California producers benefit from "vastly underestimated" premium boom

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It's common knowledge in California that the fastest growing area of the wine market is the premium segment. However new research suggests it could be growing even faster than anyone thought. Larry Walker reports

According to research by Wine Trends, the market for California premium wines has been vastly underestimated in both volume and dollars. Vic Motto, of Motto Kryla Fisher (MKF) of Napa, the wine industry consulting firm which developed Wine Trends, said that California wines selling for over $25 grew by 50.4% in volume in the year 1999 compared to 1998. Motto, who presented his argument to members of the trade and media in San Francisco last week, said the traditional estimate was a growth rate of 18%.

Robert Mondavi Coastal
Johannisberg Riesling

For all wines, according to Motto, actual growth was 6.5% rather than the standard estimate of 3%.

Motto said the difference in Wine Trends' analysis is that wineries opened their books (upon legal promises of confidentially) for the report. The information is therefore tied to hard numbers, rather than estimates based on supermarket scanning devices and government tax reports.

Wine Trends, which will be an ongoing reporting service, looked at actual sales of over 200 California wineries (of a total of some 850) as the basis for the study. "We have most of the big wineries in the study, so we have most of the volume," Motto said. By building additional profiles based on reporting wineries, Motto said he was confident his overall data was sound. (Wine Trends numbers are based on sales in the US and do not include exports.)

The Wine Trends study uncovered a number of key points, including statistics on sales at various price points. For example, at under $8 a bottle, the average bottle price is $4; with 117m cases sold at a value of $3 billion; with an annual growth rate of 4.4%.

"The biggest single factor driving the growth of premium wines is the aging of America"

In the $8-$15 range, the average bottle price is $11; with sales of 21m cases at $1.4 billion; with a growth rate of 20.1%. At over $15 per bottle, the average bottle price is $24; with 13m cases sold for $1.8 billion with annual growth rate of 25.3%. For the total wine market, the average bottle price is $7; with sales of 151m cases; worth $6.2 billion with a growth rate of 13.3%.

Using the new data, Motto contends that per capita consumption has also been under-reported. In 1990, the per capita consumption of adults was 6.8 bottles, in 1999 that had risen to 8.4 bottles. (Again, all numbers are based solely on California wine sales, so if imports were factored in, the per capita figure would be higher.)

Cabernet Sauvignon

By tracking the growth back ten years, Motto said the data proves that wines sales are strong even in times of economic recession, as in the early 1990s.

"The biggest single factor driving the growth of premium wines is the aging of America," Motto said. "Every day in the US, 10,000 people celebrate their 50th birthday. And that's going to continue for another 15 years."

According to Wine Trends, the 50-59 age group has a per capita consumption of 16.4 bottles of wine a year, compared to 6.6 bottles for the 21-29 age group.

He said that the globalisation of the wine industry - with global conglomerates owning an increasing number of brands - will also drive consumption higher. "There is increasing evidence that advertising does lead to increased sales and new wine drinkers, and the large companies have the money to spend on advertising."

But Motto noted that people often question how long the wine boom and upward trend in prices can last. "In 1989," he recalled, " I wrote a piece suggesting that the price of Napa Cabernet was too low. At the time, it was about $12 a bottle. In 1970, the average price of a Napa Valley Cabernet was $2 a bottle. Everyone thought Robert Mondavi was very daring when he raised the price to $3. The trend has been up and is staying up."

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