Wine sales set U.S. record with 300 million cases

SACRAMENTO - Americans' increasingly passionate love affair with wine pushed sales to record levels in 2006, helping vintners and growers recover from a wine glut brought on by the massive 2005 harvest.

U.S. sales of wine surpassed an estimated 300 million cases last year for the first time, analyst Jon Fredrikson said Wednesday at the Unified Wine & Grape Symposium in Sacramento, the industry's largest trade show.

"Wine is certainly entering the mainstream of American life," he said.

Sales were driven by publicity about the potential health benefits of wine, improved marketing by wineries and increasing acceptance of wine as a part of everyday life, Fredrikson said.

The growth of the U.S. wine market is nothing new. Analysts have been pointing out for years that the United States is on track to pass France and Italy as the world's largest wine market by the end of this decade, if not sooner.

But Fredrikson said the cultural changes he sees in Americans' attitudes toward wine are promising. For example, major U.S. companies are incorporating wine into their TV ads.

A drug company ad showing an allergy sufferer in his vineyard and a financial services company spot following a man through his wine cellar are just two examples of a trend that bodes well for the wine industry, he said.

Two years ago, such companies never would have linked their products with alcoholic beverages such as wine, he said.

"This is a monumental step forward," Fredrikson said. "Here we have others advertising our products for us. This is just terrific stuff."

Other alcoholic beverages seem to be working a lot harder to win over customers.

The wine industry spent just $108 million on advertising in 2006, compared to $1.1 billion by the beer industry, Fredrikson noted.

But it's not all smooth sailing for U.S. wine producers.

There is evidence more and more Americans are looking abroad as they widen their understanding of the wine world.

Overall, sales of U.S. and foreign wines rose 3 percent in the United States last year, rising to 300 million cases. California wineries increased sales 2 percent, to 189 million cases. Sales of wine produced in the other 49 states dropped 1.3 percent to 23 million cases. But foreign wineries boosted sales 10 percent, to 88 million cases, Fredrikson noted.

Increasing competition from abroad is making many California grape growers uneasy, especially when combined with advances made by wine industries in such states as Oregon, Washington and New York.

California growers are working on a campaign to better market California wines and have raised $300,000 toward the effort, said Rodney Schatz, chairman of the California Association of Winegrape Growers.

They're also hoping this year's crop is a light one so prices, depressed by the 2005 glut, firm up, said Nat DiBuduo, president of the Allied Grape Growers.

Strong demand for U.S. wines is helping the California wine industry work through the huge 2005 harvest, which at 3.76 million tons was 30 percent larger than expected.

Last year's crush was closer to normal, but DiBuduo said another year or two of smaller harvests will be needed to bring balance back to the market.

"If it's a long crop (this year), it's not going to be a pretty picture," he said.

Grape broker Bill Turrentine agreed the industry was in the midst of a delicate recovery.

"We're at the point where we are emerging from excess," Turrentine said.

The wine industry swings between oversupply and undersupply about every five years, something he calls the "manic-depressive wine business wheel of fortune."

But there are signs that process could be moderating.

Historically, when consumer demand for certain types of wines increases, that sends prices rising and triggers growers to plant more of those grapes. But since it takes several years for the vines to mature, demand continues to build and prices rise even higher, triggering even more growers to plant vines, Turrentine said.

But they often plant too many acres too late in the cycle, depressing prices when the vines reach full production about five years later.

Globalization of the wine industry can help smooth out the boom-bust cycle, Turrentine said. When there is a shortage of a certain type of grapes, such as the current scarcity of pinot noir, the global market makes it easier to import wines from overseas, he said.

This keeps prices in check and could lessen the "tsunami" of wine that frequently has followed excessive vineyard planting.

"If prices don't go as high, there's not as much planting, and it turns maybe just into more a big wave that you can actually surf for a while," Turrentine said.