California Wineries Slash Vineyard Acreage as Industry Faces Deepest Restructuring in Decades

Wineries and grape growers across the United States are facing a period of major adjustment as they respond to shifting consumer demand and changing market conditions. In California, the country’s largest wine-producing state, thousands of vineyard acres have already been removed, with estimates suggesting that more than 40,000 additional acres could be pulled this year. Several large winemaking facilities have been idled, and layoffs have affected workers as companies cut costs and reduce production capacity. These moves are part of an industrywide correction that is expected to reshape the U.S. wine sector.

Despite these challenges, the total value of the U.S. wine market increased by more than 3% to $114 billion in the 12 months through January, according to data from market research firm bw166. However, total market volume declined by 3.4% to 374 million cases, with domestic table wine volume dropping nearly 6% to 200 million cases. Jon Moramarco, founder of bw166 and editor of the Gomberg Fredrikson Report, noted that while the overall market value is up, many in the industry are not feeling the benefits. “About 1/3 of wineries are growing, 1/3 are flat and 1/3 are declining,” Moramarco said.

The Wine Industry Partnership—which includes Gomberg Fredrikson, bw166, WineBusiness Analytics, BMO Commercial Bank, and new member BakerTilly—plans to release its third annual report in May. The report will draw on a comprehensive survey of U.S. wineries and is expected to detail one of the most challenging periods for producers in decades.

Michael Ricioli, principal at Baker Tilly’s wine, beer and spirits group, explained that companies are being forced to reassess their business models. Some are selling vineyards and wineries to focus on buying grapes and making wine at separate facilities. Others are shifting resources between wholesale and direct-to-consumer (DtC) channels or exiting certain markets altogether. “Companies are right sizing and for wineries and vineyards that are asset heavy they may free those up to create liquidity,” Ricioli said.

Many wineries are also considering writing down unsold inventory as another vintage approaches. Francesca Guidi, managing director of BMO Wine & Spirits, said overproduction in recent years has left some companies with excess stock they may need to discount or sell through alternative channels such as discount retailers or flash sale websites. Guidi emphasized the importance of communicating with lenders about write-downs since these moves can affect borrowing capacity due to declining asset values.

Some companies with strong financial positions are choosing to sell rather than ride out the downturn—a trend Guidi described as unprecedented in her experience. She warned that delaying tough decisions could make it even harder for businesses to adapt as obligations mount and options narrow.

Australia-based Treasury Wine Estates (TWE), one of the world’s largest publicly traded wine producers, recently announced an impairment charge of nearly $550 million on its U.S. operations due to weak sales in North America and China. The company’s stock has lost half its value over the past year, and it has suspended dividend payments while restructuring around its luxury brand Penfolds and premium U.S. brand Daou.

Distribution challenges have added further complications. Last year, Republic National Distributing Co., the second-largest U.S. wine distributor, exited California’s market—the nation’s largest with nearly 76 million wine drinkers—leaving millions of dollars’ worth of inventory in limbo for producers like TWE. A $65 million settlement was eventually reached between TWE and RNDC, but other distributors have also announced layoffs or restructuring efforts.

Other major players have taken similar steps. Constellation Brands closed its Mission Bell Winery in Madera, California at the start of this year, laying off more than 200 workers. Gallo closed a facility capable of producing around 2 million cases in Napa Valley and reduced staff elsewhere. Jackson Family Wines shuttered a large production site in Los Carneros AVA.

The 2025 California winegrape harvest is estimated at between 2 million and 2.5 million tons—nearly half what the state could produce on average. If current demand levels persist, industry experts say even more wineries may close or be repurposed by year’s end. Moramarco estimates that about a quarter of total production capacity still needs to be removed from the system.

There is concern among some analysts that California growers could “over correct,” leading to a short grape market in coming years that might attract new investment into vineyards—especially larger ones with contracts in place. Cody Jennings, director of middle market M&A for BMO Capital Markets, noted during a recent panel at the Unified Wine & Grape Symposium that new capital is entering the sector as investors look for opportunities amid widespread restructuring.

Consumer spending data from the Bureau of Economic Analysis shows Americans are spending more on wine and alcoholic beverages than in previous decades—even as consumption declines. Since 1993, off-premise spending on beverage alcohol has outpaced all goods categories; wine’s share has grown slightly while beer’s share has fallen.

However, both reported consumption (from Gallup surveys) and actual servings per week have declined since the pandemic began. Christian Miller, head of research for Wine Market Council (WMC), said many factors that drove growth from 1995 to 2015 no longer apply or differentiate wine from other beverages today.

WMC research found that only 29% of Americans above legal drinking age regularly drink wine—a drop from 32% in 2003—and most see it as appropriate mainly for formal meals rather than casual socializing. Millennials now make up the largest share of wine drinkers at 31%, with Gen Z accounting for 14%. Younger consumers remain hesitant due to higher costs per serving and complex flavor profiles.

Moramarco stressed the need for new strategies to reach younger drinkers but acknowledged challenges in promoting lower-priced wines given current industry structures and cost pressures. As competition intensifies for a shrinking share of consumers, wineries face difficult choices about how best to adapt their operations for long-term survival in a changing market landscape.