As the economic crisis deepens and spreads, most of the news about the impact on the wine industry is not so good — falling sales and lower prices as consumers pull back and trade down. I’ve written about this in How Will the Economic Crisis Affect Wine? and Trading Down: Wine and the Recession.
GOOD News on Wine
A number of journalists and wine writers have called me to talk about the trading down phenomenon, but yesterday was a first: I was interviewed by Roger Numbers, a bright blue animated avatar who is the host of a daily news show on the GOOD News network. You can view the resulting 91 second report on “The Grapes of Economic Wrath.”
The program packs quite a lot of information unto a few seconds and is very lively and interesting — check it out and I think you will be impressed. And look through the other recent programs while you are there. Kudos to Roger and the GOOD News team.
There is one point of clarification I’d like to add to the interview, since it is obviously impossible to cover every detail in 91 seconds. One part of the trading down effect is that consumers are changing not only how much they spend for wine but also where they buy it. So upscale supermarkets are losing sales to discount stores like Costco and Sam’s Club. But they aren’t going to Costco to buy the very cheapest wines (like the Franzia pictured in the video) because Costco doesn’t typically carry the cheapest wines. They leave that market to others.
Trading Down and Switching Over
Consumers are going to Costco and similar stores because they have lower mark-ups on better quality wine. Costco’s wine mark up is no more than 14% over wholesale cost versus maybe 50% in a supermarket or wine shop, depending on the type of wine and other factors. Costco can do this because it has a much smaller selection of wine than other stores, higher sales volume and of course because members pay $50 to $100 annual fees. Read more about Costco wine economics here.
So wine buyers are both trading down (lower price) and switching over (changing where they shop). I knew this was happening when a friend who manages the Wine Wall at an upscale supermarket told me he was sellng less wine, but at a higher average price. Explanation? The trading down effect (lower prices) was being overwhelmed by the switching over effect (consumers of the cheaper wines were buying them elsewhere). Good news? Yes — for Coscto and other wine discounters.