Wine Industry

America's winemakers are making superior wines and reaping global acclaim. In a single generation the United States wine industry's global success is a fascinating story of entrepreneurial vision and savvy marketing. The American industry has new innovations, new competition, and new markets, which make the future look bright for the wine industry.

In terms of worldwide recognition and success, individual American wineries have made their mark only in the last 50 years. 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.

The wine market consists of still wine, sparkling wine, and vermouth. Since the 1970's, per capita consumption in the United States has grown from 1.3 to 2.7 gallons in 2003. Retail wine sales in the U.S. were a record 21.1 billion. In 2002, Americans consumed 595 million gallons of wine.

Core wine consumers, about 19.2 million, account for 86% of table wine volume consumed in the U.S. Marginal wine consumers, about 28.9 million, account for 14% of table wine volume consumed in the U.S.

Core drinkers are somewhat older than marginal drinkers. 51% are between 40 to 59 years, with a high level of education and a high income of about $79,000. 15% of core wine drinkers have wine daily, 48% drink a few times a week, and 37% weekly.

Marginal wine drinkers prefer white wine, about 46%, followed by red, 35%, and blush/rose, 19%. They are somewhat younger than core drinkers, 49% are between 40 and 59 years and have a relative high income of around $63,000. 52% drink wine two to three times a month, 30% drink once a month and 18% drink once every two to three months. Fifty to fifty-nine year olds drink 16.4 bottles per year. Twenty-one to twenty-nine year olds drink 6.6 bottles per year.

The United States is arguably the best place to grow grapes in the world. The United States boasts world-famous growing areas that rival France and Italy in quantity produced and in quality of wine, as the technology and weather are extremely similar. Napa and Sonoma Valleys are also key tourist attractions, providing a constant source of customers.

The wine market in California represents more than 90% of all the United State's wine production. People drink wine in California and France because there are wineries there and it brings an appreciation. Many feel that as the wine industry develops in a locality, more wine will be drunk.

The U.S. ranks 34th in per capita wine consumption, just behind Slovakia and Canada, and ahead of Latvia. Per capita wine consumption is 2.72 gallons.

According to 2002 Adams Wine handbook, 32.2% of adult Latinos, 28.8% of adult Asian Americans, and 25.8% of adult African Americans are wine drinkers.

America's top 10 export wine markets are the United Kingdom, Canada, Netherlands, Japan, Belgium, Germany, Ireland, France, Sweden, and Denmark.

Infrequent increases in Federal alcohol taxes have led to significant erosion in inflation adjusted values of these taxes. In 1951, inflation adjusted value of tax was $1.16 per wine gallon. The inflation rates imposed on wine currently is about $1.07 per wine gallon. The wine taxes vary based on alcohol content. They currently range from $1.07 to 3.40 per wine gallon.

Infrequent and modest increases in state and Federal alcoholic beverage excise taxes contribute to declines over time in inflation adjusted alcoholic beverage prices. Federal, state and local governments can use a variety of policies to raise the price of alcoholic beverages. Infrequent and modest increases in taxes and repeal of some control policies have contributed to sharp reductions in inflation prices over time.

The U.S. Gross Domestic Product of the wine industry was 3.20% in 2003. The inflation rate in 2003 was 1.9%.

While states have broad powers to regulate alcohol sales and distribution under the 21st Amendment to the U.S. Constitution which ended Prohibition, there are limits under the Sherman Act to what a state can do to limit or regulate competition, and some state actions can violate the antitrust laws.

Price differentials create more legal problems than any other aspect of pricing, especially in "price-posting" states that require sales to all trade buyers at the same price. Regulators uniformly want the posted price to be the "real" price, but there are relatively few regulations or guidelines. In a few states, "tied house" laws extend to the supplier-wholesaler relationship, requiring review of economic benefits, especially those varying by the wholesaler.

The federal Robinson-Patman Act introduces complexities whenever suppliers of goods charge different prices to different customers who may compete with one another. A supplier's quantity discount usually does not justify a lower price to the higher volume competing buyer.

The wine industry is one of the most regulated industries in California. Both Federal and State laws govern and affect the daily operation of the winegrowing enterprise. These statutes and regulations often interrelate and overlap, creating a maze of complex rules that can be difficult to interpret.

The 21st Amendment to the United States Constitution ended nationwide Prohibition and granted to the states broad powers over the transportation and importation of alcohol. All fifty states now regulate to some degree the interstate shipment of alcohol directly to consumers within their borders, which are called "direct shipment laws."

In recent years, as the dramatic growth of the Internet and increased reliance on home shopping have resulted in a boom in the direct shipment business, states have begun moving toward stricter enforcement of direct shipment laws. Interstate direct shipment laws restrict the shipment of alcoholic beverages directly from out-of-state producers and retailers to in-state consumers.

After Prohibition, most states adopted the "three-tier system" of alcoholic sales under which alcohol producers must go through wholesalers and distributors, who must in turn go through retailers, who can then sell to consumers. This developed to displace the alcohol distribution system that existed before Prohibition, in which producers owned retail outlets where they sold their products.

State legislatures claim that the laws will enable states to collect tax revenue from alcohol sales. In-state sales are subject to sales tax at the wholesale tier, while out-of-state suppliers who ship directly to consumers need not charge sales tax. Also, legislatures and supporters of direct shipment laws claim that restrictions on mail-order