After two years of sluggish wine sales, consumers are starting to reach for — and spend more on — their favorite vintages. And the California wine industry, having survived several vineyard fire sales and a glut of excess inventory, is seeing signs of a post-recession rebound.
Domestic wine retail sales grew 7% in 2010 over the previous year, according to the Wine Institute in San Francisco. California wine producers, who make 90% of wine bottled domestically, saw retail sales grow 1% from the previous year, to $18.5 billion. And U.S. wine exports also jumped to a record $1.14 billion in 2010, up nearly 26% from 2009.
For the first time, the U.S. in 2010 consumed more wine than France. While the French still drink far more wine per capita than Americans, the U.S. — with its much larger population — has more people pouring a glass of Cabernet Sauvignon or Chardonnay.
As the U.S. economic recovery creeps on, restaurateurs say they are seeing more diners ordering full bottles, rather than a single glass, of wine with their meals. Technomic Inc., a Chicago research firm, forecast that alcohol sales at restaurants and bars would grow 1.9% in 2011, compared with sales in 2010.
“People are feeling a bit more confident about the economy and are going back to what they know,” said Tom Klein, the Wine Institute’s chairman and Rodney Strong Vineyards’ vintner. “The wine industry, is it easy right now? No. But I think the industry has turned a bit of the corner. People are being smart about what they buy, but they are coming back.”
Shoppers, who shifted to wines that cost less than $7 during the height of the recession, are reaching for pricier bottles, analysts said. According to the Wine Institute, sales of wine in the $7-to-$14 category grew 5% in 2010.
Even sales of high-end wines, which plummeted as recession-wary consumers cut back on luxury spending, are picking up. At the Ralphs grocery store in downtown Los Angeles, shoppers snapped up more than 100 bottles of Veuve Clicquot Ponsardin yellow label brut champagne in the last month; each bottle, on sale, costs $49.
“It’s a challenge to come in every day and keep the shelves full,” said Charles Carrick, a Ralphs wine steward.
Dragging a black tote out of her Ralphs grocery cart, Carolynne Chan steadily filled it with half a dozen wine bottles on a recent Friday afternoon.
Before the recession, the oenophile said, she and her family belonged to several wine clubs. Two years ago, when her husband’s engineering firm was cutting its staff, the family budget had little room for even an $8 Merlot.
No more. “We’re buying a lot more $12 bottles,” said Chan, 43, a mother of two. “We’re not spending money to travel this summer, but we can afford to make our Friday dinners a bit nicer.”
Analysts cautioned, however, that California’s viticulturists remain far from the heady days before the recession, when sales boomed and bottles with triple-digit price tags flew off shelves.
In 2008, as the recession roiled the economy, budget-conscious consumers traded down to less expensive wines. Americans snubbed tonier bottles from the Golden State and instead opted for cheaper bulk wine imports from overseas winemakers.
Wine sales at restaurants were sluggish, too, dropping as much as 10% nationwide in 2009.
“The people who were spending between $15 to $25 were shifting down toward $10 or stopped altogether,” said Paolo Bonetti, president of wine importer Organic Vintners Inc. “The $18 to $25 wines died on the shelf. A lot of wineries have trimmed their belts and decreased their costs to survive.”
As sales stagnated, the industry’s stockpiles overflowed. At the same time, California vineyard land values plummeted, prompting the sale of at least eight wineries last year at prices below what they could have fetched before the downturn.
Some producers, distributors and retailers slashed their prices and tried to curtail production to persevere. Sales improved, which helped clear out some of the backed-up inventory.
Shipments to U.S. retailers from California, other states and foreign producers grew to nearly 330 million cases last year, worth an estimated $30 billion. That’s a 2% increase over 2009, according to industry consultants Gomberg, Fredrikson & Associates in Woodside, Calif.
But some wineries still have too much of a bounty: 29% of California’s wineries said they have excess wine in their inventory, according to a Silicon Valley Bank industry report issued in April.
“The industry is coming back, but it is still a long way from the boom times,” said wine industry analyst Jon Fredrikson of Gomberg, Fredrikson & Associates. “I don’t see us again having that free-flowing credit economy that we saw that supported high-end luxury items, including wines. And because that’s gone, a part of the wine business has evaporated.”