The 2017 Wine Business Monthly rankings are out, and the results highlight what everyone in the wine business already knows: The competition in the world of wine sales is staggering.
According to Wine Business Monthly, roughly 90 percent of wine sold in the U.S. comes from the 30 top producers, and more than half of the wine sold domestically comes from E. & J. Gallo, The Wine Group and Constellation Brands. The fact that most of the domestic wine sold in this country is produced by a handful of companies is not shocking. What is shocking is that there are now more than 9,000 domestic wineries competing for the remaining 10 percent of sales.
The report highlights that in 2016 the total number of wineries in the United States reached 9,091, with California having the most (4,202) and 1,167 of those being virtual — without a dedicated winery or facility to make and sell their wine; these winemakers making their wine at a custom-crush facility with shared equipment and space. I’ve reported earlier that there are likely more than 1,000 wineries in Napa County alone.
The growth in the number of new wineries seems to be slowing, but only slightly, with more permit requests expected to continue for the foreseeable future for new wineries or existing wineries changing hands, often creating a new wine brand or two when they do, the new owners excited to put their own personal mark on the brand.
Let’s do some math.
About 60 percent of Americans drink alcohol at least occasionally, according to a 2012 Gallup poll, which was consistent with the historical average of around 63 percent since 1939. Of those taking the poll, about 35 percent said they drank wine. Assuming these percentages are for those of legal drinking age, then 27 percent of the total population was not considered.
The population of the United States is roughly 325 million people. So if we take out those who are underage, 237 million remain, leaving 142 million who drink occasionally, 50 million of them drinking wine. If these numbers are even roughly correct, then the top 30 wine producers have about 45 million customers (90 percent of the wine sales), while the other 9,000 domestic wineries have access to the remaining 10 percent (5 million). Just for fun, if we assume that each of these wineries makes 1,000 cases a year, this would equal about 9 million cases to sell to 5 million people, or nearly two cases of wine per person.
You might be thinking that percent sales is not exactly translatable into percent population. Fine. But you get the point, and either way this is likely a conservative illustrative example anyway. Many of these wineries make more than 1,000 cases, and this is only factoring in domestic competition and does not take into consideration that the U.S. wine market is the most highly sought-after of global producers.
What does this mean for Napa Valley wine producers? Napa’s prime varietal is cabernet sauvignon, which takes three to five years to age before going to market. If you think competition for customers is brutal now, just wait for a few years until new producers are releasing their wines to an over-saturated market.
What does this mean for consumers? They’ll have plenty of choices, but they’ll need to be careful, because much of the wine at virtual wineries, even made from exceptional vineyards and using expensive oak, will have been made at increasingly busy locations with shared equipment in what can be factory-like conditions.
Wineries that have their own location will have their challenges, too. The cost of doing business will continue to escalate, and the number of new, fancier wineries with ever-increasingly new expensive gadgets will continue to expand.
The result? Customers will become more difficult to attract and maintain, resulting in wineries spending more on customers to make their experiences more “memorable,” including such things as tasting menus, unauthorized tastings, free goods and other often legally tenuous activities.
The Napa Valley has attracted successful people who dream of becoming vintners since even before Gustave Ferdinand Niebaum bought the Rutherford land that would eventually become the Inglenook Winery and Vineyards. There have been booms and busts and a lot of great wine and food. But never in the history of this place have so many tried to extract so much in such a short amount of time. Besides lots of wine, it is unclear exactly what the impact of such an experiment will be, but it is clear that we are each a witness.