Softening wine market

Wine sales are softening as cash-strapped consumers dine out less and buy cheaper wines at the supermarket, according to survey of wine industry executives issued Tuesday.

The report is one of the first clear signs that California's $19 billion wine industry, which has shown strong growth even as other industries slumped, is not immune from waves of economic woe washing over the U.S. economy.

With people struggling to pay their mortgages and fill their cars with gas, leaders of top U.S. wine companies are feeling the impact, said Bob Smiley, director of wine studies at the Graduate School of Management at the UC Davis.

Many consumers are switching to less expensive brands, while some are cutting back on wine entirely, according to the survey of winery executives.

"Most have seen the consumer trading down in price point at both the on-premise and off-premise venues," Smiley told more than 250 executives gathered at the annual Wine Industry Financial Symposium. "On-premise sales, especially at the casual dining and very high end dining levels are suffering."

Smiley and his staff interviewed nearly 30 California wine executives and surveyed more than 70 others for the annual report, considered one of the most reliable barometers of industry sentiment.

One of those Smiley interviewed was Tom Klein, owner of Healdsburg's Rodney Strong Vineyards. Klein said the winery is seeing softness in both its restaurant and supermarket sales.

"It feels to me like we are sort of in uncharted waters," Klein said.

High-end restaurant sales are particularly soft, Klein said, possibly because of businesses cutting back on employee expense accounts.

"There's obviously not a lot of deals being celebrated," he said. "At high-end restaurants, everyone is feeling the pinch."

Rodney Strong Vineyards, which saw double-digit growth last year, is looking at flat sales this year, Klein said.

But it's not just wine sales at restaurants that are slowing. Grocery store sales of Rodney Strong are also lagging as consumers are either passing on wine entirely or trying less expensive brands.

"People just don't have the disposable income to spend on really anything," Klein said. "They are tending to trade down to see if they can find something that's as good as they are used to drinking at a lower price."

That's a problem for a winery like Sonoma's 585 Wine Partners, which owns the popular Red Truck wine brand, most of which sells for around $10 a bottle. There is evidence that some consumers are willing to trade their $10 Red Truck for bottle of wine priced at $6 or less, said Dan Leese, president of 585.

"There's clearly some trading down out there, and that doesn't help us," Leese said.

The Sonoma wine company is continuing to grow, although at a slower rate than the 3-year-old company had projected, Leese said.

A large retail chain that carries 585 Partners wines told Leese that sales of wines under $6 were seeing double-digit growth, he said. Sales of wines between $6 and $12, by comparison, were flat, while sales over $20 were slightly up, he said.

Despite these concerns, Smiley reported that most winery executives remain positive about the industry in general and optimistic about its future prospects.

The industry continues to enjoy numerous positive trends, including acceptance of wine as an everyday beverage, its perceived health benefits, and the removal of barriers to more direct shipping of wine, Smiley said.

"Every winery I'm talking to, quite honestly they report that they are delighted to be in the industry," Smiley said.