California's wine industry leaders are adapting to drought and consumer shifts.
California wine will hold its own in the global market despite shifts in consumer demographics, scarce water, and competition from imported wines, craft beers and cocktails, according to wine industry leaders surveyed by the University of California, Davis.
Findings from the tandem surveys of wine executives and industry professionals will be presented at 8:30 a.m. Tuesday, Sept. 23, during the Wine Industry Financial Symposium at the Napa Valley Marriott in Napa, California.
“Wine industry leaders are keenly aware that this is a time of great change for California wineries and related business,” said Robert Smiley, professor and dean emeritus of the UC Davis Graduate School of Management.
“As the baby boomers ‘pass the glass’ to the millennial generation, there will be trade-offs in consumption, but the industry professionals surveyed indicate that they are prepared to meet these and other challenges by adjusting their brand composition, adapting new technologies and becoming more efficient in their use of water,” he said.
Survey of wine executives
Smiley gathered the opinions and projections from the heads of 26 wineries for this 13th annual wine executives survey. About 60 percent of those wineries are located in the Napa or Sonoma valleys, while most of the others are in the Central Coast and North Coast regions, and in California’s northern interior, Central Valley and Sierra foothills. One winery is in Washington.
Wine consumption by baby boomers is declining and will continue to do so as that group ages, but consumption by the millennial generation is expected to steadily increase, the wine executives reported.
“We find that the millennials are fabulous,” said one respondent. “They’re adopting wine at a faster pace, and they’re a different type of consumer than we’ve seen in the past. How to reach millennials, how to engage them and build brand loyalty with them is … more complicated than with the boomers.”
Millennials are bringing a new interest in craft beer and cocktails, survey participants said. Many respondents suggested that the wine industry must pay close attention to those two competitive trends in the beverage business but seemed confident that the wine industry would eventually benefit from them.
“I’m thinking craft beer actually expands the market for us and offers an opportunity for millennial exploration and entry into the market, which then will progress up to wine,” said one wine executive.
International wine competition
Competition in the domestic wine market from imported international wines will increase, most respondents said. The industry should plan accordingly by increasing promotional efforts through local trade organizations, paying greater attention to wine quality and value, and better communicating those benefits to consumers to maintain brand loyalty, they said.
Climate change and water
Climate change and water scarcity were also on the wine executives’ minds, many of them listing these among the industry’s top issues over the next five to 10 years.
They said that they are already implementing a number of strategies including using imaging technology to minimize vineyard water use, recycling winery water for use in vineyard irrigation, and changing winery equipment and procedures to use water more efficiently.
One survey respondent advised keeping an eye on innovative water recycling systems at the teaching and research winery in UC Davis’ Department of Viticulture and Enology. The campus winery is designed to capture and reuse 90 percent of the winery’s processing water, eventually using that water as many as 10 times.
Survey of wine professionals
Smiley’s survey of California wine professionals, now in its 23rd year, probed the opinions of 122 wine industry leaders. Most of the respondents to that survey represent wine companies; others are from operations including wineries, grape-growing and wine-distribution firms, and financial institutions.
Respondents reported that the rebounding economy will have the greatest positive influence on California wine sales during the next three years, followed by increased direct sales to consumers, a larger consumer base and a trend toward high-end wine sales.
Most of these professionals agreed that their business plans are placing a greater emphasis on direct sales to consumers, raising wine prices and investing in technology. Social media is increasingly playing an important role in their businesses, with Facebook and Twitter seen as most valuable.
Over the next three years the strongest white varietals will be chardonnay followed by sauvignon blanc and pinot grigio, and the strongest red varietals will be cabernet sauvignon, pinot noir and red blends, they predict. Wines in the $14- to $20-per-bottle range will show the strongest sales.
For the past 15 years, the Graduate School of Management and Department of Viticulture and Enology have partnered on the UC Davis Wine Executive Program, an executive education program that blends the business and science of winemaking. The next program will be held March 22-27, 2015, at UC Davis.