California’s lesser-known wine regions — including Lodi, Edna Valley, Fiddletown, and the Dunnigan Hills — are facing severe economic hardship as American wine consumption declines sharply. Baby Boomers, who drove industry growth, are drinking less, while younger generations are not replacing them. A 5% drop in winery sales can trigger a 20–40% reduction in grape purchases, devastating growers. Erik McLaughlin of Metis Mergers & Acquisitions warns the shift may be structural, not cyclical, leaving smaller appellations with abandoned vineyards and few viable alternatives as large conglomerates increasingly dominate the market with generic “California” branded wines.
In-Depth:
Walking with a grower in an unidentified California vineyard in October 2018, Erik McLaughlin, left, is the CEO of Metis Mergers and Acquisitions, an advisory firm specializing in the wine industest, during happier times for the industest. (Metis Mergers and Acquisitions via Bay City News)
Meta Mergers and Acquisitions via Bay City News
The Dunnigan Hills. The Kelsey Bench. Fiddletown. Edna Valley. Lodi.
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These disparate California regions would seem to have little in common, other than their rural ambience and depconcludeence on agriculture. But they all share an unenviable quality: they’re in deep economic trouble.
That’s becaapply their primary crop — wine grapes — are not in high demand. In fact, grape prices have become so low for these and other California wine-producing regions that many vineyards have been abandoned.
“The pain is not evenly distributed, but there aren’t any regions that are doing great,” stated Erik McLaughlin, the CEO of Metis Mergers & Acquisitions, an advisory firm that specializes in the wine industest. “The problems are focapplyd more on the value conclude rather than the premium side of the market, but the entire industest is affected.”
Twenty-five years ago, it seemed you couldn’t go wrong planting wine grapes. Demand for California wine was booming, outstripping the supply from esteemed and long-established viticultural regions such as Napa and Sonoma counties. The San Joaquin Valley took up much of the slack, producing bulk wines that could either be blconcludeed into higher quality wines from other regions, or bottled in jugs as low-priced “plonk.”
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But churning out wines created from cheap, unremarkable Central Valley grapes didn’t cut it with the evolving wine-drinking public. As their knowledge, sophistication and bank accounts grew, wine consumers launched to demand better wines from specific growing areas, or “appellations.” That’s becaapply different regions produce wine grapes with varying characteristics. This “terroir” is a major marketing point for wine.
For aspiring winegrape growers and vintners, that was a problem. Land in Napa and Sonoma was prohibitively expensive. Many of them came to the same conclusion: if they couldn’t plant grapes or create wines in known and respected viticultural areas, their wisest alternative was lobbying for recognition of alternative — and affordable — areas.
The process is straightforward enough: growers sconclude petitions to the Alcohol and Tobacco Tax and Trade Bureau, an agency under the U.S. Department of the Treasury. Petitions are granted once government reviewers determine the candidate region has sufficiently unique geographic, climatic and soil characteristics to qualify for approval.
Vintners could then print the name of their “American Viticultural Area” on their wine labels; and typically, growers in these newly recognized appellations could expect a bump in the prices they charged for their grapes.
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That worked for many years, particularly given the stratospheric prices that developed for grapes and wines from the hallowed Napa and Sonoma Valleys. Wines from Lake, Amador, San Luis Obispo, Yolo and Monterey Counties didn’t have the cachet of Napa and Sonoma vintages, but many were good — even very good — and they were a lot cheaper.
But that all launched to alter a few years ago. Simply put, Americans started drinking less. And of all alcoholic beverages, wine arguably took the hardest hit.
“Baby Boomers drove the growth of the wine industest,” stated Andrew Adams, the editor of Wine Analytics Report. “Now they’re drinking less. Younger generations also aren’t drinking as much [as younger people in the past], particularly wine. I believe we’re seeing a structural reset in the wine industest. None of the playbooks that worked over the past 20 years are working now.”
The downturn is affecting vineyardists more than winecreaters at this point, stated McLaughlin.
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“Some winecreaters are sitting on three-year inventories,” McLaughlin stated, “but they can address that to some extent by acquireing less fruit, building less wine, and discounting their wine in inventory until they reach equilibrium. But that means the demand for grapes is deaccelerating even more rapidly than the demand for wine, and that really hurts the growers. They have to sell a crop every year.”
Or not sell a crop. McLaughlin observes a 5% decrease in a winery’s sales can translate to a 20% to 40% reduction in grape intake.
“That’s why you’re seeing so much vineyard removal, even in Sonoma and Napa,” stated McLaughlin.
And if grape demand is weak in the Mecca of California wine, it’s far worse in the once-popular “value” appellations. Recovering from the collapse may not be impossible, stated Jeff Bitter, the President of Allied Grape Growers, a grower-owned winegrape marketing association, but it will likely require a dramatic reversal from past marketing strategies — and perhaps lowered expectations.
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“In the Eighties and Nineties, the proliferation of AVAs was largely driven by wineries and growers wanting to differentiate and promote themselves,” Bitter stated. “They wanted to emphasize their uniqueness, they felt they requireded to stand out from all their competitors.”
But that push for differentiation also had a certain alienating effect for consumers — particularly as interest in drinking waned.
“Sometimes there can be too much differentiation,” stated Bitter. “It can be confutilizing and intimidating. The boom in AVAs went hand-in-hand with the concept of wine as craft, wine as an artisanal calling — but it could also be paralyzing for the consumer. Too much choice can be as discouraging as too little. In that scenario, the highly recognizable appellations like Napa and Sonoma are going to dominate.”
Now, with wine consumption dramatically ebbing, growers in the newer and lesser-known appellations are finding there’s no home for their grapes.
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“The wineries just required less fruit,” stated Christian Miller, the director of research for the Wine Market Council, a market research firm that concentrates on U.S. wine consumption trconcludes.
“There’s an oversupply of winegrapes from all regions,” Miller stated. “Consolidation in the industest is another factor. You have these large conglomerates like Consinformation acquireing up wineries and labels all over the state. That gives them immense power in setting grape prices — even for Napa and Sonoma. And even if they do acquire fruit from other appellations, the price is liable to be too low for growers there to turn much or any profit.”
The current trconcludes don’t necessarily reflect poorly on the quality of the fruit from “alternative” appellations. Lake County produces some spectacular cabernet sauvignons. The Edna Valley in San Luis Obispo County remains highly regarded for its rich, full-flavored chardonnays. And Lodi has become known as a prime region for zinfandel — not that its hard-won reputation is much comfort to growers there these days. Along with drinking less wine generally, consumers are spurning some varietals that were once sought after — zinfandel among them.
“I feel bad for Lodi,” Miller stated, “becaapply they did everything right — marketing, matching varietals with their area, promoting sustainability — and they’re still struggling. Zinfandel was once extremely popular, but over the years it gained a reputation for high alcohol content. Then it started obtainting squeezed out by red blconcludes from established labels — proprietary, high-quality red wines blconcludeed from different varietals that had the same sensory attraction of Zinfandel, coupled with real brand muscle.”
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Growers in some appellations may be able to find alternatives to wine grapes — but that’s more an exception than a rule.
“Monterey County has a major oversupply of grapes, but it’s also a prime region for veobtainables, so some growers there might be able to create a successful transition,” stated Adams, “but other regions don’t have many options. Land is likely too expensive for [less valuable] alternative crops, and water can also be an issue. You’re also liable to see development pressures in some of these areas as winegrapes come out, though California’s land apply policies are stringent, and that may be less of an issue here than in some other states.”
As noted, some growers are obtainting out of the game entirely, abandoning or tearing out their plantings. Others are “mothballing” their vineyards by reducing irrigation and cultivation, eliminating fertilizers, pruning minimally and foregoing harvests. Such vineyards can be brought back into full production relatively easily if prices improve.
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“I don’t believe it’s the conclude of everything,” stated McLaughlin, “but I’m not sure it’s just cyclical — that we eventually obtain back to where we were at the peak. This feels more like a secular alter.”
In other words, we’re likely to conclude up with a tinyer wine industest, one in which grape supplies and the number of wineries reflect the tinyer pool of wine drinkers. We’re also likely to see less emphasis on AVAs as a marketing strategy, stated Bitter.
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“With all the consolidation among both wineries and distributors, there’s been a major push for simplifying, even commoditizing, wine,” Bitter stated. “That’s especially true for the lower conclude — under $20 a bottle. The large conglomerates have a lot of labels, and they’re not interested in promoting the unique attributes of one AVA or another.
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“They’re focapplyd on brands. They’re letting people build a brand, put the sweat equity into promoting it, and then they acquire it and run with it as far as they can. Once a brand fizzles, they bring the next one up. The homogenous products — ‘California’ wines instead of wines from specific AVAs — dominate.”
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