The "two-buck chuck" table wines, low-priced imports and consumers' increasing taste for inexpensive wines have led to one of the toughest retail markets in years for the wine industry, according to an annual survey by a UC Davis wine economist.

Wineries are streamlining their business, vineyards have been forced to renegotiate contracts, and wine retailers are offering more promotions and specials, says Professor Robert Smiley of the Graduate School of Management. "That's a reflection that times are tough for the industry," he says.

Smiley will discuss the results of his survey of the California wine industry and of his interviews with 29 CEOs from wineries, vineyards and distributors at the Wine Industry Financial Symposium at the Napa Valley Marriott in Napa at 8:30 a.m. Friday, Sept. 26. The symposium begins today.

The survey's 245 participants -- including California wineries, growers, distributors and wine sellers -- name as their top three issues the difficult retail market, the increasing retail power of chain and club stores, and the growing market share of low-priced quality imports.

Two-Buck Chuck

A majority of the 29 winery heads say the Charles Shaw wines -- nicknamed "two-buck chuck" for their $1.99 price at Trader Joe's stores and now among the top six brands in the United States -- have been good for the wine industry.

The chief executive officers and survey respondents say two-buck chuck and other supervalue wines are helping end the surplus of California grapes, drawing consumers to wine and increasing its consumption as an everyday beverage.

"It's been a mixed blessing," Smiley says of two-buck chuck. "It has helped deplete the surplus of grapes in California, but the bad news is that some brands have been hurt."

More than 80 percent of the winery heads don't think the product can be sustained at $2. In the survey, only 7 percent of wineries indicate they plan to introduce their own supervalue wine, but 36 percent believe their competitors will.

Changes in Consumption

When asked how wine consumption has changed over the last year, three-quarters of survey participants say people are drinking lower-priced wines and doing more of their purchasing at chain or club stores. About 70 percent of retailers report that consumers are concerned with price and value, while others retailers say customers are asking for a wider selection of wines and for more information about wine.

And to remain profitable, retailers have carried less expensive wines and offered more promotions and specials over the last year. They are choosing wines based on price and quality. In comparison to the 2001 survey, the influence of price and value on distributors' decisions to promote a wine has almost doubled.

Wineries are focused on re-evaluating their product lines and prices, cutting costs, and capturing efficiencies, the survey found. For example, more than 25 percent of wineries decreased case prices compared to 18 percent increasing prices.

Looking ahead four or five years, wineries and vineyards expect their strongest sales growth to be in high-end wines, while distributors and sellers are eyeing wines priced between $3 and $15.

Grape Glut

The California grape surplus -- a result of increased plantings in the 1990s that have now reached full production -- appears to be over, except for Cabernet Sauvignon and Pinot Noir, Smiley says.

During the last year, just over half of the 49 vineyards responding to the survey renegotiated contracts, and price was the main factor. About one-third of Chardonnay grapes and one-fourth of Cabernet grapes were sold without benefit of contract on the spot market.

Smiley cautions that there is a surplus of grapes and wines worldwide that affects California. "The excess supply of wine is a global problem," he says. "It's not going away soon."

Vineyards cite competition from low-priced quality imports like Australia's Yellow Tail as their number one concern that needs to be addressed immediately. Distributors are expecting growth in imports from Australia, New Zealand and Spain.

Smiley will address winery owners and executives, grape growers, distributors, financial-service providers and other industry professionals at the invitation-only symposium. About 375 are expected to attend the event, organized by the Wine Industry Financial Symposium Group.

Smiley is the director of wine education at the UC Davis management school, which will host an executive seminar for wine professionals in March and is one of the teaching sites for the Bordeaux Business School's globe-trotting Wine MBA program.