Natalie Hanson

NAPA, Calif. (CN) — Is trouble brewing in Napa Valley wine country? Some market-watchers think so. One is Paul Krsek, a Bay Area investment advisor who in April released a report predicting a downturn for the wine industry in Napa and beyond.

An oversupply of grapes — coupled with dropping wine consumption — has caused winemakers in Australia and France to scale back operations, culling millions of acres of vines, Krsek notes in his report. Another 30,000 acres are at stake in Napa, according to Allied Grape Growers, a California wine industry trade group.

Napa’s hotel occupancy rate is down about 6% since 2021, Krsek added in an interview. So is the availability of homes needed for people who staff Napa Valley’s vineyards and bars. With housing costs up nearly 7% over the last two years, he said a lack of affordable worker housing in Napa is a “800-pound gorilla in the room.”

For Krsek, all this creates a troubling prognosis for Napa Valley’s winemakers. After banner years, he says Napa now faces problems seen across the international wine industry.

“As the wine industry goes, so does Napa County,” Krsek said. He argues Napa’s luxury-oriented model must change swiftly to catch up with changing trends in the alcohol industry and avoid economic losses.

Those on the ground in the Napa wine industry have a sunnier outlook. Amid fears of a tourism downturn, they say the Napa region still draws in visitors not just for quality wines but for music, food and art.

Winemakers are still recruiting hundreds of people across the valley, said local wine worker Scott Lange as he scrolled through winery jobs on his phone. With more than 500 wineries and dozens of tasting rooms in the area, “competition is fierce.”

Originally from Kansas and now a manager at the Be Bubbly tasting room in downtown Napa, Lange has been working in the local wine industry since 2021.

While there may be fewer people restocking cellars, Lange said he hasn’t noticed a slowdown in his day-to-day work. Be Bubbly can get slammed even on weekdays, he said, showing just how unpredictable the wine business can be.

“Wine is a luxury good,” Lange said. “You can’t be surprised when there are dips and valleys.” Profit margins at wineries can be razor-thin, but he said Napa continues to attract visitors, including for the Porchfest music event this month.

“People from all over the world think we make the best wine in the world,” Lange said. “They purposefully come here to work and play.”

Tom Davies, president and managing partner at the nearby V. Sattui Winery, agrees. After working about 45 grape harvests, he said Napa Valley’s wine industry is still going strong.

Despite losses during the Covid-19 pandemic, 2021 and 2022 were “two of the best years we’ve ever had,” Davies said. This year, foot traffic in the valley has been about the same as in 2019.

Davies acknowledges the wine industry is seeing changes. A generational shift is underway, as millennials and Gen Z seem more reluctant to buy alcohol — or at least, less able to afford it.

“It’s incumbent on us to pay attention to if younger people aren’t relating to what we do,” Davies said. If not, “we find a way to remain relevant to them.” But even if younger generations don’t have the same Napa loyalty as their parents, Davies said many still visit the region each year.

Elan Fayard, proprietor of downtown Napa’s Azure Wines, says Napa winemakers are unfairly comparing the current season to what were anomalous, extremely good years for the Valley.

That creates an inaccurate picture of decline in the wine industry, Fayard argued — though she acknowledged that Napa wine businesses should nonetheless adapt to changing consumer tastes. For example, tasting rooms can offer more affordable options for casual wine lovers, compared to wineries which often charge $100-200 per tasting.

“With wine, we’re slightly insular,” Fayard said. “In good economies, people are here spending money." But even in “not-as-strong economies, people still want to get out and have experiences.”

Robert Eyler, an economics professor at Sonoma State University, acknowledges California’s wine industry is seeing unusual economic trends. Among them is a wine supply that’s outpaced demand — the same factor that’s seen winemakers cull fields.

Even so, “I don’t think there’s reason to panic,” Eyler said. He pointed to other more positive changes in the industry, including an increase in direct-to-consumer sales. And while Napa’s economic strength continues to lie in wine, the city’s economic reports show diversification with other industries. The highest number of jobs are now in construction, manufacturing and logistics, followed by hospitality and entertainment. Manufacturing and real estate now generate a higher share of growth than hotels and tourism.

As the region diversifies and draws in a wider range of visitors, Eyler thinks 2024 will be a good year for Napa. More than just wine, he said, “people [are] coming to Napa for different reasons.”

In an interview, Krsek disagreed with the notion that Napa has successfully diversified its economy.

“Napa County has to figure out how to attract other businesses,” he said. “I think we’re very limited.”

Krsek offered praise for those who work in Napa’s wine industry. “These people are stewards of the land, he said. “They’re trying hard.” Still, as with any industry, he said Napa needed to do more to adapt to changing consumer tastes.

“We've had wine for thousands of years,” Krsek said. “It’s not going to disappear; it’s just going to transition.”

Back in downtown Napa, Davies said that while May started off slowly, the visitors over Mother’s Day weekend made the city “as busy as it’s ever been.”

“It was really strong for Napa Valley,” he said. That was a good omen, especially with the approach of the peak wine season, which runs from August through October.

At the Be Bubbly tasting room, Lange said it’s too early to tell how peak season will pan out. But with more events on the horizon — including the annual BottleRock music festival this weekend, which typically brings in thousands of visitors — he’s already preparing for more busy days. “This town always keeps me on my toes," he said.