I've been pointing out the slowdown in the growth rate of consumer demand by volume for some time now. We are still growing as an industry, but the growth rate is slowing, particularly when looking at volume.I began discussing shifting consumer demand and premiumization in the Annual State of the Industry Report as early as 2006. This is a pretty optimistic industry, so I was called a Debbie Downer when I started discussing the forward trends back then. That blow-back has since settled into a reluctant agreement. Instead of debating the facts as I've laid them out now, the discussion has settled into a strategy discussion.
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| Source: CA Grape Acreage Report |
At some point in a cycle, an equilibrium point is reached as planting moves forward in response to growing demand. At that point, growers will slow down planting.
The nearby chart shows a strong runup in planted acreage starting in 1995. That was a reaction to the start of the current explosion in demand for wine we've experienced for the past 25 years. Something changed to the slope of the line in 2001. That pause was created when planted non-bearing acreage became bearing and coincided with the Dot.com bubble and recession. From there, planted acreage fell into a more predictable but slower pattern, supported by healthy consumer demand.
In 2017, planted acreage hit another inflection point, and a new phase began with acreage removals adjusting for oversupply. That's an indication that we are fully planted, and supply has reached a point of excess. It's hard to argue that demand is growing substantially when acres come out of the ground. That said, looking deeper into this does reveal the source as declining consumer acceptance in lower-priced, high-production wine.
But from all the signs I can see, it appears we've arrived at that tipping point in supply. That will change a lot of things going forward.
