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Holiday Cheer May Be in Short Supply for North Coast Smaller Wineries

Recent reports from two seminars at the Wine Industry Network Expo in Santa Rosa paint a gloomy picture for Northern California’s small wineries. At least one wine business consultant and professional forecaster, Gabriel Froymovich has called the changing grape market cycle a “Grapepocalypse.”

There is a myriad of reasons for the pessimism that include: (1) Slowdown in premium wine sales on the horizon. “Premiumization” is the aim for many small wineries as this class of expensive wines continues to grow. That said, there may not be enough consumers with deep pockets to support premium wine sales. The chart above indicates that only 6% of Americans spend $21 or above for wine; (2) Wine prices continue to rise; (3) Baby boomers are ageing and now spending less than Gen-Xers; (4) Visits to California wineries have decreased in wake of California’s wildfires and the tourist industry has not completely recovered. With so many wineries, there are fewer visitors per winery. Wineries cannot grow their direct sales without visitors to the tasting rooms; (5) Millenials want experiences at wineries and this adds significantly to overhead; (6) The impact of legalization of cannabis; (7) The “big guys” are taking over. The top two distributors in the U.S. handle 54 per cent of all wine sold. Large wine companies such as Constellation Brands are dominating the retail marketplace. Ten grocery chains control 50 per cent of the nationwide wine sales; (8) The North Coast harvest of 2018 was huge with a surplus of premium grapes and wine; (9) A looming recession. Many economic forecasters predict that there is a 95% chance a recession will occur within the next 5 years. A 7% drop in wine sales occurred in the year after the last 2008 recession. If a recession does occur, there will be a hiccup in wine retail sales, growers will experience shocks to their revenue streams and vineyard prices will be seriously affected; (10) The labor market is tightening and this could impact winery profitability.

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