Wine sales hurt by recession

SACRAMENTO -- U.S. wine sales grew in 2008 at their slowest pace this decade as the deepening recession curbed consumers? enthusiasm for fine wine, according to figures released Wednesday.

Total wine sales increased by less than 1 percent last year to 316 million cases, a new record.

But the 2.1 million case increase was the smallest of the decade, a clear sign that wine drinkers are cutting back in response to the weakening economy, analyst Jon Fredrikson told wine executives at the annual Unified Wine & Grape Symposium in Sacramento.

?Frugality suddenly has become hip as consumers face uncertain economic times,? said Fredrikson, owner of Gomberg, Fredrikson & Associates in Woodside.

Shipments of California wines increased 2 percent, while shipments from other states rose 3.4 percent. Dragging down the total was imported wines, which fell nearly 3 percent thanks to the strong Euro keeping prices for imported wines high.

In 2007, total wine sales increased 12 million cases, a healthy 4 percent.

While the trend toward cheaper wine is causing trouble for high-end wineries, it?s a boon for big wineries with lots of inexpensive brands, Fredrikson said.

?As far as the giants, many of them had they best year they ever had,? Fredrikson said.

Massive wineries like E&J Gallo of Modesto, Constellation Brands of New York, and The Bronco Wine Company of Ceres all fared well as shoppers traded down from top-shelf brands to the lower shelves dominated by high-volume producers, Fredrikson said.

E&J Gallo performed particularly well, racking up 10 of the top-selling 25 wine brands in the nation last year.

?Gallo clearly hit it out of the park this year,? Fredrikson said.

Such supermarket brands are also benefitting from people?s changing eating habits. As consumers have shunned restaurants in favor of cooking more meals at home, wines with strong positions in supermarkets have prospered, he said.

But that same trend has clobbered brands that have built businesses around being on the wine lists at exclusive restaurants, he said.

Restaurants and distributors dramatically cut wine orders late last year, anticipating poor holiday sales, Fredrikson said. October and November shipments were particularly weak, with many area winery warehouses reporting 30 percent declines.

?Distributors cut inventories down to the bone,? Fredrikson said.

Wineries selling to high-end restaurants can?t expect a quick recovery, and will probably need to find new markets for their wine, such as direct-to-consumers or at retail with deep discounts, he said.

?The (restaurant) business is not going to come back to its glory days for quite some time,? Fredrikson said.

Luckily for grape growers, the drop in demand is coming at a time when the supply of grapes is shrinking anyway, said grape broker Bill Turrentine.

Prior recessions have had the misfortune of coinciding with bumper crops, a ?brutal combination? that caused grape prices to plummet and left growers barely covering their costs, Turrentine said.

But crop sizes have been dropping since the record 3.8 million ton grape harvest of 2005, and subsequent smaller crops combined with increased demand have caused that ocean of wine to dry up, he said.

Now there?s a real potential that if the economy improves and Americans? thirst for fine wine returns, the state may not have enough grapes to quench it, Turrentine said.

That?s because the credit crisis has made it hard for many grape growers to get the financing to develop new vineyards to meet the future demand, he said.

?That means a developing shortage is likely to last longer,? Turrentine said.

While a shortage of grapes helps firm up grape prices, the downside is that U.S. grape growers won?t be able to make enough wine for domestic consumption, forcing wineries to look to places like Australia, Europe and Chile for cheaper alternatives.

More than 10,000 people are expected to attend the Unified Symposium, the nation?s largest wine and grape conference. The four-day conference at the Sacramento Convention Center ends Friday.

You can reach Staff Writer Kevin McCallum at 521-5207 or kevin.mccallum@pressdemocrat.com.