Consumers drinking less wine, but paying for more expensive bottles

Wine consumption is plateauing even as value-priced wines decline in sales amid a growing market for higher-priced, premium wines, says Chris Bitter, senior wine and grape analyst at Terrain, an agricultural analysis firm.

"There's also been somewhat of a movement in the U.S. in terms of people looking more at health and wellness and trying to moderate their alcohol consumption," Bitter said at the Agri-Pulse Food and Ag Issues Summit West in Sacramento on Monday.

"Sales of wines and value price wines below $10 or $11 a bottle have been contracting for almost a decade, while sales for higher-priced wine premiums and higher-tier wines have been continuing to grow," Bitter said. "I don't see the kind of decline in value priced wine sales reversing itself. I think that's a structural trend, and it is going to continue going forward."

Bitter also said consumers are very pessimistic in their spending habits despite the economy growing and employment at record low levels. Consumer confidence surveys reveal that consumers believe conditions are OK right now, but they’re dour about the future. He said this extends not just for low-income consumers, but also to those in the top third of the income distribution.

"In wine, we’re seeing these consumers spending like it's a recession, even though it not. It's not necessarily whether we go into a recession or not, but it's when is the uncertainty about the future going to be alleviated?" Bitter said. He said that uncertainty needs to be alleviated "before we start seeing consumers open their pocketbooks and spending on wine again."

In California's Central Valley, grape prices haven't appreciated much over the last decade, with grapes selling at an average price of $475/ton in 2022, the same as it was in 2012. In the Napa region, however, the average price of a ton of grapes was almost $7,000 last year, nearly double what it was in 2012.

Bitter said he anticipates some grape acreage will need to be removed over time, especially in the Central Valley, to keep the supply and demand in balance. He anticipates seeing stronger demand for premium and higher-price grapes, though perhaps not as strong as seen in the past.

Bitter said there's also been three consecutive smaller-than-average grape crops, with last year's crop the smallest since 2011. Some of the supply constraints from smaller crops due to drought and water restrictions helped boost grape prices in some of those regions that produce higher quality wines.

Now that the drought and water restrictions have been alleviated, Bitter said it sets the stage for a larger crop this year.

"If we do have a large crop, then we’re likely going to see some downward pressure on grape prices because wine sales are declining at this point across all price tiers," he said.

He said in the Central Valley this is expected to create a softening in prices. "I think the coastal regions are a little better positioned because the demand side is a litter stronger," Bitter added.

Daniel Sumner, agricultural economist from UC-Davis, said for years, wine grape acreage wasn't expanding in the Central Valley because it couldn't compete with tree nuts. Now that dynamic has shifted and the almond sector faces headwinds.

Bitter said wine grape acreage peaked in 2018 in California at 637,000 acres, and the most recent report had acreage at 615,000 acres, due not to encroachment or alternative crops but slowing demand for wine domestically and more competition globally.

Requirements from the Sustainable Groundwater Management Act may also put some downward pressure on the basic resources of water for trees, which may push some land to be idled.

Bitter said flooding wasn't a particularly pronounced issue for wine grapes this past year but did help alleviate a drought and water scarcity.

Although wine grapes use a lot of water, they use less than some of the alternative crops such as almonds. And they’re more economically productive per unit of water use than almost any other crop, he said.

"Over the long-term, water is going to be an issue for grape growers just like it is for everyone else. I think the good news is that there's a lot of potential to reduce water usage in wine grape growing," Bitter said.

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Jacqui FatkaAssociate Editor