Sonoma State Issues 1st 'State of Wine Business' Report

Wine consumption in Eastern Europe fell to 7.7 liters in the 2010s from 14.1 liters in the 1970s. It's tempting to say that the reduced consumption means with the collapse of the Soviet Union, residents of Eastern Europe didn't have to turn to wine so often to, as the saying goes, "drown their sorrows."

But that would be plainly wrong, as we're reminded by the first state of the wine business report from Sonoma State University.

Declining consumption is a worldwide phenomenon that's been going on since the 1920s, when world per capita wine consumption peaked at 119.9 liters. Between 2010 and 2016, per capita wine consumption reached 33.2 liters.

Turning to the broad economy, Rob Eyler, an SSU professor, suggests the economy may continue slowing . "Sloweer growth economies tend to see restaurant demand fall first, then retail." Thus far, that does not seem to be happening. Eyler also said he expects inflation will continue to fall, allowing interest rates o fall slightly by the end of 2024.

Specific economic forecasts:

  1. Wine drinkers in general are likely to move down in price point and stay there through 2024, perhaps 2025, as an adjustment to income risks and perhaps to wealth risks.
  2. The pandemic buying hangover likely still remains in ultra-premium and luxury categories as buyers filled libraries, thus prices have come down.

  3. Investments in new winery spaces or vineyards are likely to be slow to 2025. Higher interest rates are likely to linger until that time, which means financing such expansions or upgrades is more expensive.

  4. Wineries that have cash as a war chest may be earning more than they have in a decade and want to wait and see while cash is paying relatively high rates of return.

  5. Vineyard worker supply has also faced immigration constraints. Wages have increased, making wineries think about the use of technology in lieu of labor.
  6. Search costs for workers have increased, reducing the number of job openings industry wide.
  7. Smaller restaurants and retailers are likely to be driven closer to the edge of failure toward
    2025, as a long period of higher inflation and interest rates act as regressive taxes.

Such changes can reduce demand for wines sold in those retail outlets where three-tier systems exist versus state-controlled retail, the report says. Restaurant demand has suffered since the pandemic; even with inflation slowing down, pressures remain on costs