WSJ Article

The U.S. wine industry hasn’t had it this bad since Prohibition. 

The list of problems is long in California, the cradle of American wine. Vineyards have an oversupply of grapes. People are drinking less, especially younger drinkers, and tariffs have caused the biggest foreign market for U.S. wine—Canada—to dry up overnight. With this year’s grape harvest in full swing, way too much wine from previous years still hasn’t been sold.

Meanwhile, the unusually good weather is adding to the glut. The temperature was cool most of the year, without frost or heat, an environment that allows grapes to grow in abundance—and slowly develop the concentrated flavors that wine drinkers covet.

That’s leaving growers across northern California’s wine country unsure about how they will unload a bountiful harvest of grapes. Large buyers like Constellation Brands, known for its Modelo beer but which also has a roughly $900 million wine business, have been buying fewer grapes in recent years as they scale back their wine ambitions—a trend that has accelerated this year. Some 30% of the grapes grown this season will not be sold, estimates the Sonoma County Winegrowers, a regional wine and agricultural-focused trade group.

Jackson Family Wines, the ninth-largest wine producer by volume in the U.S. and owner of the well-known Kendall-Jackson wine brand, isn’t just cutting the number of grapes it buys from outside growers, said Chief Operating Officer Mitch Davis. It is also considering ripping up and replanting some of the roughly 14,000 planted acres of vineyards it operates around the world, Davis said. It’s a bet that the company can use this rough time for the wine industry to replace some grapes that they have too many of with more popular varietals like Sauvignon Blanc that will sell well in coming years.

The company is also lowering some prices in an effort to appeal to consumers feeling the pinch after years of inflation, said Shilah Salmon, a senior vice president of marketing at Jackson Family Wines: “We see this magic line of $19.99. When you start to get over that, it’s a hard line for a lot of people, especially at the grocery store” where nearly half of U.S. wine is purchased.

Jackson’s La Crema brand—a bestseller across the country—recently reduced the price of its Sonoma Coast Pinot Noir, which it typically sold for more than $25 in many regions, by about $1.50 a bottle. The company is also introducing a new Kendall-Jackson sparkling wine priced at under $20 across the U.S.

Sitting sideways

California produces roughly eight of every 10 bottles of wine made in America. In the decades after Prohibition ended in 1933, sales made a slow, steady climb. After “60 Minutes” in the early 1990s aired a segment on the so-called French Paradox, implying that drinking wine could be healthy, legions of Americans rushed to buy corkscrews. 

The industry got another boost from 2004’s wine-country romp “Sideways,” which helped make Pinot Noir a star. The movie also helped transform California wine country into more of a tourist destination, with boutiques and fancy hotels springing up in Napa Valley, and signs advertising tastings along Sonoma’s twisty roads. 

California’s wine boom changed the fortunes of its farmers and land, too. Many Sonoma growers had historically considered grapes a crop of last resort, compared with more profitable apples, prunes and olives. Years of flooding and trade agreements like Nafta made it harder to make money from raising fruits and vegetables, giving the region’s farmers more reasons to convert fields and orchards to vineyards.

Lifelong Sonoma resident John Balletto was raised by an Italian immigrant family who farmed fruits and vegetables and gave him his first sip of wine at age 8. He took over the family business in 1977 at age 17 after his father’s sudden death. By 1994, the operation produced over 70 different vegetables, including baby spinach and squash, across more than 700 acres of land.

In 1995, Balletto started converting his vegetable farms into estate vineyards that stretch along a rural road in the lush hills of Sonoma’s Russian River Valley. In recent years, he’s sold 90% of his grapes to about 40 different wineries that press them into their own wine. The other 10% he kept for his own brand, Balletto Vineyards, which sells Chardonnay, Pinot Noir and Zinfandel. 

Other Sonoma County producers made similar moves to plant more grapes. Dutton Ranch in Sebastopol, Calif., started to concentrate its efforts on wine grapes in the 1980s, when apples became a commodity. Co-owner Steve Dutton said apples now make up just 10% of its business. 

The Covid-19 pandemic gave California’s grape growers another boost, as Americans stocked wine fridges and wineries booked more outdoor tastings. In 2021, California winemakers shipped 240.5 million cases to the U.S. market, according to Wine Institute, a California-focused industry group. That represented about $53.5 billion in retail sales—more than double the $21.3 billion total in 2003, the year before “Sideways” hit theaters.

Over the past few years, though, Americans have tempered their wine habit. Health-conscious consumers have embraced alcohol-free “mocktails,” and weight-loss drugs like Ozempic have curbed users’ thirst for drinks. THC drinks and cannabis have grown in popularity too, as Americans look to relax without a hangover the next morning.

An August poll from Gallup found that the percentage of U.S. adults who say they drink alcohol had fallen to 54%, the lowest tally in the almost 90 years the organization has been tracking drinking behavior. Last year, the number of wine cases shipped from California had dropped to 203.5 million—leaving some producers sitting on excess inventory that they so far haven’t been able to sell.

Balletto’s contracts to supply grapes to major winemakers began falling through last year. He figures his operation, now spanning 22 vineyards across 833 acres, will lose roughly $3 million in sales this year.

“This is the first time in 25 years that we have 30% of our grapes unsold,” said Balletto, 66, who has the graying hair and unassuming nature of a farmer who’s seen many growing seasons, good and bad.

To minimize losses, Balletto said he will use his excess grapes to make so-called bulk wine in hopes of selling it to retailers that will market it under their own brands. 

Making bulk wine comes with its own risks: It requires a winemaker to incur extra costs without the guarantee it’ll find a buyer, and profit margins can be thin. Bulk wine buyers can include the likes of Trader Joe’s, Aldi and Target, all known for selling their private-label wines at a steep discount to what Sonoma winemakers typically charge. 

Balletto’s grapes typically start budding in late February or early March. Balletto Vineyards uses an alarm that goes off when it detects frost, and its farm team often runs out in the middle of the night to turn on sprinklers and fans to protect the buds from the cold.

Over the winter, different alarm bells sounded. At the start of the year, President Trump threatened Canada with a slew of tariffs. In response, Canadians pulled California wines off store shelves, along with other American-made alcohol. U.S. wine exports to Canada dropped 96% in the second quarter—from nearly $111 million last year to under $4 million this year—and the U.S. wine trade surplus with Canada has flipped to a deficit for the first time ever.

“The continued lack of access for U.S. wine is inflicting real and lasting harm,” said Robert Koch, chief executive of Wine Institute. “Not just on vintners but on the employees and communities that rely on them.”

Going fallow

This year’s impossibly perfect weather was the latest addition to the list of problems.

Unlike past seasons marred by wildfires or drought, this year northern California’s grape growers have enjoyed cool weather that has allowed vines to thrive. By the end of August, when farmers started adjusting their sleep schedules to prepare for the grape harvest that often takes place overnight, it was clear that the harvest would be bountiful enough to exacerbate the oversupply of grapes. 

Surrounded by rows of unsold Pinot Noir grapes in late August, Steve Dutton brushed away the hanging leaves to reveal the dark purple grapes. This year, about one-fifth of Dutton Ranch’s grapes are unsold, equating to $2 million to $3 million in lost sales. He has listed grapes for sale on Facebook Marketplace, and sold some at a discount to friends. 

“We’re trying whatever we can do,” Dutton said.

Unlike many neighboring farms, Dutton didn’t entirely give up on apples. These days, they often end up in organic apple sauce or apple juice sold under private-label brands from retailers like Costco and Trader Joe’s. Apples that hit the ground are sold for organic cider vinegar.

Apples, Dutton said, are “a good thing for us this year,” helping deliver much-needed revenue. If the glut of unsold grapes continues into next year, he said he may need to sell pieces of his family’s sprawling property to developers.

Some Sonoma grape growers are taking this year’s tumble in sales as an opportunity to dig up older vines and start the multiyear process of replanting. This begins with buds that are ringed in white paper cones that protect the baby plant as it grows. By the time the market recovers, the thinking goes, the replanted vines will be capable of producing higher-value grapes.

“If a farmer was considering replacing their vineyard in the next decade, they are doing it now,” said Karissa Kruse, the chief executive of Sonoma County Winegrowers.

The Sonoma growers group is estimating that between 2,000 to 5,000 acres of vineyards could be removed over the next several years and assume not all of those will be replanted. The sight of browning, fallow land where prized wine grapes were grown has become more frequent. 

https://preview.redd.it/rl0l1lh04kuf1.png?width=896&format=png&auto=webp&s=2c8e03bd91e64f529d14b712632fc0a85ff334b9

https://preview.redd.it/68x3dbr34kuf1.png?width=855&format=png&auto=webp&s=422ed4d60ab35c28bbc6c993c60c37b3e953e7c3