SIC 2084 Wines, Brandy, and Brandy Spirits

Encyclopedia of American Industries | 2005 | Copyright

SIC 2084
WINES, BRANDY, AND BRANDY SPIRITS

This category includes establishments primarily engaged in manufacturing wines, brandy, and brandy spirits. This industry also includes bonded wine cellars that are engaged in blending wines. Establishments that primarily bottle purchased wines, brandy, and brandy spirits but do not manufacture wines and brandy are classified in SIC 5182: Wine and Distilled Alcoholic Beverages.

NAICS Code(s)

312130 (Wineries)

Industry Snapshot

Although the first commercial wine venture in the United States was in Pennsylvania in 1793, the majority of modern American wineries have been located in California, with Washington and New York coming in a distant second and third, respectively. California has accounted for more than 90 percent of all U.S. wine production and more than 70 percent of all wine sold in the United States. According to the Wine Institute, "If viewed as a nation, California would rank sixth in worldwide wine production, following Spain but bigger than Germany. The dominant wine producer in California continues to be the Gallo family, controlling nearly 40 percent of the wine market."

After exceptional growth in the wine industry during the 1990s, wine sales in the United States began to sour, with sales generally flat in 2001 and 2002. Retail sales of wine in the United States were $19.8 billion in 2001, a 4 percent increase over 2000's sales of $19 billion. The downturn was primarily due to three factors: a slump in the nation's economy; a glut of grapes from a record number of wineries; and inexpensive, high quality imports. Grape prices sunk, resulting in similar price drops in wine. These price cuts benefited new consumers, however, who were more likely to try wine at rock bottom prices. These discount wines, sometimes starting as low as $1.99, became part of a growing trend in wine sales in 2002 and 2003. White wine continued to enjoy its popularity, owning 40 percent of the wine market in 2001, with red not far behind, growing from 17 percent in 1991 to a strong 37 percent of market share in 2001.

Table wine has been the most popular kind of wine sold in the United States. Varietals, table wines made predominately of one kind of grape, grew in popularity in the past decade following the trend that consumers were drinking fewer but better wines. One reason for the increase of premium wine sales in the 1990s was the growing number of consumers over the age of 55. Reports also touted the benefits of moderate wine consumption, and in 1996, the U.S. government, for the first time, acknowledged moderate wine consumption to be a part of a heart-healthy diet. Growth in the baby-boomer sector, however, reached a plateau during the early 2000s. Younger drinkers were drawn to the martini revival, as well as beer and the proliferation of mixed, bottled spirits.

Imported wine also saw tremendous growth in the United States, and many California wine companies established relationships with producers in Australia, Chile, and Argentina to sell their wine. For example, the Canandaigua Wine Company, the second largest wine seller in the United States, established a relationship with Vino Santa Carolina Chilean wines to become that company's sole agent and exclusive importer for the United States. A growing trend linking American and Australian wine industries resulted in a proposed 2003 merger of BRL Hardy, Australia's second biggest wine company, with leading U.S. drink maker Constellation Brands. The union formed the world's largest wine company, surpassing the California wine institution Gallo. Several other important mergers also took place in the early part of the decade, including the takeover of Beringer Wine Estates in California by Foster's, an Australia beer maker. The export market also grew tremendously during the 1990s, with wine export revenues increasing more than 250 percent, from $153 million in 1991 to $541 million in 2001. With only about 5 percent of the world export market, the United States held the potential for further growth in this area.

Organization and Structure

All winemakers must sell their products through wholesalers and retailers to accommodate various federal, state, and local regulations regarding the sale of alcoholic beverages. The Federal Alcohol Administration Act (FAA) was established after the 13-year Prohibition Era ended in 1933. The Bureau of Alcohol, Tobacco, and Firearms (ATF) is responsible for administering and enforcing the FAA, including qualifying winemakers, collecting producer and wholesaler occupational taxes, and regulating trade practices, advertising, and labeling. Beyond the uniformity of the FAA, regulations vary greatly among the 50 states.

States can sell wine in one of two ways, either in a controlled environment or using an open, licensed method. "Open" states have licensed retailers and wholesalers that handle the distribution and sale of alcoholic beverages. Thirty-two states and the District of Columbia are open states. The other 18 states operate under the control method, in which each state government buys and sells alcoholic beverages at the wholesale and retail levels. In addition to federal regulations, some states have set up their own independent agencies that are responsible for the administration, licensing, and enforcement of state laws and the collection of state revenues. Some state legislatures even have created their own Alcoholic Beverage Control (ABC) agencies with rule-making power, and 32 states allow their citizens to vote for or against the sale of liquor on a city or countywide basis.

Background and Development

California winemaking began in 1769 when Father Junipero Serra planted vines at Mission San Diego. In...

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