California wineries feel more optimistic about their industry this year despite the fact that per capita consumption of wine is down 25 percent in the United States, according to data recently collected by the UC Davis Graduate School of Management. "People are switching from wine consumption to micro-breweries and bottled water for their favorite drinks," according to Bob Smiley, a wine economist and dean of the business school. "The wine industry is not picking up Generation X, and the reasons for it are not clear." Even so, 43 percent of the wineries in California are adding new varietals, a surprising event in light of the drop in wine consumption, says Smiley. "The wineries that are the most profitable are making wines at the lower end of the price scale," he says. According to Smiley, the wine industry is dividing a relatively small number of consumers who drink premium wines among hundreds of in-state wineries competing in the higher-priced wine. Meanwhile, he says, Europe, Latin and South America, Australia and New Zealand are exporting wine to the United States, further increasing the competition.