USA: New Data Shows Great Growth in Premium California Wines

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Contrary to several pervading and grossly negative wine myths, the premium, ultra-premium and luxury wine segments have experienced excellent growth in recent years and will continue to grow at a very healthy pace, according to Vic Motto, of Motto Kryla & Fisher, LLP, the leading firm of wine business advisors.

"Many of these negative wine myths were based on incorrect data, incomplete data, or misinterpretation of data, according to Motto. "So, while headlines in the recent past noted that "per capita wine consumption was flat"; a "wrenching shakeout" was at hand and "a grape glut will force wine prices down," the premium segment of the wine industry was growing at a healthy pace, well exceeding the general economy and at serious odds with those myths," according to MKF's research. Here is a new look at the facts.

1. The Ultra-Premium Wine Segment was grossly under-reported by half

MKF reviewed a large, accumulated database of actual winery statistics and its own new research and found remarkable discrepancies in previous data. For example, the Ultra Premium wine segment ($14 to $25 a bottle) was reported to be 4.4 million cases for 1998 and the Luxury wine segment (over $25) was reported as being 1.1 million cases. In fact, these segments were much larger and were growing faster than had been reported. For 1998, the Ultra Premium segment was over 7 million cases, almost twice as large as reported; the Luxury segment was over 2.5 million cases, over twice as large as reported. 1999 figures continued to be strong and growing faster than previously reported, with over 8 million cases of Ultra Premium wine and over 3 million cases of Luxury wine sold.

2. Per Capita Consumption was misinterpreted

Per capita consumption statistics were widely misinterpreted over the past few years. Wine volume and dollar amounts were not accurately factored in and premium wine sales were not segregated from jug wine sales. There were many factors that should have been considered:

1. From 1993 to 1999 the per capita consumption for California wine grew 29%. But, in addition, the population grew by 12 million adults. So, in fact, California wine sales increased by a total of 38% as a result of the increase in per capita consumption with the increase in population.

2. Dollar sales have been growing much faster than volume, especially in the booming premium and above wine segments. Over the past 10 years, adult per capita spending on premium wine has increased dramatically, from $16 to $61 per person, representing a compound annual growth rate in spending of a dramatic 18.8% annually.

3. Premium wine should be considered separately. While there is a 2% annual drop in per capital consumption of generic wines, per capita consumption of premium wines is growing at a compound annual growth rate of 12%.

4. Often children were included in calculations of per capita consumption, which significantly distorts the statistics because the child population is growing faster than the adult population.

5. As noted, per capita consumption is not the same as total consumption -- even if the former is flat, the latter can be growing as the consuming population increases.

6. The age groups that consume the most wine are growing in number which will increase wine sales.

More Wine Myths Shattered

"What we had in the last few years was the collision of wine myths with wine reality," according to Motto, "but none so flagrant as a group of wine industry experts discussing the future of the wine industry that led the San Francisco Chronicle to write a story in 1994 that headlined -- The Wine Industry is 'on the brink of a wrenching shakeout, perhaps the greatest upheaval since Prohibition', with these experts predicting that as many as 200 wineries would go out of business. The fact was that the premium wine industry was growing at double digit rates, over twice the rate of the general economy, and was in the midst of the biggest wine boom in history."

"Even in the more recent past, reports on the 1997 vintage were predicted to produce a glut of wines that would drive wine prices down. New vineyard plantings were predicted to add to this glut. The fact is there has been no wine glut and wine prices have continued to increase, breaking all records.

Motto concluded, "The California wine business is huge and important, with an economic impact of $33 billion a year, according to our recent study, Economic Impact of California Wine. These examples of misleading or inaccurate information underscore the wine industry's dire need for more accurate information -- the wine industry deserves better."

MKF was founded in 1982 and today is the leading firm of wine business advisors, providing business consulting, research, accounting and tax planning services for over 200 wineries and thousand of acres of vineyards.

MKF's personnel have diverse academic and working backgrounds in the wine and vineyard industry. MKF publishes wine industry studies and articles, researches wine business issues and trends and consults with government and trade groups on industry issues. Its personnel teach wine business seminars and university courses. MKF serves the premium wine industry exclusively.

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