I thought it would be interesting to take a look at what’s “big” in the wine market (where the most consumer dollars are going) versus what’s “hot” (or “hot hot hot” as in the video above), showing the fastest growth. I’m using U.S. off-premises wine sales data from Nielsen for the 52 weeks ending 9/18/2010 taken from the December 2010 issue of Wine Business Monthly.
Baseline information: Off-premises wine sales in the U.S. totaled $9,172 million in the period covered here according to the Nielsen report, with an overall growth rate of 3.2%.
Which product categories are the largest in absolute terms and which are growing the fastest? I’m going to break down the data by wine varietal, country of origin (for imported wines) and price category. Take a minute and write down what wines/countries/price points you think will be at the top in each category and see if you’re right. Here goes
Chardonnay Leads the Way
Forget what you thought you knew about Chardonnay being so yesterday and Pinot Noir kicking Merlot’s butt. In terms of the overall retail market sales, the giants (or are they dinosaurs?) still dominate.
BIG varietals
| Varietal | $ million |
| Chardonnay | $1,996 |
| Cabernet Sauvignon | $1,347 |
| Merlot | $911 |
| Pinot Gris/Grigio | $734 |
| Pinot Noir | $526 |
| White Zinfandel | $427 |
–
American wine drinkers are nothing if not traditional, reaching again and again for familiar varietals, so the usual suspects come top of the table. Pinot Noir has indeed surged in the post-Sideways era, but its lead over wounded White Zin is not large and it still lags far behind arch nemesis Merlot.
Obvious Chardonnay is the consumer default with a 50% lead on Cabernet and double the sales of Merlot. Pinot Grigio, the #2 white varietal, lags far behind.
I find the varietal “hot list” below quite interesting. The fastest growing wine varietals are Riesling, Pinot Noir (of course), Sangiovese and Sauvignon Blanc. (Interestingly, varietal Sangiovese is rising while Chianti is a shrinking category in the Nielsen league table.)
HOT varietals
| Varietal | Increase |
| Riesling | 9.4% |
| Pinot Noir | 8.9% |
| Sangiovese | 8.7% |
| Sauvignon Blanc | 8.5% |
–
It seems to me that while the “big” varietals are wines that many consumers purchase to drink on their own (because of their high alcohol levels and for other reasons), the “hot varietals” are a bit more likely to be food wines. I wonder if that’s a trend?
World Wine Web
Most of the table wines that Americans drink are American — there is a very strong home country preference. Domestic wine sales totaled $6,524 million for the period covered here while imports accounted for $2,648 million. What countries supply the most imported wine as measured by total expenditures? Here’s the Big list:
BIG import countries
| Country of Origin | $ million |
| Italy | $804 |
| Australia | $771 |
| Chile | $243 |
| France | $228 |
| Argentina | $187 |
| New Zealand | $125 |
–
As the table shows, Italy and Australia are #1 and #2 respectively in off-premises sales. It is interesting that France has fallen to #4 behind Chile. Argentina and New Zealand make the cut here (Spain did not!) as you might expect, but bear in mind that Italy still sells more wine in the U.S. than Chile, France, Argentina and the Kiwis combined. The concentration ratio in this market is very high: Italy and Australia may be struggling at the moment, but they are in a league of their own.
Italy and Australia will not be over-taken soon, but the market momentum seems to have has passed. Look at the big growth numbers that Argentina and New Zealand are putting up below! Wow. Annual growth rates of more than 20%!
HOT import countries
| Country of Origin | Increase |
| Argentina | 27.6% |
| New Zealand | 21.1% |
| Germany | 4.4% |
| Chile | 1.7% |
| Spain | 0.6% |
| Portugal | 0.3% |
–
Now look at the gap between the really hot ones and the rest! Germany comes in at #3 on hot list, but with a low 4.4% increase for the year. Sales of most wine imports (including Italy and Australia) have actually fallen in the last year. Spain and Portugal squeeze onto the list at #5 and #6 by simply avoiding utter collapse. The import wine segment is slumping badly, with Argentina and New Zealand the only significant exceptions.
The Price is Right
Finally, let’s look at the market in terms of price points. What are the biggest and hottest parts of the wine wall in terms of price?
BIG price points
| Price Segment | $ million |
| $3.00 – $5.99 | $2,688 |
| $6.00 – $8.99 | $1,903 |
| $9.00 – $11.99 | $1,868 |
| $12.00 – $14.99 | $910 |
| $0 – $2.99 | $794 |
| $15.00 – $19.99 | $557 |
| $20+ | $446 |
–
You can see from the data why Gallo is having a good year (or probably having a good year, since they are a private company and don’t release data so I can only guess). Their brand portfolio is aimed at the heart of the market, from $3.00 to $11.99. Lots of good targets there!
You can also see why Constellation Brands is probably finding this a challenging year. They reconfigured their brand portfolio to take advantage of what they saw as upmarket opportunities. They moved up the wine wall a bit but the market changed directions and went downmarket, leaving them in a less competitive position.
HOT price points
| Price segment | Increase |
| $9.00 – $11.99 | 9.1% |
| $20+ | 7.4% |
| $12.00 – $14.99 | 5.0% |
| $3.00 – $5.99 | 4.5% |
| $15.00 – $19.99 | 2.5% |
| $0 – $2.99 | (0.1)% |
| $6.00 – $8.99 | (4.0)% |
–
But Constellation’s upmarket bet may yet pay off. The hot price segments are all in the wine wall’s upper strata.
The Old Elasticity Trap
The rise in spending in the super-premium + categories is an encouraging sign, but I think some caution is necessary in interpreting the data. Many observers see the big increase in expenditures on $20+ wines and conclude that consumers are coming back to this segment strongly — that the demand curve has shifted. But I suspect that there is a lot of bargain hunting taking place and that margins are falling – bad news. Maybe we are just following discounted prices down the demand curve.
For many of today’s buyers a $20+ retail wine is a highly discretionary purchase and so the demand curve may be quite elastic. Econ 101 students will remember that total expenditure increases when price falls for a product with an elastic demand.
The large percentage expenditure increases we seen in the data could result from discounting — $30 wines being sold off for $25 and so on — rather than an actual increase in demand or shift in the demand curve. The increased revenues are good and inspire optimism, but they may disguise the bad news of shrinking margins.
(As I am writing this, the neighborhood Safeway is offering an extra 20% off any wine selling for $20 or more. I suspect sales revenue will increase at the lower retail markup.)
Overall conclusions? I’d rather not, thanks. These data are interesting more for the questions they raise than the answers they provide. But the questions about how the U.S. wine market is changing are worth pondering (hopefully over a nice glass of wine). Cheers.
Great review of the off premises market.
Do you have any data on how “sparkling” would fit into the varietal categoiries?
Thanks for your comment, Paul. Unfortunately the Wines Business Monthly data do not report sparkling wine sales. I am pretty sure that Nielsen has the data, just not reported here.
So imports now account for 40% of the off premise wine spend – the “strong home country preference” seems to be waning. Weren’t imports “only” 33% three years ago?
Guess I wasn’t clear. Total off-premises = $9,172 (I give this number in the second paragraph). Imports = $2,648. Import penetration = 28.8% by retail value. Hope this helps.
Nice summary Mike, and I share your caution on getting too excited over the $20+ category. That growth is from a pretty small historical base in terms of volume and SKUs. It may be further boosted by channel shift by both consumers (away from on-premise and smaller specialist retailers into chains) and distributors (moving more $20+ SKUs into chains, as you point out often at discount).
It’s always worth keeping in mind that scan data is gathered from grocery/drug/mass market chain stores and a limited panel of large liquor stores. Some market segments are under-represented in scan data (such as $20+ wines, French and Spanish wines, Zinfandel) while other segments (e.g. Australia, White Zin) sell a higher-than-average proportion of their wine in scanned outlets.
From what I see in the marketplace, the “life at the higher-end of the price tunnel” is the result of discounting. The wine that is selling for $20 retail was listed at $35 12-18 months ago. Having sat in inventory somewhere for a while, it’s now being discounted to clear space and open-to-buy dollars for new inventory –at substantially lower costs.
Many producers and wholesalers are sitting on inventory and now see the need to clear out some space before the end of the year and the holiday frenzy subsides. If you don’t sell it now (Nov and Dec)m chances are it won’t sell for quite a while.
Just how big is the bias in the data that results from including the big chain stores and not more fine wine outlets? That’s what prevents us from drawing more broad conclusions from this I think.
However, the TRENDS in varietal, origin, and other internals are relevant regardless of that selection bias I would think. Argentina = en fuego. Higher price points are bolstered by margin-killing discounts. Great brief on where we are, nicely done.
It’s hard to say exactly; since the demise of Wine Trends, there hasn’t been any hard 3rd party data on total CA shipments by varietal to all channels. But here’s an example: if you take estimates for CA shipments by variety from Gomberg-Fredrikson’s annual report for 2009 and divide grocery store 2009 scan data into it, 14-15% of CA Zinfandel goes through chain grocery whereas 25-30% of CA Merlot is sold through chain grocery.
Great review of the current status of retail sales in locations reporting their scanning data. I echo Christian Miller’s caution that the scanned universe may not be representative of all market activity. A second point is that these figures are dollars, not volume. It would be great to have volume figures as well in order to see if prices are going up in the various categories. Finally, for the “hot” categories, we need to remember that these percent increases are off small bases. Collectively, they are still a small percent of the total market.
Mike, one other thing. Can we (collectively) stop talking about “food wines”? Any wine that a consumer enjoys with food is a “food wine.” Some individuals may not enjoy the past trend to higher-alcohol, riper flavor, wines (and I am among them) but to castigate those wines as non “food wines” is, in my opinion, elitist B.S. Some groups of consumers partially define themselves as going against mainstream taste–and a movement away from higher alcohol wines may be part of that process. But this same group may have been the point-guard in the movement towards higher alcohol wines 15 years ago. My real point here is to suggest we drop subjective and value-laden terms such as “food wines” and instead simply refer to alcohol level, something that is measurable.
Just in case others stumble upon this, I’d like to dispel some of the misinformation here. Food friendly wines are not vague and arbitrary to those who utilize the term properly. It’s not subjective either. Food friendliness is a function of pH, which, dumbed down, means the active strength of acid-due to dissociation of hydrogen ions thus becoming more perceptibly tart. At pH 3.6 and below, the active acidity is sufficient to “cut through” the lipids in most foods, refreshing the palate and making each bite seem like the first. When this combines with compatible flavors, a truly wonderful match is made.
Mike, I totally agree that all signs point to the rise in $20+ actually reflecting an ongoing decline in prices. That category may not represent a large fraction of total dollar sales, but it includes probably 99+ % of the high-rated (let’s say 93 and higher) wines in the world. So If your $325 cult cab is now being offered at the “bargain” price of $180, it may see a pop in sales. Or if your $80 single spur Pinot Noir is marked down to $40, you may move a few cases. But those wines are surely not holding their price points, nor would I expect to see them return to those price points in this lifetime – unless they convince the Chinese that they are collectible.
Two things:
Australia is overwhelmed by Yellow Tail, which accounts for about 1/3 of the total sales for the country.
also, to take issue with Jim; there are wines that are the opposite of ‘food friendly’, I call them ‘food hostile’. They are, in some opinions, good or even great wines. But they are so over the top that they destroy the flavors of the foodyou are eating and dominate your palate. It’s not elitist B.S., it is the arrogance of winemakers/owners who feel that the only thing you should taste is their wine, no matter what the setting. I don’t drink wines like that because I like balance, I also try not to eat food that is over spiced, salted, flavored for the same reason.
Daniel,
My point is that what you consider to be “food hostile” wines are enjoyed with food by other people and who has the right to judge the appropriateness of what other people enjoy eating and drinking and in what combinations? “Over-spiced” and “over-salted” are your own judgments that depend upon your own physiology (concentration of tastebuds)and psychology (personal experience). What may be overspice to you may be underspiced to someone else. What may be “balanced” to you may be unbalanced to another person. These are opinions or preferences, not absolutes and the arrogance lies in assuming that one’s own preferences are the “correct” view of reality.
“Australia is overwhelmed by Yellow Tail, which accounts for about 1/3 of the total sales for the country.”
I haven’t the data to hand, but, as an Australian I cannot believe this statement. There has always been a plethora of brands, varieties and blends on offer, in tens of thousands of bottle shops. To think that [yellowtail] has captured 1/3 market share is inconceivable.
What I WOULD say we are overwhelmed by: the New Zealand ‘Savalanche’ (!)
ps this is an excellent analysis of the US wine market, thank you.
I’m writing a business plan for a retail wine/tasting room. The financial institutions are asking for 2-yr projections on revenue, cash-flow, P & L. Year-1 was not too difficult with some info I gleened from similar businesses. However, I would venture to guess what kind of growth rate I could expect in year 2. Anyone have a basis point I should use that is acceptable to those evaluating the projections?
Scan data is totally unrelated to Direct to Consumer sales, which depend largely on wine tourism, tasting room conversion and club sign up rates, and efficient web, email, phone or snail mail marketing. These in turn vary a great deal depending on the region and type of winery. I recommend consulting with some CPAs with large number of small winery clients, some of the fullfillment management companies like ShipCompliant, or one of the Tasting Room consultants like Craig Root.