Tight, Fat, and Uncorked: Three Wine Scenarios

This is the final post in my series on Tight, Fat and Uncorked, the three trends I see shaping the wine industry. This week I want to think about how the future of wine might unfold depending upon which of these three forces is most powerful.

Wine markets are getting “tight” as demand for many grape and wine types outstrips supply, “fat” because of the growing demand for middle class, middle market, middlebrow wines and “uncorked” as more and more international wine trade shifts from bottle to bulk. Each of these forces is important, but it will untimately be the ways they interact that will determine the path of wine’s future development.

For your consideration, here are three possible histories of the future of wine. As always, I invite readers to share their own scenarios in the Comments section below.

Scenario 1: Wine as a Global Commodity

The first scenario sees the three forces fitting together neatly in a way that leads to the increasing commodification of wine.  Tight markets force wine producers to scour the world for juice to maintain their “fat” market wine brands. Bulk wine shipments help solve this problem in a cost-effective way but sacrifice regional identity and local “terroir” to a certain degree.

This scenario is so neat and clean that it is tempting to stop right here. But that’s a mistake because this “future” is really more about the present  and or recent past misses some of the more interesting dynamic elements. Things change when we tweak this scenario a little.
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Scenario 2: The Center Does Not Hold

The second scenario looks more closely at the implications of tight markets. Grape and bulk wine prices are already rising (alarmingly so, in a few specific cases) and this trend is likely to persist for several years.

Many have observed that the demand for wine has become more “elastic” or price sensitive. The recession is one cause: consumers have learned to trade down. Many new “fat” wine buyers think of wine as just one of many possible beverage choices and are more willing to substitute beer, spirits, juice, soda,  and even water as relative prices change. Not all wine drinkers are equally sensitive to price, of course.

So what will happen as wine drinkers are faced with higher prices? One possibility is that the “fat” wine segment will be particularly affected as competition focuses on this price-sensitive market. It isn’t hard to imagine that margins could shrink or disappear as price-sensitive demand meets rising costs. Maybe today’s “fat” market will go on a diet, as grapes and wine are pushed upmarket in search of higher margins and consumers go down market in search of cheaper (or different) ways to fill their glass.

Scenario 3: The Center Shifts [on the margin]

The final scenario focuses on income and demand. The middle class, middle market, middle-brow “fat” wine demand is thought to have a high income elasticity — it is relatively sensitive to changing income. A 10% increase/decrease in income produces more than a 10% rise/fall in wine demand. This property is important as the wine market demand expands (the rising global middle class) in a multi-speed world.

If Europe’s recession continues and even deepens (as seems likely) and the U.S. recover slows or even stalls (as seems possible), then the center of gravity in the wine world will necessarily a bit shift towards those areas where middle class incomes are growing, including parts of Asia, South America and even Africa.

Is this a serious concern? Well, don’t forget that the United States is now the world’s largest wine market and this didn’t happen over night but it did occur because of just the sort of persistent marginal movements I’m talking about here. Certainly all eyes are on Brazil right now because it seems like a country where a substantial “fat” wine market might develop if solid economic growth can be sustained.

Not Nairobi [yet]

I’m not saying that suddenly Nairobi (or Säo Paulo or Shanghai) is going to be the center of the wine world, but supply tends to follow demand and, with markets tight and bulk wine shipments increasingly efficient, new directions are very possible, particularly if margins in these new middle markets are attractive.

Some of these scenarios are more likely than others, but all three embody valid points. So the future of wine (as shaped by these trends) is likely to encompass all three factors plus some unexpected “wild cards.” It is going to be interesting to see how this complex interaction plays out.

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2 responses

  1. Usually events turn out to be messier, with unexpected side effects, than any scenarios expect.
    “Wine as a global commodity” is not in the cards for Italians going wine shopping in Florence, Palermo or Rome. Nor in any state or province where government considers supporting the indigenous industry important.
    Whether the margin will shift will depend on the inertia to be overcome in the market. People who now consider Cabernet Sauvignon to be “the real stuff” aren’t likely to stray too far.
    You wrote, “If Europe’s recession continues and even deepens (as seems likely) and the U.S. recovery slows or even stalls (as seems possible), then the center of gravity in the wine world will necessarily a bit shift towards those areas where middle class incomes are growing, including parts of Asia, South America and even Africa.” Germany, as far as I know, doesn’t have a recession, but it is part of Europe.
    And this implies that The U.S. is the centre (Canadian spelling) of the wine world. Not according to Londoners. And, as Bill Murray said in Meatballs, “It just doesn’t matter.” What matters is whether you, you friends, and I can find a good tasting bottle of wine we can afford, and that people can make enough money supplying us that they stay in the business.
    Here comes the future, and as usual, we’ll all have to adjust to a world we didn’t expect.

    • I agree, Ken. But remember that Germany is the tip of the European Economic Iceberg these days — it is basking in the sun, the rest of Europe is “under water.”

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