California Wine Update, Part 1: Tapping The Premium Tier

While California wines continue to account for around two-thirds of the total wine market in the U.S., according to Impact Databank, the industry has been looking in the mirror lately and searching for ways to seed the next generation of consumers. Wineries have pivoted in a number of ways—from new products to packaging to upping their targeted marketing efforts—to gain drinkers in the under-35 consumer set. They’ve also leveraging the ongoing premiumization trend to boost the business.

Many marketers express cautious optimism about the future of California wine, while acknowledging ongoing challenges. According to Impact Databank, California wine’s U.S. depletions slipped about 3% last year to 195 million cases. Brands priced over $10 a 750-ml. fared better, advancing 1% as a group.

“Young consumers are buying less to buy better,” says Kate McManus, vice president of marketing at Far Niente Wine Estates. “Our target consumers are ultra-premium wine drinkers, who are the youngest and highest-spending segment of premium wine drinkers now.”

Top wine marketer E.&J. Gallo has been among those actively furthering premiumization in its portfolio, most recently agreeing to acquire the upscale Rombauer brand for an undisclosed sum. Rombauer had U.S. depletions of approximately 220,000 cases last year, out of total production of about 350,000 cases, retailing at an average of $42 a bottle.

Steve Lohr, president and CEO of J. Lohr Vineyards & Wines, notes that higher price points are doing well. “A few years ago, the movement was out of the under-$10 and into that $15 [range], where quite a few of our wines are actually focused, but now we’re seeing more growth in the $20-$25 Cabernet Sauvignon category.”

“Our high-end California wines continue to outpace the market and drive growth, particularly Meiomi and our luxury wine portfolio that includes The Prisoner Wine Co. family of brands and the Booker family of brands,” says Constellation’s senior vice president of fine wine and craft spirits Matt McHargue. “We’re also seeing areas and AVAs that have branded themselves well, such as Napa, continue to command a premium, and we’re seeing a surge in AVA-specific wine offerings from some lesser-known areas such as Paso Robles and Santa Barbara.”

Ben Dollard, president of Treasury Wine Estates Americas, agrees. “Certain appellations are doing particularly well,” he says “Paso Robles is an area where we have a big footprint. St. Huberts the Stag is doing well in that space. From a varietal standpoint I see the growth of Chardonnay at the high end and feel there’s a long runway. And very clearly, Sauvignon Blanc is doing really well. We’re thinking about varietal extensions in our luxury portfolio to capture some of those trends.”

“While the market today is soft, we are optimistic about the long-term prospects for California wine,” adds Jon Guggino, executive vice president of marketing for Delicato Family Wines. “Over the course of the nearly 100 years that we’ve been in the California wine business, we’ve seen wine cycle through periods of growth and contraction, and we are well positioned to take advantage of the pockets of growth that currently exist.”

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