AMERICA’S WINE INDUSTRY:
A GLOBAL SUCCESS

J. EDWIN DIETEL

After scarcely a generation, the US wine industry is
challenging centuries-old European wineries

America’s winemakers, most of whom are relative newcomers to the industry, are making superior wines and reaping global acclaim. In a single generation, and at a time when many US industries can no longer claim to be world leaders, the US wine industry’s global success is a fascinating story of entrepreneurial vision and savvy marketing. It remains to be seen whether the American industry has reached its peak, or if new innovations, new competition, and new markets will make the future rosy for US vintners.

In terms of worldwide recognition and success, individual American wineries have made their mark only in the last 50-odd years. American experiments with wine-making for the past 200 years—including considerable efforts by Thomas Jefferson to replicate French grape-growing techniques at Monticello—had proved commercially unsuccessful. Not until the end of Prohibition in 1933 did the American wine industry take off on a large scale. America has now become the fourth largest producer in the world behind Italy, France, and Spain. US wine exports in 1999 were up almost threefold over 1990 levels, totaling 74 million gallons ($540 million). Quantity of production is but one measure of success of the industry. American wine producers also have become widely known for the quality of their products.

The single event that brought global recognition to the American wine industry occurred in Paris in 1976. There, in a celebrated blind tasting by nine French wine experts, American Chardonnays were compared to their celebrated French counterparts, white Burgundies, while American Cabernet Sauvignons were compared to the prestigious French first-growth red Bordeaux. The American wines won top honors in both classes; the Chardonnays even won most of the top places. Half of the 12 American wines involved were judged better than their French counterparts by the French judges. Significantly, some of the most recognized French wine experts judging the contest could not identify which wines were French and which were American.

LITTLE GRAPES, BIG BUSINESS

This success was no fluke, but rather a reflection of the steady increase in both the production and quality of American wines. US wineries, numbering about 245 in 1973, have skyrocketed to about 1600, half of which are in California. In a testament to the ability of American soils to produce high-quality grapes, several dozen of the leading vintners from France, Germany, Italy, Australia, and other countries have invested in wineries or vineyards in the United States. Among these is a 1980 partnership between Robert Mondavi and Baron Philippe de Rothschild, which produces premier Bordeaux-type red wines at a new winery, Opus One, in Napa Valley.

According to the San Francisco-based Wine Institute, winemaking is now a $33 billion industry in California, which produces 90 percent of America’s wines. This figure includes direct and indirect revenues from growing and harvesting the grapes, equipping the vineyards and wineries, and producing and distributing the finished products. Three out of four wine bottles sold in the United States are filled with California-made wine.

From the perspective of US vintners, the American market remains relatively small. Unlike France or Italy, where per capita wine consumption is perhaps 100-150 wine bottles per year, the annual consumption of table wine in the United States is only about 10 bottles per person. This figure, though almost twice the US consumption rate in 1968, and nearly 12 times the rate in the post-World War II years, fell off somewhat in the 1990s and is only now back up to the levels reached a decade ago. Health concerns, together with public campaigns against drinking and driving, tempered alcohol consumption levels over the past 10 years.

Retail sales of wine in the United States, however, have risen steadily each year, from an estimated $3.3 billion in 1975 to more than $18 billion in 1999. The data suggest that the American market is moving “upscale” as consumers switch from less expensive generic wines to the finer varietals. About 80 percent of the wine consumed in this country is from American vintners (of that amount, about 90 percent is from California), with the remaining 20 percent split among the other worldwide producers.

RECIPE FOR SUCCESS

The current large-scale wine industry in America is barely out of its infancy, technically dating from the Prohibition era in 1933. In reality, though, it was not until the end of World War II that large numbers of Americans began to travel to Europe, where they soon developed a taste for wine and helped launch the demand for table wines in the United States. Until relatively recently, sweet “dessert” wines and distilled spirits outsold table wines in this country.

The success of the American wine industry, in fact, runs counter to the experience of many American industries in the post-war era. American ideas and visions, in many cases, were snapped up and commercialized by foreign competitors. For example, the simple video tape recorder, a consumer bonanza for Japanese companies, was invented in the United States by Ampex, but was never successfully produced and marketed by an American manufacturer. Unlike consumer electronics, automobiles, steel, and other industries dominated in the 1950s and 1960s by American producers, only to be eclipsed by foreign competitors, America’s wine industry continues to demonstrate its ability to dominate the domestic market, as well as increase its share of global sales.

The American wine industry can credit at least four factors in its success: (1) aggressive leadership in research and teaching in the field, (2) standout, principled leaders in the industry, (3) dedication and commitment to the field often facilitated by previous success in other industries, and (4) a willingness to learn through experimentation and risk taking.

The industry is supported by highly recognized academic research and teaching efforts. Leading in these efforts is the University of California at Davis, where researchers enjoy the active cooperation of many US grape-growers and vintners. Many of what are now standard grape-growing and vintification techniques, practices, and processes have come about because of the willingness of American vintners to share their accomplishments with others in the industry.

In Wines of America (1990 edition), the late Leon Adams tributes the many advances in US grape-growing and winemaking technologies as crucial to the vast improvement in the quantity and quality of inexpensive California table wines. Trellising and pruning techniques, along with cool stainless-steel fermentation procedures, made it possible for US wineries to mass produce high-quality wines. According to Adams, knowledge of the chemistry of grapes and wine has advanced more in the few decades since World War II than in the preceding two thousand years. UC Davis, one significant repository of this knowledge, has become a training ground for the world’s winegrowers.

A PASSION FOR WINE

The American wine industry also owes much of its success to the principles and vision of its pioneering vintners, some of whom came from a long line of wine-makers. The Gallo brothers, Ernest and Julio, have devoted a lifetime to becoming the leading low-cost, value-oriented producer in the world. Gallo produces one of every three bottles of wine consumed in this country and has a total capacity among all of its facilities of 300 million gallons, or about 1,500 million standard-sized wine bottles.

Many others have devoted their lives to the infant American wine industry, including the Louis Martini and Sebastiani families, which have made value-conscious wines for several generations. Winemaking innovations have come from many of these individuals, including Robert Mondavi, who was not content to follow in his father’s footsteps at the Charles Krug winery, but struck out on his own in the 1960s.

A second group of American vintners includes relative newcomers, many of whom gained fame and fortune in other fields, but abandoned their careers to begin wine-making from scratch. Among these are Warren Winiarski and his wife Barbara (Stag’s Leap Wine Cellars), both of whom left their teaching positions at the University of Chicago to pursue their passion for wine in Napa Valley. In 1979, John Shafer gave up 23 successful years in the educational publishing business in the Midwest to open Shafer Vineyards with his wife and winemaker son.

A third group consists of eminently successful grape-growers who have expanded their operations by turning great grapes into extraordinary wines. Among those long known for the outstanding quality of their grapes is Charles Wagner (Caymus Vineyard), who has gained significant acclaim for his Cabernet Sauvignon wines.

A last group of individuals are those who launched into the business very early in their careers by risking virtually everything. Among these individuals are Joseph Heitz (Heitz Cellars), Paul Draper (Ridge Vineyards), Richard Arrowwood (Chateau St. Jean, then Arrowwood Vineyards), David Stare (Dry Creek Vineyards), Ric Forman (Sterling Vineyards, Newton, and Forman Vineyard), Robert Travers (Mayacamas Vineyards), Stephen Kistler (Kistler Vineyards), Gary Ardrus (Pine Ridge Winery), and Robert Sessions (Hanzell Vineyards).

VARIETALS: MORE THAN A MARKETING STRATEGY

Innovative technologies from innovative winemakers, together with great grapes, helped launch America’s wine industry. America’s wines also benefited from a production and marketing approach, taken early on, that encouraged the production of varietal wines, or wines made predominantly from a particular type of grape. Initially, many American winemakers followed the pattern in France and Italy, naming their wines after the famous European winemaking regions, including Chablis, Burgundy, Champagne, Sauterne, Chianti, Rhine, and Moselle. US regulation now identifies 15 wine-type names of European geographic origin and requires these “generic” wines to be qualified with the true place of origin, such as “California Sherry.”

But simply labeling a wine “Burgundy” is no guarantee of a great Burgundy wine, as even French Burgundies vary widely in quality. Several visionary American wine-makers began labeling wines made from at least 51 percent of a particular grape type (then the minimum varietal content) after the name of the grape from which they were made. The minimum varietal content in the United States has subsequently been raised to 75 percent, or 85 percent if the grapes are from a single designated vineyard and labeled as such. Martin Ray, who began making wine immediately after Prohibition in the Santa Clara Valley, south of San Francisco, produced the first American varietal wines in 1937. A controversial figure, Ray constantly chided his fellow winemakers for making anything less than 100 percent varietal wines.

Thanks to Ray’s vision, and to the other American vintners who focused on producing varietals in the 1950s and 1960s, American varietals, produced and labeled in this manner, soon began to be identified as higher quality wines. Although there are now about 100 different American varietal wines, the two grape types that have become by far the most sought after as varietal- designated wines are Chardonnay, originally called Pinot Chardonnay, and Cabernet Sauvignon.

Chardonnay
The most popular of American varietals, Chardonnays were produced as such relatively early in the rebirth of the American wine industry. There are now some 100,000 acres of Chardonnay vines in California, Oregon, and Washington. An acre of vines yields anywhere from 1-20 tons of grapes and anywhere from 550-17,500 standard bottles of wine, depending on growing conditions and winemaking techniques.

The development of great American Chardonnays, and their ability to challenge the finest white Burgundies produced in France, involve the efforts of five premier California wineries: Stony Hill, Hanzell, Chalone, Chateau Montelena, and Chateau St. Jean. In the late 1940s, counter to the prevailing wisdom at the time, Fred and Eleanor McCrea began planting Chardonnay at their Stony Hill vineyard retreat just north of the Napa Valley town of St. Helena. Stony Hill Chardonnays, produced in limited quantities, are prized for their longevity and excellent qualities.

In the late 1950s, Ambassador James Zellerbach established Hanzell Vineyards in Sonoma. He began to import French oak barrels to age Hanzell Chardonnays, which gave the wine new levels of richness and complexity. These were among the first of the big buttery, toasty, vanilla-flavored Chardonnays of considerable complexity and longevity.

In the mid-1960s, Richard Graff at Chalone Vineyards (south of San Francisco) began to age and ferment his Chardonnay in small French cooperage. This added to the rich toasty, buttery complexity of the wines produced from Chardonnay grapes. Chalone’s Chardonnays are all 100 percent malolactic fermented, a process by which all of the more acidic malic acid is converted to the milder buttery lactic acid.

In 1976, a 1973 Chardonnay from a brand-new winery (only its second Chardonnay release) stunned the wine world by being selected the best Chardonnay by the panel of nine French experts in Paris. This wine was made from Napa and Alexander Valley grapes by Miljenko “Mike” Grgich (now the co-owner of Grgich Hills Cellar) at Chateau Montelena.

Lastly, Richard Arrowwood at Chateau St. Jean in Sonoma Valley’s Kenwood began to make multiple single vineyard-designated Chardonnays in the mid-1970s. Chateau St. Jean’s Chardonnay grapes came from Robert Young, Belle Terre, Frank Johnson, Jimtown Ranch, and other vineyards, none of them owned by the winery itself. None of these Chardonnays, while barrel fermented, underwent malolactic fermentation.

The ultimate result of this work by a diverse group of extraordinarily talented people over a single generation was to make American-produced Chardonnay rise from complete obscurity to be the most popular varietal in this country today.

Cabernet Sauvignon
Unlike the Chardonnay story, the production of outstanding varietal wines from the Cabernet Sauvignon grape has a somewhat longer history in the American wine industry. The first Beaulieu Vineyard Georges de Latour Private Reserve Cabernet Sauvignon was produced by Andre Tchelistcheff and released in 1941. At that time, though, there was little demand for fine wine produced in the United States, which had only about 200 acres of Cabernet Sauvignon vines in production.

The early history of quality Cabernet Sauvignon production in California did not imitate the production methods of their French Bordeaux counterparts. Many of the California Cabernets were 100 percent Cabernet Sauvignon, which was rarely the case in Bordeaux, where virtually all of the most famous and expensive chateau-bottled wines are blends of wines from as many as five different, though closely related, types of Cabernet Sauvignon grapes.

Experimentation with the barrel-aging process also helped set American Cabernet Sauvignons apart from the French competition. After founding his own winery in 1966, Robert Mondavi bought hundreds of French barrels and experimented with many different types of oak and barrelmakers virtually to the point of mania. In 1961, Joseph Heitz opened his own winery and quickly became famous for his Cabernet Sauvignon made from grapes grown in a plot known as Martha’s Vineyard. He used French oak for this extraordinary wine. Other highly regarded wineries, Silver Oak being one, began using American oak barrels, which impart a different oak quality than those barrels made and used in Bordeaux. Some wine consumers prefer the sweet, woody quality of American oak-aged wine, while others prefer the softer character that French wood imparts.

In the 1976 blind tasting in Paris, the 1973 Stag’s Leap Wine Cellars Cask 23 Cabernet Sauvignon was selected as the preferred red wine by the nine French wine experts, beating out the French first-growth Bordeaux entrants. A Cabernet Sauvignon from Ridge Vineyards’ Monte Bello vineyards also ranked at the top at this tasting.

By the late 1970s, the best Cabernet Sauvignons were so much in demand that many tasting rooms would not serve this varietal, simply because there was not enough of the best ones to be able to afford to do that. While the volume of Cabernet Sauvignons produced in this country continues to increase slightly, production of red wines in general has trailed white wine production since 1975.

Other varietals
America’s vintners have also come up with many other popular varietals, including the white Sauvignon Blanc, and the red Merlot, Zinfandel, and Pinot Noir. Experimentation and ingenuity are the hallmarks of these successful varietals. When red Zinfandel grapes fell out of favor in the late 1970s and 1980s, for example, some very enterprising vintners took these unwanted red grapes and processed them like white grapes, fermenting the pulp without the grapeskins. The resulting “white” Zinfandel has become enormously popular, particularly with wine drinkers just beginning to explore the intricacies of this subject. Sutter Home Winery, the country’s largest producer of white Zinfandel, sells over 36 million bottles of this wine a year, an incredible 90-fold increase over 1981 sales.

High-quality blends
For many American winemaking purists, a varietal wine, made with a designated minimum of that grape varietal, offers the best wine that can be produced. On the other side of this debate, an increasing number of winemakers believe they can make the best wines by blending varietal grapes. After all, the great wines of Bordeaux have always been blends of several varietals.

Today, there is much more wine blending at the top premium wine categories. Typically, these top wines are labeled with a proprietary name, such as Mondavi/ Rothschild Opus One, Joseph Phelps’ Insignia, Cain Vineyards’ Cain Five, Pine Ridge’s Andrus Reserve, Niebaum-Coppola Rubicon, and Clos Du Bois’ Marlstone. A number of other wineries are adopting the French approach by producing and marketing “meritage” blends from the five Bordeaux or Cabernet Sauvignon family of grapes (Cabernet Sauvignon, Merlot, Cabernet Franc, Petite Verdot, and Malbec). Many of these proprietary-labeled wines are approaching the stratospheric prices of some of the most expensive French offerings.

PLENTY OF OBSTACLES

Not every American winery has a success story to tell, of course. Since Prohibition, hundreds of American wineries have failed, usually for the same general reasons that cause any business to fail: internal mismanagement; competition; and external elements that cannot be overcome. In some cases, perhaps the costs of production were too high, or the winery failed to generate enough demand for its wines.

Yet, with so many success stories behind it, the American wine industry seems well positioned to continue developing new products, as well as new markets. American ingenuity and innovation will be needed to overcome some short-term threats to the industry, including a shortage of corks, an abundance of agricultural pests, and other such problems. With flawed corks spoiling an estimated $3-5 billion worth of wine annually, corks are a vital part of the winemaking process. In Sonoma, St. Francis Vineyards has begun to use plastic “corks” for its entire line of wines. The question remains, however, whether these plastic corks will have any effect on the quality of wine, particularly bottles stored for several decades.

And, like any agricultural crop, grapevines are susceptible to disease and pests. America’s vineyards have battled their share of scourges, including phylloxeria, a tiny root louse that attacks the roots of the grapevine and slowly destroys it. Prevalent in European vineyards in the 19th century, phylloxeria appeared not to attack American rootstock. After much research by the experts at UC Davis, a particular rootstock, named AXR1, was found to be an effective deterrent to the disease. Recently, however, it was discovered that phylloxeria was reappearing in California vineyards planted on AXR1 rootstock. Many of these vineyards have had to be completely ripped out and replanted at considerable expense, especially given that it takes at least five years for a devastated and replanted vineyard to achieve desired production levels.

An even more worrying agricultural problem this year is Pierce’s Disease, which is being spread in Southern California by an unwelcome new pest, the glassy-winged sharpshooter. While California’s wine-growers have dealt with Pierce’s Disease for over a century, the emergence of this insect, native to the southern United States, has alarmed the wine industry. The sharpshooter, a voracious feeder with a long flying range, spreads the bacterial disease by feeding on infected vegetation and then feeding on the sap of nearby grapevines. Like phylloxeria, Pierce’s Disease has no known cure; the vines simply wither and die. There is no effect on the actual wines, nor health risks to the wine-drinker.

To date, a total of $47.6 million has been allocated from federal, state, local, and other sources to fight the spread of Pierce’s Disease and eradicate the glassy-winged sharpshooter. About half this amount has come from the US Department of Agriculture, which declared an agricultural emergency in June 2000. Though only 1,500 acres, or 0.2 percent of California’s winegrapes, have been damaged by Pierce’s Disease since 1994, the disease is of particular concern because the fast-acting bacterium can kill a grapevine within two years, potentially creating grape shortages until alternate sourcing or planting arrangements can be made. The disease also affects over 100 other crops, including almonds, citrus fruits, stone fruits, and alfalfa. Research efforts now underway at UC Davis and other facilities include developing disease-resistant vines, as well as introducing parasitic wasps and other methods to control the sharpshooter population.

Not all the challenges facing America’s wine industry are so tangible. Significant new competition from producers abroad, particularly at the lower price levels, are exploding into the American market. Australian Chardonnays and Cabernet Sauvignon/Shiraz blends, along with Chilean Cabernet Sauvignons and Sauvignon Blancs, and New Zealand Sauvignon Blancs, are now commonplace on the retail shelf. While many in the American wine industry produce distinctive wines from these varietals, many of the newcomers are priced very competitively at the lower end of the market. To meet this challenge, US vintners need to take a lesson from the Australians and Chileans, and widen their efforts to increase global demand for their world-recognized products.

Broadening the market makes sense for any industry, and the US wine industry certainly has room to grow in its sales at home, as well as abroad. Wine sales in the United States, though, remain subject to some peculiar internal trade barriers left over from the Prohibition era, as each state regulates the production, distribution, sale, and consumption of alcohol within its borders.

The vast differences in the alcoholic beverage business requirements of 50 states means that many small wine producers cannot afford to invest in complying with all, or even many of them. As a result, many wines, particularly the finer ones, are not available in many areas of this country. Notwithstanding, the Washington, DC, metropolitan area represents one of the most competitive wine markets in this country outside of California.

Wine sales in the United States are also hampered by social pressures against drinking and driving, as well as the efforts of groups that reject outright consumption of any alcoholic beverage. Lobbying by such groups as Mothers Against Drunk Driving (MADD) and Students Against Drunk Driving (SADD) cannot and should not be ignored by the wine industry because there is little, if any, distinction by these groups about the type of alcoholic beverages being consumed. In response, several wineries, including Sutter Home, are starting to produce and promote alcohol-free wines. In many ways, however, wine is trapped in the middle between the beer guzzlers and the hard liquor drinkers.

In recent years, a countervailing force to those who would discourage the use of alcoholic beverages has become known as the “French Paradox.” This theory, based on French dietary practices and health statistics, suggests that moderate consumption of red wine may counteract the richness of the French diet. America’s winemakers would no doubt love to boost wine sales by touting the health benefits, but it is too early to tell if further research will support these health claims.

Ultimately, the continued success of America’s wine industry will depend on its ability to meet these types of challenges, and continue to produce choice grapes and the finest wines. After all, mediocre wine from mediocre grapes will go nowhere, no matter how hard it is marketed; wineries producing mediocre wines tend not to last long.

The industry, though, seems well up to these many challenges. In the short space of a generation, the American wine industry has maintained the tradition of boldness, innovation, creativeness, and success that so characterized a number of American industries in the 200-year history of this country. American wineries that have been successful cannot rest on those successes, however. The industry and its competitive forces continue to change and members of the current industry will survive only if they are able to anticipate and deal with these changes. While there are significant threats to the American wine industry, there also is a large domestic and worldwide market of potential consumers who have yet to enjoy the fine taste of America’s wines.

J. Edwin Dietel (CC ‘91) is an attorney and independent consultant specializing in leading and managing law practices. He is the author of four books, Leaders’ Digest (1996), Leading a Law Practice to Excellence (1992), Sustaining Law Practice Excellence (1992), and Designing an Effective Records Retention Compliance Program (1993), and numerous articles on law practice management, information, knowledge and records management, and preventive law. He is also the chair of the Cosmos Wine Group.

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