Wine Imports Squeeze State's Vintners

By Jerry Hirsch

Jan. 12, 2006 12 AM PT

Times Staff Writer

California vintners don’t like what they’re hearing through the grapevine: American consumers prefer wines from Italy and Australia.

Two studies of the U.S. wine market this week found that California was losing out to foreign competitors in both market share and consumer perception.

A study by the Wine Market Council found that consumers liked foreign vintages for two reasons: taste and price. American consumers scored Italian wines higher than the state’s varietals on a measurement of satisfaction. The same wine drinkers said Italian and Australian wines were of better quality, while Australian wines were deemed the best value.

The study, released at the Culinary Institute of America in St. Helena, Calif., during a presentation Wednesday about attitudes of U.S. wine consumers, followed a report by New York brokerage Merrill Lynch & Co. this week that said California was slowly losing market share to imported wines in grocery store sales.

“This is something that should be a real wake-up call for California’s wine industry,” said Michaela Rodeno, chief executive of St. Supery Vineyard & Winery in Napa Valley and the council’s chairwoman. “California used to have 90% of the business in the U.S. and now it is down to 74%,” including restaurants and other places that sell wine.

The findings in the trade group’s study also noted increasing consumer frustration with the prices that restaurants charge for wine, especially when sold by the glass.

“Quality and value is what really drives people, and it is not tipped in California’s favor,” said John Gillespie, executive director of the Wine Market Council, which represents grape growers, wine producers, distributors and retailers. But he said that the differences between California’s wines and those of other countries’ were narrow.

The survey of 1,398 wine consumers conducted by Merrill Research of San Mateo, Calif., which is not related to Merrill Lynch, found that Americans were drinking more wine -- a record 243 million cases in 2004. Annual per capita consumption stands at 2.77 gallons, also a record, the trade group said.

Yet, boosting consumption won’t entirely overcome inroads by imports, Rodeno said. “Yes, there’s a rising tide,” she said, “but it won’t be high enough to float all boats.”

Consumers’ gravitation toward foreign vintages is more pronounced outside of California, the council’s study found.

Jason Kohn, a 27-year-old documentary filmmaker in New York, said he was partial to wines from Italy, France and Argentina. “I am always surprised that the California wines seem to be more expensive here in New York,” he said.

A review of supermarket scanner data by Merrill Lynch found that California’s share of the U.S. wine market by volume slipped 0.7 percentage point to 71.4% in 2005. Australian wines picked up 0.7 percentage point to hold 7.7% of the market.

The industry took hope from the adoption of wine drinking by young adults -- up to 28 years old -- whose consumption is one major driver of the wine market’s growth. Members of that group drink more wine at parties and other events than older adults do and purchase a higher proportion of imported wine, most likely red, according to the study.

“My favorite wine is a Spanish Rioja,” said Amanda Price, a 27-year-old Hancock Park resident who drinks wine four to five times a week. “I recently bought a California Cabernet. It was nice but it didn’t make me want to change my drinking habits.”

California winemakers should start to listen to younger tipplers, the wine council’s Gillespie said.

“If I see that younger people pick imported wine when they drink, then I need to do something about it to protect my market,” he said. “California needs to address the younger segments of the consuming public because that is where they are losing market share.”

Young people have helped turn slickly marketed, more whimsically labeled wines from Australia into big sellers, said Peter Huwiler, chief executive of Merryvale, a St. Helena winery.

Australia’s Yellow Tail, with its distinctive hopping kangaroo label, is the largest-selling brand by dollar volume in U.S. food stores, winning prominent displays in supermarkets that make it an easy purchase for consumers running to the store for a bottle of wine. It sold 7.5 million cases last year, according to wine consultant Jon Fredrikson of Gomberg, Fredrikson & Associates in Woodside, Calif.

“Young people like these types of labels and the price and value is very good,” Huwiler said.

A bottle of Yellow Tail sold for an average of $6.29 last year, according to Merrill Lynch. Among California labels, that price compares with $11.52 for Kendall Jackson, $10.70 for a bottle of Fortune Brands -- which makes the Geyser Peak label -- and $6.76 for Beringer Blass.

“Australian wines have been beating us up at the lower price points,” said Nat DiBuduo, president of Fresno-based Allied Grape Growers, the state’s largest wine grape growing cooperative.

But DiBuduo said California’s industry was not about to concede the low end of the market. “We are going to fight this battle,” he said. “We are not backing off from producing good quality wine that is priced competitively.”

The state’s wine industry had mixed reactions to the council’s report.

The Wine Institute, California’s largest wine trade group, said its own surveys showed that the state’s wine beat wine from every other region in comparisons of taste, value and quality.

“We are in a good position, we have the majority of market share but we know we need to get a cohesive message out about California,” institute spokeswoman Nancy Light said. “It is a very competitive global market out there.”

But even as wine grows in popularity, consumers are increasingly voicing dissatisfaction with the price of the drink in restaurants, Gillespie said. Five years ago, half of frequent wine drinkers said buying a glass of wine at a restaurant represented a good value, but only 38% of the respondents agreed with that statement in the latest survey.

The wine council predicted that consumers’ increasing resistance to high wine prices, particularly at restaurants, may be a bigger threat to sales growth than is competition from other types of beverages.

“There is no excuse why restaurants don’t have a $2 to $2.50 glass of wine on their menus,” said Fred Franzia, co-owner of Bronco Wine Co., which popularized the $1.99-a-bottle Charles Shaw label, known as Two Buck Chuck. “They could still make a fair markup.”

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In a squeeze

California wines are perceived as lagging behind foreign brands in flavor, quality and value and are not known widely as having an identity unique to the region, according to a survey.

Statement: Wine is unique to region where it was made

Percentage of people who agree with statement about wine from these regions:

California: 45%

Italy: 61%

Australia: 55%

France: 64%

Statement: Better flavor

Percentage of people who agree with statement about wine from these regions:

California: 56%

Italy: 59%

Australia: 56%

France: 52%