Editorial: ‘Peak wine’ or not, industry is changing in Sonoma and beyond

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In a love poem from the 13th century, Persian poet Rumi insolently beseeches his paramour: “Either give me enough wine, or leave me alone.”

Which just goes to show: Even medieval Muslim balladeers could foresee that the market for wine would eventually plateau.

So it’s all the more curious why the flattening of the wine market this year has been such a surprise to industry experts.

In Kate Williams’ recent story on slowing sales on the Sonoma wine scene (“Is Sonoma Reaching ‘Peak Wine’?” Aug. 31), she references the 2018 “State of the Wine Industry” report written by Rob McMillan of the Silicon Valley Bank Wine Division, which contends that the industry is at the tail end of its largest growth period in history. While wine sales continue to grow, its brakes are practically skidding. For instance, from January through September of 2016, premium wine sales – bottles between $10 and $25; the industry’s biggest market -- increased 9.8 percent over the same months the previous year. But in 2017, that same period saw a mere 0.3 percent growth. While those numbers reflect national trends, which aren’t always predictors at the local level, it’s no doubt little solace to the Wine Country market, which then lost much of October and beyond due to the North Bay fires.

With more and more wine-tasting rooms seemingly wanting to set up shop on the Plaza – albeit there’s already a moratorium on newbies, while city officials consider setting limits – and many of the current crop with sluggish foot traffic outside sunny weekends and staged events, one has to wonder, as Williams’ story also asked: Is Sonoma reaching “peak wine”?

In economic terms, the concept of “peak” refers to the highest point in a business cycle between the end of an economic expansion and the beginning of a contraction. It’s where growth meets its highest point before decline. In other words, it’s the concept that the good times can’t last forever without a little belt tightening here and there. Or, in some cases, an entire change in business strategy.

The idea of the “peak” of an industry jumped from Econ 101 class to the front pages of the Utna Reader a few years ago when the theory of “peak oil” went mainstream. Pretty soon everything was “peak this” and “peak that.” But peak oil is somewhat the inverse of the original concept. Peak oil is about demand surpassing supply (i.e. petroleum in the ground, which is inherently limited). Peak wine, on the other hand, is a question of whether supply will surpass demand.

Because, at some point in Sonoma, there could simply be too many tasting rooms for the city’s population and tourist industry to sustain.

According to the State of the Wine Industry report, California’s wine supply is still slightly increasing – 2018 will see about 3.8 million tons of crushed grapes – while overall sales rising between 2 and 4 percent. But while demand remains healthy, it is evolving. By 2021, Gen Xers are expected to pass baby boomers as the largest wine-consumer age demographic in the United States. And millennials are on their heels; by 2026, they will surpass Gen Xers in consumers of “fine wine,” with millennials knocking over other wine-category “dominoes” within the years after that.

If there is a “peak wine” coming, and a market contraction, its depth and longevity will likely be down to the millennials (age 22 to 38) who, according to the report, have less money than previous generations at their age and are less willing to spend on higher priced wines and more willing to abandon wine altogether in favor of craft beer or spirits. Not only does the study report that a typical college graduate from 2008 has earned $58,600 less over the following decade than a college grad in the recent years prior, but they carry 300 percent more student debt than their parents and are half as likely to own a home compared with young people in 1975. Parents, if you think you’re worried about your college grads’ economic prospects, you’re not alone. So’s the wine industry.

The report refers to the millennial wine consumers as “frugal hedonists,” in that they like the wine, but not the wine-culture frills. They don’t want to pay wine-tasting fees; they’d rather save money by drinking an $8 bottle of chardonnay before going out than pay heavy at a restaurant. Direct-to-consumer sales, wine clubs, and other methods of moving supply beyond the restaurant and tasting room will continue to be key for the wine industry as a whole until millennials get some bank. If they ever do.

Online sales and sophisticated internet marketing are the future, according to the report, but most wineries’ digital presence is still too “rudimentary.”

Whether any of this means Sonoma, or the industry itself, is at “peak wine,” who knows? The next 12 months could be gangbusters, as the economy keeps ticking and Bay Area daytrippers continue to flock to the Valley.

But even if the demand remains, how, when and where consumers purchase their wine is evolving rapidly. From across the country to Sonoma, it’s becoming a simple directive:

Either give me enough wine, or leave me alone.

Email Jason at jason.walsh@sonomanews.com.

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