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USA WINE: Made in America

Few non-US consumers are aware of any American wine-growing regions other than California – although they do exist and are keen to export. Do producing areas outside the Golden State have a chance asks Clinton Cawood

Going on evidence gained only from wine aisles outside of the US, it would be reasonable to deduce that American wine production is the sole preserve of the Californians. It would take far more investigation to uncover the fact that, among others, Oregon, Washington, and New York are also significant producers. Only a real feat of detective work would uncover an actual bottle of the stuff outside the country.

There has been some recent activity on the Washington and Oregon front in the UK, however, increasing awareness somewhat, within the trade at least. Despite this, nearly all of the massive US wine category is Californian, with annual sales of over £700 million per year in the off-trade alone, according to Nielsen (MAT 16.06.07).

Aiming high
The category as a whole continues to perform well, growing 3% and 5.5% in volume and value respectively in the off-trade, according to Nielsen. It has also just cracked the £4 average bottle price – indicating that consumers are willing to pay slightly more for Californian wine than for a number of other countries’ wines. 

This higher price bracket has been the focus of the Wine Institute of California’s benchmark wines initiative, which has obviously had some effect. In terms of the wine offering from California, however, the £5-plus mark remains an ongoing challenge. As David Cartwright, sales director for multiple grocers at HwCg puts it: “That price point is the holy grail.”

John McLaren, UK director of the Wine Institute of California, is now looking at even higher price points as well. “Most of the New World does not have a developed identity over the £10 mark, but that is where California comes into its own. If we can get people moving up the price point, then there is lots of potential for future growth.”

For Jackson Wine Estates International, this is an important area as well. UK sales manager James Tookey points out that, despite having icon wines that retail for over £50 a bottle, the major focus for Jackson Wine Estates is in the mid to premium offering. “[California’s] overall reputation in the UK is still doughnut-like in shape, with a strong presence at the low end of the market with Central Valley wines for the early wine drinkers, then a reputation for wildly expensive icon wines from the Napa Valley, but a gaping hole in the middle.”

Position of strength
High volume branded wines have traditionally been one of California’s strengths, still representing two of the top three brands in the UK off-trade: E&J Gallo and Blossom Hill. These two ubiquitous brands remain in a position of strength in the UK. Gallo has grown by 8% in both value and volume (Nielsen, MAT 16.06.07), while Blossom Hill declined in volume by 5% but retained its value from the previous year.

Gallo’s western European marketing director, Jane Hunter, believes that California is successful  “thanks to the mix of US wines available, which has changed over the years to offer more variety to the UK consumer”. Hunter does, however, also recognise the potential of a more premium price point for California. She says: “Wine over £7 accounts for just 1% of Californian wine sales, compared to the whole of the New World category at 4% and the Old World at 11%.” She adds that, “The majority of UK consumers do not associate California with premium wine.”

While the US category does well in the UK off-trade in general, its performance is particularly striking in the impulse and multiple specialist channels. According to Nielsen, it is the country providing the highest volume wine sales in these channels. While sales via the impulse channel for US wine have raised 8% and 9% (volume and  value, respectively), it is also suffering in the multiple specialists, along with the rest of that channel.

In the pink
The on-trade is also presenting an increasingly promising opportunity for California. As Hunter points out: “New World wines, and Californian wines in particular, are enjoying a fantastic growth period in the on-trade, while Old World wines are slipping.” Clare Griffiths, vice president of brands for Constellation Europe, also believes that “there is a big opportunity in the on-trade”. There are challenges to be overcome, however. As Kate Harborne, marketing manager for Enotria Winecellars, mentions: “A lot of Californian wines are too expensive to be listed by the glass, where the volume lies in the on-trade.”

One recent and ongoing trend that has benefited California lately is the constant increase in sales of rosé. Brown-Forman Wines’ European marketing director, Simon Legge, comments that: “California has had a pretty good run for its money for most of the 2000s, and a lot of this has had to do with them surfing the rosé wave, mainly with White Zinfandel. California accounts for 52% of all rosé wine sold in the UK.” Hunter agrees that “the growth of Californian wines has been fuelled by Britain’s love for rosé wines”.

California is currently poised to benefit from another consumer trend – an enduring affection for all things Pinot Grigio. As Cartwright explains, “The Italian train is still moving fast, but California is now well placed. Shoppers aren’t scared to buy Pinot Grigio from outside Italy. And the Californian branding is just another reassurance.” Griffiths confirms that “California can supply both Pinot Grigio and Pinot Noir” – both significant consumer trends.

Californian wine is known for its strong brands, and this has served entry-level wines well in the UK market. However, as Harborne points out, this is not necessarily the case across the price spectrum. “I think the problem for premium brands in the UK is that at the top end California competes with premium wines from other countries. If buyers continue to associate California with mass production cheap deals, they will not look at California for the top end of the list.”

Positive perceptions
Consumer perceptions of California and its wine are undoubtedly an asset. As McLaren puts it, “We still have those loyal Gallo and Blossom Hill consumers, but we also have people arriving to the category because of California, rather than via the brand. It is also seen as separate from the rest of the US, in a positive way.”

And while both California and Californian wines may be positively perceived outside of the US, the specifics of Californian wine regions are not fully understood. Tookey believes “much still needs to be done in terms of education – the reasons why coastal is so much better than Central Valley, explaining California’s geography, its AVAs [American Viticultural Areas] and micro-climates…”

Such is the extent of California and the potential of its wine offering that McLaren comments: “We have to bear in mind that California is not a region, but more like a nation, with a wide diversity of styles.” The other wine-producing regions in the US, however, are now making an attempt to claim their share of the export market as well. 

Hunter believes that, “There has been an increase in the availability of wines from Oregon and Washington State and there are always opportunities for wines from those states to add to the US category in the UK wine market.”

Starting from scratch
Hilltop Wines, a wine sales and marketing business, has been given the task of acting as a generic body for the Washington Wine Commission and the Oregon Wine Board in the UK. Managing director, Mike Coveney, has no illusions about the fact that these two areas are almost starting from scratch in the UK. “It’s not about growing the market. The main goal is to create a market. We can’t compare to New Zealand or California yet because we’re not established. We all believe the time is right for both Oregon and Washington in the UK but, while there is an awareness of US wines through the success of California, we can’t follow on their coat tails.”

Activity is currently focused primarily on the trade. “It’s hard with consumers here because they can’t access the wines. Therefore our first job is to talk to importers so they actively consider wines from these regions,” says Coveney.

In addition to producing wines that are significantly different to those from California, these two regions produce a varied range as well. As the executive director of the Washington Wine Commission Robin Pollard says, this particular region, the second-largest wine producing region in the US, boasts “over 500 wineries and 350 wine grape growers in nine American Viticultural Areas.”

Washington and Oregon vary significantly from each other as well. Coveney says: “They are two totally different regions, in terms of both geography and climate.”

While Canada and Japan also represent important export markets for these two regions, the domestic market remains the major outlet. “For those who are keen on exporting, it’s about being recognised on the global wine scene. The only way they can get recognition, to be seen as an export-quality wine, is to export. A lot don’t want to be just a domestic brand,” says Coveney.

A region with even less presence in the UK than Washington or Oregon is New York State. Jim Trezise, president of the New York Wine & Grape Foundation, explains that, “While New York is number three in US wine production, we are only about 4% of the total, with California accounting for 90%.”

So while the UK is in a list of target markets for premium wine from this state, Trezise explains that “export is not a top priority for most New York wineries due to the costs, overall economics, and limited supply of wine”. This is a result of most wineries in New York selling their wine on-site, achieving significantly greater margins than if wine was exported to other countries.

The foundation’s vice president, Susan Spence, mentions that some high-volume producers, particularly of Kosher wines, place an importance on export markets. Spence says, “Our smaller wineries haven’t experienced a great deal of success in the past in the UK, but as more product becomes available, the chance that you will begin to see some New York products in some speciality shops increases greatly.”

McLaren makes the following point: “Ten years ago, Californian wine only had a 2% market share in the UK, and now it has 16%.”

The activity from Washington and Oregon does not seem rushed, so drastic changes are unlikely. The market will undoubtedly be as different again in ten years, though. And if Washington and Oregon have their way, that landscape will include at least some US wines from areas beyond California.


Overall exports
It is not only in the UK that California dominates the US wine shelves. Of total exports of US wine in 2006, only 5% originated from outside of the Golden State. According to figures from the Wine Institute of California, exports were worth US$876 million last year, up 30%. This represented a significant shift in the value of US wine, since volume increased by only 4%.

Europe represented a particularly significant increase, with value up by 48%. Canada remained a critical market for Californian exports, with exports to China, Singapore and Hong Kong growing in value as well.

© db August 2007

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