Spirits threatening wine sales in the US

A rise in spirits consumption in the US is posing a threat to wine sales in the country, according to Joe Cafaro from Napa’s Cafaro Cellars.

Joe Cafaro established Cafaro Cellars in Napa in 1996

Speaking to the drinks business earlier this month, Cafaro said, “We are really seeing spirits consumption coming on in the States and in the short term that’s a threat to wine.”

Continuing, he explained how a growing interest in cocktails in key wine-consuming states such as California was reducing the number of wines on offer in restaurants.

“If there used to be 3-4 pages of wines in your average bar or restaurant list, now there are 1-2 pages and 2-3 devoted to mixology,” he said.

A combination of growing spirits sales in the US and the impact of an extended recession on fine wine sales has prompted Cafaro to reduce production and increase his focus on export markets.

Cafaro, who has been making wine in Napa for almost 40 years and started his own label in 1996, has been selling wines in the UK for 11 years.

Cafaro’s Merlot and Cabernet Sauvignon are currently distributed in the UK by Liberty Wines, which took on the label six years ago.

Since that time he has experienced significant sales growth in the UK, meaning the market now accounts for 17% of his winery’s production.

This share is larger than that for Cafaro wines in any single state in the US, he told db.

“I used to sell 40% of my production in California but now – since the recession – I sell barely 12%.”

Cafaro believes his success in the UK may be connected to his winemaking style – “I’m accused of being European,” he said.

As for his level of production, he admitted that he dropped the quantities from 3000 cases to around 1,000 cases over the last 7-8 years.

“There were signs things were slowing before 2007 and 2008, so I started reducing production around 2005. Now I sell some grapes and I have brought production in line with demand. But if the world economy improves, I can bring production back up to the 3000 case level.”

Cafaro make a Cabernet Sauvignon and a Merlot

Speaking more generally about the health of the Napa Valley wine region, Cafaro noted the challenging commercial conditions.

“There are a lot of new wineries in Napa, but the new guys are struggling…. The prices of grapes and the price of land in Napa has never gone down,” he remarked.

He noted that vineyard prices are between US$150,000 and US$300,000 per acre, and that grape prices, which have remained level for a number of years, are now starting to increase.

Cafaro also told db that the most expensive grapes in the region were Petit Verdot, which sells for almost $7,000 per ton, due to its scarcity.

Following this variety is Cabernet, which sells for an average of just under $6,000 per ton, while Merlot is trading for an average of less than $4,000.

Speaking of the latter grape, he said that sales of Merlot were declining in the US before the film Sideways was released in 2003, in which the lead character declares his loathing of the grape (despite his love of Château Cheval Blanc which uses as much as 50% of the variety).

“Sales of Merlot were dropping prior to the movie. The interest in Merlot was so great that a lot of it was planted where it should not have been planted and ended up producing mediocre wine. As a result there was a feeling Merlot had no flavour – and that’s what did the biggest harm.”

Cafaro also owns 2 acres of Syrah at his six-hectare property just south of the Stags Leap District, although he now sells the grapes to other producers.

“I made Syrah as a varietal wine for six vintages, and I loved it, but it was impossible to sell.”

Cafaro said he believed the market for Syrah was limited in the US due to a lack of awareness for the grape, although he recorded the success of Australian Shiraz.

“In the US, people don’t really understand what Syrah is, but they know what Australian Shiraz is – and that’s different in style and less expensive.”

He also noted the challenge for producers of less well-known varieties in Napa.

“Napa is a very expensive place to do business and the cost of production is astronomical compared to any other place around – even Sonoma,” he said.

As a consequence, he said the economics of producing a Syrah and selling it for under $25 a bottle were not sustainable.

“We were breaking even trying to sell at $22 and we couldn’t get buyers for it.”