How much choice do U.S. wine drinkers really have? The answer to this question, according to a study by a group of Michigan State University scholars, is that it depends on how you look at the question and where you seek your answer.
The study is called “Concentration in the U.S. Wine Industry” by Phil Howard, Terra Bogart, Alix Grabowski, Rebecca Mino, Nick Molen and Steve Schultze and it follows up on previous research on concentration in the U.S. beer and soft drinks industries. (Click on the link to read the whole report and select the tabs you will find there to view the beer and soft drinks information.)
A Question of Perspective
If you look at the question in terms of the number of different wine brands on the market and varieties within each brand, then the answer is clear. U.S. consumers have a galaxy of choices when it comes to wine. I use the term “galaxy” because I’ve taken one of the key info-graphics from the report and doctored it up to look like an image of the stars in the night sky. More wines than than there are stars in the universe — or at least it seems that way some of the time.
But click on that galaxy image above and you will open a window that shows how those wine stars are aligned. And I am sure that you won’t be surprised to see that there are several huge business “solar systems” with dozens of brands each: Gallo, the Wine Group and Constellation Brands among the producers, for example, and Deutsch and Winebow among the importers.
The wine world has its share of Mega and Mini businesses and some of the Megas are very large indeed, although the degree of market concentration is much less in wine than in beer or soft drinks. So if you look at wine compared to beer, for example (and I suspect that this would hold true for spirits, too), there is a very low level of concentration — lots of different choices even taking the biggest firms into account. And if you look at it in terms of number of individual wines for sale you get the same sort of answer. But if you look at the number of wine firms and the amount of the total wine market they fill, the choice seems a lot narrower.
As the graphic above suggests, the top 5 firms account for more than half of U.S. wine sales, which is a lot even if it is less than the corresponding figure for beer or soft drinks. Although the study does not provide any international comparisons, I believe the the U.S. wine market is much more concentrated than France, Italy or the U.K., for example, but less so than Australia. (In the UK the critical concentration factor is at the retailer rather than the producer level since the big retail chains are so influential there.)
The degree of concentration also differs depending upon whether you look at all wine as this study does or segment the market according to price, which is the analysis I prefer. The market for wines selling for less than $5 per bottle equivalent is much more concentrated than the $20+ segment, for example. Most consumers make most of their purchases within a relatively narrow price range and it’s the diversity in that segment that matters most to them.
Location, Location, Location
The Michigan State team found that the nature of your choice also depends upon where you shop. Some of the supermarkets and wine shops that they surveyed in Michigan sourced their wine from dozens of different suppliers, providing that galaxy of choices that the vast potential selection promises. But other stores — national-chain convenience or drug stores, for example — can (and frequently do) quite easily fill a 100-item wine wall with products from just two or maybe three suppliers. The Megas can easily provide foreign and domestic selections of all the main varieties at every relevant price point. So choice is both smaller and different, if you know what I mean.
This has an impact on wines produced or imported by smaller firms, of course, and also (according to an interesting study by Rebecca Mino) on local wineries. Mino found that Michigan wines were far more likely to be available in Michigan-only retailers than at the Michigan affiliates of national retail chains.
These studies are very interesting and fun, too — I admit that I played with the “galaxy” graphic for quite a while because I enjoyed seeing the business connections within the different wine portfolios. It is just fascinating — if you haven’t clicked on that “galaxy” image at the top of the page already you’ve got to do it now.
What’s the Right Way to Think About Choice in Wine?
But the main thing I appreciate about this research is the question that it raises: how should we think about choice when it comes to wine? Does that fact that some of the Megas have dozens of brands diminish choice? Certainly not if the brands have considerable autonomy when it comes to winemaking (like the “string of pearls” model that Ste Michelle Wine Estates follows). Sometimes the vast perceived choice is real.
But that doesn’t mean that that there aren’t any effects of industrial concentration in wine, as the national chain store part of the study indicates. Some of the national retail chains treat wine as they do other products and attempt to minimize the number of suppliers while maintaining choice. Choice is diminished when the availability of “Mini” products and especially locally-produced wines is taken into account and this would be a problem if these stores are the only choice for wine (as they may be in some areas). Apparently we need a mix of different retail suppliers to assure that the true diversity of wine is represented on the shelves.
Thanks to Phillip H. Howard for sharing his results and giving me permission to reprint some of the graphics. Speaking of “it depends on how you look at it” questions, here is one of my favorite science videos — “Powers of Ten” from the Office of Charles and Ray Eames (1977). Enjoy.
Very interesting entry Mike.
Precisely why supporting our locally owned, independent wine shops and general stores makes sense. They have the flexibility to make customized selections from their distribution sources, in order to best serve their patrons. We have an excellent breadth of choice in our little state of Vermont, but it is not well represented by the inventories of the chain grocery stores. And yes, we can buy wine in the grocery, when we need to.
The other half of the wine consumption is massively fragmented, beyond most people’s imagination.. 8000 wineries in Calif. 12,000 in Bordeaux. And the main review mags review 800 wines from Bordeaux. Lots of fragments never get reviewed and make excellent wines without a rating or a review to motivate them or to push sales.
Thats why I never really understood people’s push to get grocery stores to be able to sell wine in some states. Its not like your average Giant, Publix, Safeway, etc is going to stock interesting wines. I wonder if this will cause those smaller wineries to LOSE share because it will be easier to just buy wine at the grocery store with everything else instead of going to a specialty producer.
Heck I see this with Cheeses, I know that the better cheeses are at my cheesemonger, but sometimes its easier to just buy commodity brie or chedder at the store where I get everything else.
I have been a consultant for many sides of the industry and have sat with worried independent wine store owners in New York as the Grocery store debate has raged. The last two attempts have failed but we all worry the day will come. I know it will someday as big money is at stake and big money usually prevails.
That said, I have always proposed instituting grocery store wine sales in a similar manner that Rudy Giulianni got porn out of Time Square. Require grocery stores to stock a large percentage of New York wines (an unusually high number like 60% or better), allow independents the same freedom they have today. Allow anyone to report a grocery chain that is cheating and fine them if their shelf space is not dedicated to enough in state products.
Also Mike it would be very interesting (tough I’d imagine though) to see how the concentration has changed. For beer the concentration has accelerated drastically. We should understand what such an acceleration will do to the wine industry if not kept in check.
I will always go to the smaller stores that carry wine in my area. Like this article says, the bigger chain grocery stores just don’t have the variety.
Great article, as usual, and fascinating research. For comparison, I’d love to see an analogous wine galaxy map of Europe.