Wine Industry on Upswing Despite Grape and Labor Shortages

Despite a significant, long-term shortage of grapes and economic pressures that are putting the squeeze on profit margins, California wine industry leaders are cautiously optimistic about the future, according to two new surveys conducted by Professor Emeritus Robert Smiley. He presented the findings of his surveys of 24 wine executives and 138 winemakers in September during the Wine Industry Financial Symposium in Napa, Calif.

“Industry leaders agree that while the somewhat giddy wine-buying days of 2006 and 2007 are not likely to return in the near future, there remains a strong and growing consumer base for California wines,” Smiley said.

“These consumers are savvy, value-conscious wine drinkers who have weathered the economic downturn and perhaps have ‘reset’ their wine preferences at lower prices,” he said. “Industry executives realize that they are going to have to earn their business by offering affordable quality and customer service.”

Smiley has surveyed wine executives for each of the last 11 years and winemakers for 21 years. The influential surveys examine global and national trends in the wine industry. They complement other wine research and teaching at UC Davis, home for more than 100 years to the largest and most comprehensive university wine program in the United States.

This fall’s harvest of California wine grape appears to be strong, but it will not make up for several years of shortfall, Smiley said. Most of the survey participants noted that they are dealing with a grape shortage resulting from a growth in demand for wine that has not been matched by establishment of new vineyards or replanting of aging vines.

As wine-grape prices and other operating costs—including labor—climb,­ wine producers are being hit from the other side by wine prices that remain stagnant. To survive this economic squeeze, they are boosting wine prices when the market will bear an increase, reducing costs, fine-tuning efficiencies and strengthening their relationships with wine-grape growers.

The wine professionals noted that in the past two years, there has been a new emphasis among wine consumers on value, new varietals, new tastes and “affordable luxury.” Social media is also having a large impact on purchasing decisions. They expect to see the strongest growth in sales among wines in the $10 – $14 and $14 –$20 price ranges.