California’s wine industry is making progress in reducing excess supply, but falling consumer demand continues to complicate its recovery. At a wine-industry symposium in Napa, producers and analysts said the sector may need to become smaller—and offer consumers new reasons to buy wine—rather than simply make more.

Jeff O’Neill, founder and CEO of Marin County-based O’Neill Vintners & Distillers, said wineries had expanded in expectation of annual sales growth of 4% to 5%, but that growth never arrived. He estimates wine demand has dropped 18% over the past five years.

“We cannot cost-cut our way back to growth. We have to give consumers a reason to value what we do,” O’Neill said.

The discussion echoed Silicon Valley Bank’s industry outlook, which anticipated a difficult bottom for U.S. wine demand in 2027 and 2028, followed by modest growth.

Supply is shrinking, but surplus remains

Audra Cooper of Turrentine Brokerage said vineyard removals are helping bring supply closer to demand. Her team expects another eight to 12 months of work to clear older excess wine from the market.

California had 439,115 acres of vineyards as of Aug. 1, according to the latest LandIQ tally. Nearly 47,229 acres—about 10%—were removed in the preceding 12 months, up from 38,000 acres in the previous period.

In the North Coast, more than 8,000 acres were removed, nearly 6% of the region’s total. Napa County lost 2,944 acres, Sonoma County 3,523, Lake County 667 and Mendocino County 811.

Cooper estimated California’s 2026 grape crush at about 2.3 million tons. The 2025 crush was 2.62 million tons statewide, down just over 8% from 2024. She cautioned that the El Niño weather cycle could modestly increase the 2027 crop.

Excess bulk wine remains a challenge. Turrentine had about 25 million gallons listed for sale, compared with roughly 20 million a year earlier. Listings had declined from a 2026 peak of around 33 million gallons, but buyers showed little interest in wine from the 2024 vintage or earlier.

“I’d love to say that we’re in a position where we see full market recovery, and that’s just simply not the case at the moment,” Cooper said.

O’Neill estimated California wineries have 30% to 35% more capacity than needed. A smaller crush this year could produce less wine than the market is buying, he said, but wineries still have older inventories to sell.

Industry analyst Jon Moramarco estimated California wineries held nearly 888 million gallons at the end of 2025—equivalent to 22.1 months of shipments, compared with a historical average of 18.5 months. His model suggested inventories could return to that average by the end of 2028 if annual crushes average about 2.3 million tons from 2026 through 2028 and shipments continue to decline.

Signs of growth in specific categories

Beverage alcohol consultant Danny Brager said sales are stabilizing, though below year-earlier levels. Data he presented showed direct-to-consumer wine volume fell 8.8% in the 12 months through September, while revenue dropped 1%. Wines priced at $100 or more per bottle bucked the trend, gaining 1.3% in volume and 9.3% in revenue.

Smaller formats also performed better. U.S. retail wine sales in packages under 750 milliliters rose 7.2% in dollars in the 52 weeks ended Oct. 3, while sales of larger packages fell 4.6%.

Kaleigh Theriault of NIQ said declines were driven mainly by fewer purchasing occasions, rather than a steep drop in the number of buyers. Younger adults still drink, she said, but are more intentional about alcohol. Wineries should balance price and quality, offer relevant experiences and give existing customers reasons to return.

Rethinking wine’s appeal

O’Neill urged wineries to move beyond rigid serving rules and tasting-room jargon that can make wine feel complicated.

“Heritage is important, but it alone is not a business strategy,” he said.

He pointed to sustainability and transparency, including ingredient labeling, as ways to build consumer trust. The roughly 125 growers supplying his company, representing about 15,000 vineyard acres, are certified sustainable. O’Neill said regenerative farming can cost more initially but may improve yields over time, and encouraged growers to try it on a small plot.

Wine also competes with other beverages for consumers’ attention, he said. Recovery will require more than cutting costs or increasing production.

“If we’re going to get ourselves out of this mess, we aren’t going to do it by simply making more wine,” O’Neill said.