Everyone knows that wine is a big business in the United States, but how big is it and where does the money flow? I’ve spent the last couple of days reading studies of the economic impact of the wine industry to try to get answers to these questions. Here’s a brief summary of what I have found out (follow the links for more details).
Economic Impact Studies
Let’s start with grapes. Grapes were the sixth most valuable agricultural crop in the U.S. in 2005 (and the #1 fruit crop) worth nearly $3.5 billion, according to a 2007 economic impact study by MKF Research LLC, a leading wine economics research consultancy based in St. Helena, California. California accounted for about 6.1 million of the 6.9 million tons of total U.S. grape production in 2005 followed by Washington (415,000 tons), New York (178,000 tons) and Michigan (100,000 tons). A ton of grapes yields 50-60 cases of wine according to published sources.
Roughly half the grape crop ends up in wine. The other half becomes raisins (30%), table grapes (11%) and grape juice (9%). Raisins and table grapes come mainly from California while Washington is an important player in the juice market (juice grape production actually exceeds wine grape production in Washington!). Juice grapes, mainly native Concords, sell for about $150 per ton (Washington data). Wine grapes sell for much more depending upon varietal type, quality and provenance.
There are about 5000 bonded (commercial) wineries in the U.S., according to the study. Nearly half of these are located in California, as you would expect, with Washington (about 500 wineries), Oregon (about 300) and New York (about 250) trailing far behind.
There are bonded wineries in every state including Alaska . I visited one in Anchorage that blended local huckleberry juice with grape must from Washington State to make Alaskan wine. The study indicates that Puerto Rico’s sole commercial winery closed in 2003, suggesting that the Caribbean wine boom has peaked.
Follow the Money
One of the things I have learned in studying wine economics is that the wine business is more than wine. Wine (its production, distribution and sale) is important to the wine economy, but there are a lot of associated businesses that are sometimes as important as wine itself. I have seen some small, scenic wineries, for example, that use wine strategically to create an attractive venue for other more profitable activities, such as restaurant sales and money-earning events such as weddings and parties. Wine is important because of the opportunities it creates for other activities.
The economic impact study gives some sense of this. Winery sales totaled about $11.3 billion in 2005, for example, while wine tourism expenditures were reported at $3.5 billion (about 30% of wine sales). Other related industries include wine labs and consulting ($11 million), winery research and education ($31 million) and the value of charitable contributions (goods and services, $128 million).
The economic impact studies I studied are very complete, but they don’t provide data for some interested wine-related businesses. Wine publishing (books and magazines) is a business that is growing as more consumers seek out knowledge and advice. Wine critics may indeed be parasites, as Jancis Robinson recently asserted, but they do generate cash flow even when they add little value.
I am also interested in the growing wine lifestyle industry. Some people build satisfying lifestyles around wine and the material goods that are associated with it and I think that the total economic impact may be quite large. It starts with wine, of course, and glasses, corkscrews, and storage units of various sorts. Wine tourism (eno-tourism according to a European email correspondent) comes next, followed by wine collecting and investing, which can be expensive indeed.
Then finally there is the urge to own a winery or at least live a winegrower lifestyle. There are a number of winery properties for sale today, according to the Wine Business Monthly real estate listings. Some of these are working operations but others are tailored for lifestyle investors. Recently I have become aware of the growth of gated winery communities like this one in Mendoza, Argentina, which offer the benefits of a luxury villa in a planned and managed (but romantic) vineyard setting. I know of several vineyard estate projects like this being developed in the United States.
Wine consumption is rising in the United States, but I think the economic impact of wine is growing faster as wine tourism and lifestyle investments grow. It will be interesting to see if this trend can be sustained or if some aspects of the wine economy prove to be bubbles.