard that wine consumption in the United States is rising, and poised to pass France and Italy over the next few years.  What you may not have realized is how much more growth potential we have, and how positive this trend is for the prospects of California wineries.  Key to this is looking at growth trends, and not being afraid to do a little math. 

First, the consumption numbers (courtesy of VinExpo; all figures are for 2007 vintage except those for Argentina, Russia and Chile, which are 2006 vintage):

Country Consumption (9L cases, millions) Projected 5 yr. Change
France 357.8 -2.6%
Italy 298.8 0.4%
USA 294.4 17.8%
Germany 225.6 1.9%
Spain 147.8 -9.2%
UK 134.4 2.5%
Argentina 118.9 2.8%
Russia 58.9 29.1%
Australia 53.3 69.5%

At the end of five years, if the above projection holds true, American consumption will rise to around 347 million cases (coincidentally, French consumption should be at almost exactly the same total after moderate declines).  This growth is a good thing for producers around the world, but particularly the American producers who make up 69% of the American wine market. 

Adding 52 million cases of wine consumption in five years sounds like a lot.  But, the United States is a much more populous country than either France or Italy, so our per capita consumption still lags behind most of Europe. This just means that as American culture changes to increasingly embrace wine, we can expect a lot more growth.  The 294.4 million cases, divided up among 228 million American adults, shows an average consumption of 15.5 bottles per year... or about five glasses of wine per month.  By contrast, the average American drinks 230 12-ounce beers a year, or about five beers per week.

The assertion -- much repeated within the wine community over the past few years -- that wine is surpassing beer as Americans' beverage of choice is more accurately stated that wine sales have surpassed beer sales.  The average bottle of wine is, apparently, about fifteen times more expensive than the average beer.  Multiply that price by the quantity purchased of each and the two figures come out more or less equal. 

The trends of the market are strongly toward wine.  Per capita beer consumption actually declined slightly over the last ten years, while wine consumption continues to grow.  A recent assessment of the state of the market by Dan Berger was notably pessimistic about the prospects for the American wine industry (chiefly due to the growing penetration of imports into the American market, but also due to the continued production of large quantities of cheap grapes in the Central Valley).  I don't agree.  The American wine market is growing fast enough to absorb significantly more imported wine while still providing homes for increased domestic wine production.

Adding the production numbers (again, courtesy VinExpo) gives some additional perspective:

Country Production (9L cases, millions) Projected 5 yr. Change
Italy 554.4 -5.7%
France 504.4 -3.0%
Spain 418.9 -5.1%
USA 222.2 6.4%
Argentina 166.7 1.9%
Germany 116.7 8.8%
South Africa 108.9 20.1%
Australia 106.7 23.4%
Chile 93.3 14.2%

Imports make up 31% of American wine sales.  American wineries sell about 203 million cases of their wine to the American market.  In five years, based on the projected growth, American wine production will have grown by about 14 million cases.  American consumption will have grown by over 52 million cases.  The American market could absorb its entire increased production, and still buy more than half the combined production increases of Argentina, Germany, South Africa, Australia and Chile. 

Far from being a pessimistic picture, I find this an extremely encouraging one.  Our home wine market is growing faster than any other in the world, and the increased exposure to imports means that the American wine consumer is becoming better educated on wines beyond the "big six" of Cabernet Sauvignon, Merlot, Pinot Noir, Zinfandel, Chardonnay, and Sauvignon Blanc.  Plus, American wineries, spurred by the declining dollar, have opportunities in other countries.  Right now, American wineries only export about 19.1 million cases (8.6% of American production).  I know from the increased visits and inquiries we're seeing from international buyers that many other countries are looking to California as a place for value.  We project that our exports will grow 20% next year alone.

Mix it all together, and what do you get?  Despite potential short-term difficulties in the domestic wholesale market due to economic uncertainty (I've written about how much more sensitive the wholesale market is than the direct sales market to economic shocks) I think that we can look with confidence at a vibrant, growing market, and great prospects for growth over the next decade.

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