Napa Valley already commands the American wine market. Now what?

It’s an impressive share, and one that’s been carefully cultivated since the 2005 Supreme Court ruling that legalized interstate shipping of wine. But Napa’s existing command of the market begs the question: where to from here?

By volume, Napa’s shipment growth has fallen behind industry trends for the past four years, according to the 2020 Direct to Consumer wine shipping report. At 2.8 growth for 2019, Napa County trails Sonoma County, Oregon, Washington State as well as the average for the rest of the United States. Washington, leading the pack, grew the volume of its direct to consumer shipments by 16 percent.

Andrew Adams, editor of the Wine Vine Analytics report and one of the authors of the DTC shipping report, says despite the numbers, Napa has put forth a continually strong performance in direct to consumer shipping.

Considering the valley commands the share of the market that it does, he said, explosive growth isn’t to be expected of the region in the near future.

“I would say this is probably going to be the (sustained) level of growth for the near- and possibly long-term future,” Adams said, of the 2 to 3 percent growth range. “We may even see volume declines, just because there are so many other wineries and regions that now realize they have to double down on direct to consumer sales.”

Sonoma County for the first time last year superseded Napa’s share of the market by volume (and has done so again this year, capping in at 29.3 percent of total wine shipped to consumers by volume). In terms of value of shipments, though, Napa has the clear lead: shipments from the valley make up almost half of the value of all wine shipped to consumers, while wine from Sonoma County makes up just over a fifth.

Still, Napa has competition, and not just in the North Bay: Washington and Oregon have continually increased their share of the market, according to Alex Koral, a report contributor and senior regulatory counsel for report co-producer ShipCompliant.

“Those states are really developing as wine regions, and they’re getting people looking for new novel things,” Koral said, noting the quality of the wine produced in Oregon and Washington also attracted consumers.

The lower price points of wine produced in Oregon, Washington and Sonoma as well as in the Central Coast could act as a kind of on-ramp to those industries for consumers, Koral said. While the report notes that wines priced at $100 per bottle and higher have shown significant growth in the last year – shipments, by volume, are up 15 percent – it notes that premium pricing might cap expansion of sales in volume.

“That’s a challenge of direct to consumer shipments,” Adams said, of pricing luxury wines. He doesn’t foresee any wineries cutting their retail pricing. “A lot of that is powered by the perception among consumers that they’re buying a wine that is (priced the way it is because it’s) relatively exclusive and scarce.”

Growth of direct to consumer shipping

Direct to consumer shipping has been a huge priority of Napa’s since it became legal 15 years ago, according to Rex Stults, director of industry relations for the Napa Valley Vintners. Wineries often glean valuable information about their customers – how much and what kind of wine they like to buy, which regional markets they’re a part of or why they purchased the wine they did – by interacting with them directly, something that retailer or distributor sales deprive them of.

For small wineries, often less attractive to those larger retailers, direct to consumer shipping is especially important, Stults said.

“Direct shipping went from being a cherry on the top of the sundae to the ice cream,” he added.

Today, direct to consumer shipping is legal in 45 states, which represent 95 percent of the American population, Wine Institute Vice President of State Relations Steve Gross told the crowd at a speech during this week’s Direct to Consumer Symposium. That essentially means that there is no untouched market for the wine industry to crack – any further growth will mean appealing to consumers who might not be already currently interested in wine, like millennials or beer- and spirits-drinkers.

Ultimately, Adams said he sees Napa as having put forth a strong showing in terms of growth year after year. That’s in part related to the growth in shipping of ultra premium-priced wine; the average price of a bottle shipped has increased 19 percent in five years to almost $70 today, according to the report. He also cites the hold Napa currently has over the market, even if individual wineries “many not all share” in that growth.

Talk of the end of premiumization – and with it, the end of price increases – could complicate Napa’s future growth. And as other regions grow, Napa’s respective share of the market could decline, Koral said.

“That reflects how saturated the Napa market is – how everybody knows about Napa wine, and it’s been so many decades of people looking to that as the premier American wine region,” he said.

As consumers pivot to search for something new or different (or, perhaps, more accessible in price) Napa might consider creating its on-ramps in the form of lower priced wines (in the $20 or $30 range, Koral said). Other experts have suggested that canned wines, as a smaller serving, could be a good introduction to premium wines.

As the American wine industry outside of the North Bay continues to evolve, Napa’s positioning in the market might shift, Adams said.

“Napa is not only the going to be the largest and have the most market share – they’ll have the most to lose,” Adams said. “They’re going to be up against more and more sophisticated competitors.”

Editors note: A previous version of this story incorrectly identified the Wine Institute's Vice President of State Relations. He is Steve Gross.