State of the industry

State of the industry – Brief Article

Thomas G. Dolan

An exclusive interview with Allen Shoup on the past, present and future of U.S. winemaking

(In 1980, on 5,000 acres in Woodinville, Wash. Allen Shoup was producing 300,000 to 400,000 cases of Chateau St. Michelle wine, about 70% of the state’s output. Last year, Washington State produced over five million cases, but over three million were produced under the aegis of Shoup’s Stimson Lane, which includes Ch. Ste. Michelle, Domaine Ste. Michelle, Columbia Crest and Conn Creek. Shoup, 57, retired at the start of this year, but promises to continue to be an active voice in the industry.)

Wine has been an integral part of civilized societies for 6,000 years, but in this country it has been a part of the society for about 50 years,” says Allen Shoup, thus offering one succinct perspective of the U.S. wine industry.

“The founding fathers, mostly Puritan, believed alcoholic beverages to be the root of all evil,” Shoup continues. “This same belief led to prohibition, which meant that the fledging wine industry which had begun in the early years of last century was decimated.” Spirits could sustain an underground presence in that milieu, since it could be made in secrecy, almost overnight. Not so wine.

The first time Americans of any significant number began to drink wine, along with beer or spirits, was the 1950s. Still, these amounted to less than 50,000 cases a year, “and they were half fortified wines, consumed more for effect than aesthetic pleasure. That’s when you got beverage wines, such as Ripple.”

The generational revolt of the ’60s saw more young people drinking wine, as a perfect way to break ranks with their parents, Shoup says. The wines were then sweet, but as palates matured, “sweet wines had a cloying effect, and people began moving toward dryer and dryer wines. Hearty burgundy (Shoup had been a Gallo executive) came into vogue, a serious wine, but still approachable.” By the end of the 1970s, about two million cases of wine were sold per year.

“In 1980, if someone put a lampshade on his head at a party, he would be invited back because he was so much fun,” says Shoup. “But by 1990 it would be certain that that behavior was no longer acceptable.”

Attitudes toward wine became more sophisticated. Widely-traveled opinion makers came to the fore. But the connection was not automatic. “As recently as 1984, it was more the exception than the rule that a good restaurant would carry more than a red, a white and a rose, Shoup says. “The industry had to struggle to convince restaurants to serve a wine list, and to furnish reasonable glasses other than inch-thick goblets.”

From the basically fruity wines of the 1970s, the trend in the ’80s was toward white wines. “White became sophisticated, but then, to become really sophisticated, you ordered Chardonnay,” Shoup says. “People ordering Chardonnay caught all of us by surprise. Simultaneously, and equally surprising, was the vogue for white Zinfandel, a bright, fresh, fruity wine, but one made for the American palate. Chardonnay and white Zinfandel created a huge following. Then toward 1988 and 1989, the Merlots and Cabernet-style wines came into play.”

During the wine boom of the 1980s, the industry grew at least 20% a year. By the end of the decade, Americans were consuming about 250 million cases per year. “At the start of the ’80s, about 10% of consumers drank fine wine, but by the end of the ’80s that percentage had moved to 50%,” Shoup says. “What was most significant was not the total consumption of wine, but rather that the style of wine had changed dramatically. Faded into the past were the beverage wines, the wine coolers, and people were drinking serious wines by any world standard. By 1990 the average wine drinking American was drinking better wines than Europeans.”

The 1990s, Shoup says, “were truly fun. People became more relaxed and less intimidated by wine. They began experimenting with it. This has blossomed into a really exciting time for the industry. Winemakers can concentrate on an esoteric style of wine and know it will find an audience. I believe the industry, despite the economy, will continue to become more and more healthy and vibrant.”

Nevertheless, Shoup adds, it will take some time before the U.S. becomes truly a wine drinking society. He points out that only 7% to 9% of the adult population drinks on what can be loosely called a regular basis, probably two or three times a week on average. “We in the industry, of course, don’t think someone is a true wine consumer unless he is drinking wine with every evening meal.”

Shoup says that in addition to this 7% to 9% who drink on a fairly regular basis, there may be 30% who may have an occasional social glass. The typical American home obviously does not have a wine cellar. “So it’s this 7% to 9% who are buying 85% of the wine. We believe we are seeing a new trend that will continue until we truly become a wine consuming society, though it may take 10 to 20 years.”

Though many in the industry think that rate is too slow, and are concerned that wine drinking may even be slowing down, the industry, as Shoup puts it, “should do something dramatic to bring new people into the fold. I have gone on record as saying that it (the industry) is at best naive. We’re only effectively serving 9% of the population, who consume 2 1/2 to 3 gallons per capita. By comparison, it’s not unusual for a typical European to drink 25 gallons per capita. If we doubled the U.S. drinker’s consumption to 5 gallons per capita, we would have to literally double the size of our industry.

“I believe our current growth rate of about 20% a year is healthy and sustainable. But I think it’s a mistake to stimulate growth. First of all, I don’t believe it’s doable. Secondly, I don’t think social behavior is changed by advertising. This is proved by all of the advertising directed at stopping drug use, smoking, school drop-outs or teenage pregnancy. Getting drunk stopped becoming the thing to do in the ’80s, not from an ad campaign, but from a whole social awakening. I think it’s part of the same phenomenon that caused an increased awareness for fine wines.”

Shoup believes that the country’s slower growth toward becoming a wine-drinking society is beneficial. “Once someone discovers that wine drunk with food makes the food taste better, and the food makes the wine taste better, why that’s a cultural discovery, like the discovery of art, or music, or literature. It’s not a fad you do for a while, and then give up. You hold onto it, and it becomes a part of your life.

“Drinking wine usually improves conversation. In homes where the parents drink wine, families stay at the table longer. I believe that is why Mediterranean countries have better family ties. For they are bonded together by that wonderful daily experience of dining together. I don’t think the U.S. will ever become like Italy or France. We have a huge anti-alcohol part of our society. I don’t see that disappearing. But I think it is reasonable to assume, that in time, 35% to 40% of our population will drink wine 4 to 5 times a week.”

In terms of foreign competition, Shoup says, “this has been relatively stable, taking up about 20% to 30% of the market. Along with France and Italy, Argentina, Chile and South Africa, the biggest threat is Australia. They have a huge surplus of wine, geared up especially to bring to America. They have very aggressive and well-run wineries. Yet, even that can be a blessing in disguise, for if we stay the course, there will be room for the both of us. But if we try to grow too quickly, we’ll start substituting quantity for quality. And if Americans can’t readily find reasonably priced good domestic wine, they’ll look more and more elsewhere.”

One of the biggest problems the industry faces, Shoup believes, is that it is highly-fragmented. He maintains that winemakers should find better ways to work together with both the beer and spirit producers, as well as with each other.

“We’ve tended to be our own worst enemy,” Shoup says. “We battle the beer and spirits companies on legislative issues, but seldom join forces to face the threats to our financial security from the prohibition forces. They (italics ours) are the ones who threaten our market existence with restraints and taxes.”

One of the biggest opportunities lost, Shoup says, was when some of the biggest spirits producers in England, called the Portman Group, worked together to try to get a step ahead of social issues. They came to this country and formed the Century Council, inviting all of the beer and wine companies to be a part of it, offering collectively $5 million a year. “But, after so few wineries and breweries joined up, because of a lack of trust, the spirit(s) companies withdrew their red carpet in the early ’90s, and are going it alone.”

Just as wineries have failed to forge alliances with breweries and spirits makers to achieve larger common goals, so too winemakers have too often been at odds with each other. “We should work together to improve the entire market environment for wine, for it’s something we all have a stake in,” Shoup says.

He points out that at least 40 (49–Ed.) states have fledging wineries. “Without exception, those states that have fledging wineries do so because they have tremendous legislative support. The states are very proud of their wineries.”

Yet this plus, continues Shoup, also has its negative side. “Even though these wineries have a lot of local support, every state has a liquor board, and every one can fill a small room with restrictions controlling the sale of alcohol (sic). And most of the regulations were designed to discourage consumption. No two states have the same regulations. So, when you are tying to market your wines to a different state, you have to design a separate program for each state. Some won’t let you use promotions at all. Some states allow the wines to be displayed in convenient locations, and some do not. Sometimes you have to sell wine in a separate part of the store, or a separate store altogether, with a separate register. There are all kinds of restrictions.

“If we had a strong national organization, we could be very powerful, and influence federal legislation. We will never be unregulated or untaxed. But I think it’s reasonable for the industry to expect modern order to be brought into the whole process.

Shoup has belonged to and supported the Washington Wine Commission and Washington Wine Institute, and believes these are worthy institutions that have done much to promote the drinking of fine wine in the state.

“But we also need to come together as a strong national force,” he says. “We have the American Vintners Association in D.C., which is the result of a dream some others and myself have had. But it’s not heavily funded.”

It’s no longer illegal to drink, Shoup says, but since every state controls its wineries, rights are often limited. For instance, there are protective tariffs and commerce clauses that state that only a distributor within that state can distribute. Federal courts are striking down some of these restrictions, Shoup says, but it would be better if winemakers could join together in a united front (The Coalition For Free Trade is trying to do this but without support from E. & J. Gallo, the world’s largest winery–Ed.).

“I do believe the key to our future is in finding ways to make more and better quality wines,” he says. “That’s what we should concentrate on. I don’t think we should work on the fear that we will go into a slump unless people are converted, and that what is needed is more generic campaigns to get people to drink more. I think we do that at our peril. Even the tobacco industry has never said you have to smoke more. It won’t work. And, even if it did, we would see the rejuvenation of the anti-alcohol forces in ways we’ve never seen before.

“We should concentrate on our quality. And certainly the best of American wines are at least comparable to the best European wines. We’re all using the same grapes and technology and the same great site locations. I don’t think anybody has the edge. Perhaps some Europeans have more in terms of experience, but, by the same token, so many of those wineries are tied to their countries traditions by regulations, which make it hard for them. We don’t have those factors holding us back. I think what we did to the Europeans in wine is what the Japanese did to U.S. auto makers a few years back. That U.S. wine has come so far in such a relatively short time is a real achievement.

COPYRIGHT 2001 Hiaring Company

COPYRIGHT 2001 Gale Group