California wine sales drop

SACRAMENTO — California wine shipments dropped in 2009 for the first time in 16 years as major U.S. wine companies looked overseas for the cheap wines that cash-strapped consumers increasingly crave.

Overall wine consumption in the U.S. rose 2.1 percent last year to 323 million cases, a positive trend that bodes well for the industry long-term.

But California wines lost ground as sales fell 1.6 percent to 236 million cases, a drop of 4 million cases, according to widely-watched figures issued Wednesday by Woodside wine industry analyst Jon Fredrikson.

"It was ugly," Fredrikson told wine industry leaders gathered in Sacramento for the annual Unified Wine & Grape Symposium, the nation's largest wine industry trade show. "Many people I have talked to said it was the worst year in their history."

For small- to medium-sized wineries, the year was "brutal," as consumers shunned higher-priced wines, powerful distributors focused on big brands, and the global recession hurt exports, said Fredrikson, president of Gomberg, Fredrikson & Associates.

The nation's largest wineries, however, were able to capitalize on the "trading down" phenomenon by tapping into the increasingly globalized supply of cheap wine.

Massive wineries like E&J Gallo, Constellation Brands and The Wine Group, and to a lesser degree "nimble" negociant wineries like Don Sebastiani & Sons, were able to import bulk wines like pinot noir from France and malbec from Argentina. They then bottled it in the U.S. and quickly pushed it out into the market.

This trend of U.S. wineries "outsourcing" wine has been growing gradually for several years, but it exploded in 2009. Even Fredrikson, the industry's leading analyst, said he was "blindsided" by the surge.

The amount of imported bulk wine increased to 25 million cases, an 87 percent jump over the prior year. This helped push imports' share of the market to an all-time high of 104 million cases, or 32 percent of the market.

The surge in imports should serve as a wake-up call to California wineries that have long considered themselves immune to competition from lower-quality imported bulk wine, said Glenn Proctor, a broker with Ciatti Co., a San Rafael-based grape and wine broker.

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