Long-time 1WD reader and tirelessly inquisitive wine guy Bob Henry recently asked for my thoughts on an article published by wine data maven David Morrison, titled The perilous state of the US wine industry?. Go read it; it’s important.
My first thought about said article is that I love said article; it’s well-written, interesting, and cites actual numbers to back up the conclusions therein. My second thought is basically “Oh, holy sh*tballs!“
The crux of the article’s matter is that the U.S. wine market is potentially in for some very hard times, primarily due to unsustainable trends. Among Morrison’s conclusions, after adjusting wine sales data for inflation:
“If the US population is continuing to grow, then sales of all goods can be expected to grow with it — and the population has been growing at c. 0.65% per year for the past 5 years. The wine industry is currently not keeping pace with the population.”
“…there have been times when the increase in total wine value did not keep pace with inflation.”
“…a healthy industry needs an increase in the actual number of consumers through time; and the current wine industry in the USA does not seem to have this.”
If these dire conclusions about the wine business sound familiar, it’s probably because some of us [raises hand] have been sounding similar warnings for literally almost an entire decade…
Let’s recap some of 1WD’s largest rants in the U.S. wine market area:
- In general, the U.S. wine business has relied too much and too long on a consumer base (Boomers) that is aging out (literally and financially) of its wine buying power.
- At the same time, outreach by the wine biz has largely been ineffective at capturing consumers in other buying age groups.
- The wine biz in America more-or-less got caught with its pants down when it comes to positioning itself defensively against the cannibalization of wine consumer dollars by other goods such as beer, weed, and even coffee.
- The wine business is now in a state of playing catch-up in trying to pull younger consumers’ dollars away from other luxury goods, at a time when those consumers have tighter budgets.
Morrison’s analysis seems to strongly support the notion that the fine wine business in general has failed to attract enough enthusiastic, younger consumers to support its continued growth.
None of that is handsome news, but it’s all even uglier when combined with the warnings issued recently (and cited in Morrison’s blog post) from Sonoma State University’s indefatigable Professor Damien Wilson. Wilson has noted that the U.S. wine market’s focus on premiumization (driving higher revenues via higher prices) looks an awful lot like what France did (raise prices) in the last several years in response to a declining wine consumer base, which resulted in marginalizing younger potential consumers even more (to the point where 80+ percent of wine consumed in France is by people aged 55+).
Little has been done by the wine biz in the last ten years to change the fact that (as reported by Wine Business and emphasized by Bob Henry in the comments section of Morrison’s post): “SIXTEEN PERCENT OF CORE WINE DRINKERS consume wine once a week or more frequently, which ACCOUNTS FOR AROUND 96 PERCENT OF CONSUMPTION. Thirty-five million adults drink virtually all of the wine sold in America.”
It seems that, in focusing on selling higher and higher priced wine to a dwindling set of older consumers, the U.S. wine business has painted themselves into a corner; they now have to grow the market with a younger consumer base which they have largely ignored, increasingly via social tools that they have largely misused, at a time when competition for a smaller set of consumer dollars has never been more intense. Holy sh*tballs, indeed.
Cheers!
I would also like to add to your list Joe that by-the-glass wine lists are largely atrocious…dominated by big distributor brands that lock up the lists with innocuous CA offerings that aren’t worth the coin…your better off with a craft beer at half the price. Of course, there are conscientiously put together BTG programs but they’re too few and far between. This is the point of introduction for so many new consumers and its off-putting…
Someone likes himself a narrative. 5% annual revenue growth on a $70B industry doesn’t seem to be consistent with a Holy Sh*tballs conclusion (plenty of healthy industries would kill for this sort of growth). And, with all due respect, the analysis of the impact of premiumization in France suffers the same causation/correlation and lack of counter-factual problems that almost every study in this industry seems to have.
Look, nobody would possibly argue against nominal customer growth, but there’s a way more pressing need to improve the current product/experience – I’m shocked how well the industry does given the utter cluster f*ck of a purchase process.
Joe, my friend, the American market is shifting (when is it not?), but I’m not sure if “Holy Sh*tballs” is the correct response. There has, indeed, been just modest growth (about 5% according to the most recent Wines & Vines Analytics Report) in consumption over the past year or so, coupled by a gradual movement towards “premiumization” (re Dr. Thach’s 2019 market report, https://lizthachmw.com/2019/02/03/the-us-wine-industry-in-2019-slowing-but-steady-and-craving-innovation/), but the definition of “premium” is somewhat benign: While sales of wines at $10 and under have remained static, it is the category of $11.99-$19.99 that has increased by 8% over the past year.
The market, it goes without saying, has gone through these cycles before, where for a short time consumers in general are not so much drinking more wine, they’re drinking *better* wine. But at this time, this “better wine” is still falling in the garden variety, supermarket, $12, $15 or $16 category, not the $50 or $100 wine that just a tiny minority of wine lovers consume. In other words, wines falling well within the means and preferred range of Millennials and younger I-Gens.
Meanwhile, back at the ranch: As you know, I live in Lodi, which supplies a whopping 20% (most of the $4.99-$19.99 categories) of the California wine grape crop each year, while California in general still produces about 60% of all wine sold in the U.S. (including imports). Much of Lodi’s growth over the past 20 years has been built on the demand for $10 and under wine. However, that demand has leveled off over the past two, three years to the point where a growing percentage of the existing vineyards farmed for $8 or $10 wines have been going unpicked. The big wineries simply don’t need as much of those grapes as they did, say, just five or six years ago.
Therefore, the reality is that Lodi winegrowers have been forced to change their farming, as well as grape selections, to meet the growing demand for wines for wines in the $11.99-$19.99 category. In other words, it’s not as if both growers and wine producers haven’t noticed the gradual shift in consumer base. How can they not notice things that go directly to their bottom line, or the visible evidence of perfectly good grapes still hanging on the vine long past the harvest season? The “younger consumer base,” that is to say, are far from being “ignored.” It’s hitting home.
The good news for consumers, of course, is that slightly higher quality grapes means slightly higher quality wines, and it’s either sink-or-swim time for growers. Now, you can go out and yell “Holy Sh*tballs” if you give a darn about Lodi growers. But honestly, when in the multi-generational history of this region has it *not* been sink-or-swim? This is agriculture, man, and this is life. The wine grape industry has been good to Lodi farmers, and you can bet they are making adjustments as we speak, just as they always have.
You can, in fact, apply the same situation to the gi-normous winegrowing and wine production industries in countries like Spain, France, Italy and Germany, where the nature of consumers have been changing even more dramatically than in the U.S. (cultural and social changes, on top of generational shifts). Yes, you can sound an alarm, but it’s not as if these dudes here on the West Coast and all over the rest of the world aren’t savvy enough to figure things out for themselves.
These are all good points, folks. I sound alarmist because, well, I’m an alarmist; that’s because I’ve yet to see the wine business take much action to change when the messages are delivered in a more measured tone.
I have a pet theory.
(Aside: Not quite as famous as Anne Elk’s “Theory on Brontosauruses.” You can find a modern version here: https://www.youtube.com/watch?v=Xs7r5xfucPs )
With a nominal 40-hour work week here in the U.S., most consumers have a “comfort zone” for spending on a bottle of wine each week: the monetary equivalent of one hour of their wage.
Citing Bureau of Labor Statistics data:
“Wages in the United States increased to [an average of] 23.70 USD/Hour in October [2019] . . .”
URL: https://tradingeconomics.com/united-states/wages
$23.70 covers a lot of wine options.
Citing the cover story titled “California Cabernet Sauvignon: Napa’s Stunning 2016 Vintage” in Wine Spectator magazine (November 15, 2019):
“Sticker shock remains a problem for Napa Cabernet lovers, however. Of the wines in this [nearly 600 submissions Cabernets Sauvignons and blends] report, more than 50% cost more than $100 per bottle. That trend is here to stay . . .”
With pricing equal to multiples of a consumer’s equivalent hourly wage, Napa Cabernet Sauvignons and blends are pricing themselves out of the weekly household food and beverage budget of the majority of the 16% core wine drinkers and the 84% non-core wine drinkers.
Sonoma and Washington producers can exploit their lower pricing to take market share away from Napa.
Just sayin’ . . .
We’re a small winery that added beer production over the last three years. We’re now seeing a much more broad demographic of customers (for both wine and beer). We’re trying to meet new customers where they are, and address all their preferences (on a small scale).
That seems like an astute move, Mike.
Mike:
I remember many, many years ago the famous restaurateur Wolfgang Puck opened a brew pub in Los Angeles to honor his Austrian roots.
Got commendable acclaim from the restaurant critics in town.
One unforeseen hiccup: they brewed beer faster than they could sell it on premises, or sell it as bottled product in grocery stores and wine stores and other accommodating restaurants.
Beer does not have the shelf life of wine.
What are your plans for brewed product that gets “a little long in the tooth”?
“Save Your Bottles: Eureka Beer’s Becoming Collectible” | Los Angeles Times (May 24, 1992)
URL: https://www.latimes.com/archives/la-xpm-1992-05-24-ca-48-story.html
“Eureka Won’t Be Ale-ing Anymore” | Los Angeles Times (May 2, 1993)
URL: https://www.latimes.com/archives/la-xpm-1993-05-02-ca-30040-story.html
Best wishes on your adjacent market venture. [*]
~~ Bob
[*Discussed here in this business advice book:
“Double-Digit Growth: How Great Companies Achieve It — No Matter What”
URL: https://www.penguinrandomhouse.com/books/288721/double-digit-growth-by-michael-treacy/
Here’s an Advertising Age trade magazine article on the author and his book:
“The Business-Building Tools Marketing Execs Ignore” | Advertising Age (May 31, 2005)
URL: https://adage.com/article/jonah-bloom/cmos-share-gain-aspect-job/103337 ]