Global Wine’s Lost Decade

consumption_oiv

One of the great puzzles of wine is captured in this OIV chart, which shows global wine consumption from 2000 to 2017. Consumption peaked in 2007-2008, just as the global financial crisis struck. Wine consumption fell sharply after that, as you would expect.

But then the economic recovery began and total wine consumption increased back to its old level and kept rising, right? No, not at all. In fact, wine consumption continued to fall, albeit much more slowly and unevenly, and even the small increases in 2016 and 2017 have failed to restore total sales to the level before the crisis. It has  been a lost decade for global wine.

Wine’s Stagnant Market

Viewed this way — total global consumption measured by volume — wine is a stagnant industry. If you are looking for growth, look somewhere else.  The picture brightens a bit if we were to look at value not volume. The premiumization trend has pushed up total global spending on wine, but not by much.

oivtable

As usual, the plot thickens when we dive a bit deeper, as this OIV table for the last few years shows. While several countries show modest growth in volume for 2013-2017, France, Germany, Argentina, and Russia experienced declines and the key UK market failed to grow at all.

What’s wine’s problem? Why hasn’t wine consumption risen along with income during the recovery? I am sure that there is no single factor that accounts for situation and different factors in different places. In the UK, for example, tax policy and now Brexi’s side effects have discouraged wine consumption in ways that are not experienced elsewhere. And anti-alcohol policies in Europe generally and especially France and the UK, have impacted wine sales, too.

Talking About the Generations

Here in the US, where wine demand is still growing modestly, Rob McMillan and John Moramarco have highlighted generational transitions in the marketplace, with Baby Boomer falling consumption not being replaced by rising Gen X and Millennial demand. McMillan sees some fundamental differences in the generational characteristics while Moramarco believes that the generational cohorts are more similar than not, just at different stages in their wine consumption life cycle, but they both think that slack market is baked in the generational cake.

McMillan’s recent Silicon Valley Bank Wine Report raises the alarm level, arguing that millennials have failed to engage with wine as some analysts have assumed they  would, creating a hole in market demand that will be difficult to fill. As I have noted before,  only a small minority of each generation accounts for the bulk of wine purchases. How boomers behave in general is less important to wine than how that 15 or 20 percent who buy the most wine (and are therefore different from their cohort) behave. The same is true for millennials. McMillan warns us that that loyal wine-drinking subset of millennials hasn’t come together.

Other theories are needed to understand the global trend, however, since wine’s relative decline began much earlier in the old world (and so cannot be solely explained by baby boom ageing and of course there are special cases such as the UK noted above and the rapid emergence of China as a wine consumer and producer.

Wine versus Weed?

The search for explanations turns naturally to alternatives, such as craft beer and spirits or cannabis-infused beverages, which are now legal in certain areas. Is there a fundamental change in demand from wine to beer, booze, and weed?

Constellation Brands seems to think so because they have doubled down on their investments in wine alternatives, especially Mexican beer and now cannabis. This is significant because Constellation seems to me to be a very data-driven company that does thorough research on market trends and then follows through with major strategic shifts.

Given their earlier success moving upmarket in wine and then focusing on imported beer, I have to think that the cannabis moves have been carefully calculated. I would not bet against their success. Significantly, their most recent earnings report projects rising beer and falling wine and spirits sales. That news, plus the high cost of the cannabis investment, sharply depressed its share price.

But it is not clear that beer, spirits, and cannabis are wine’s most serious competition these days. Some researchers note that younger consumers seem to be less interested in all these products than in the past. They are less interested in sex, too. The U.S. birthrate has fallen to an historic low, dropping even below the replacement rate.

Better Than Sex?

What is better than wine and better than sex? Well, I think you know because you probably have one with you right now. It is your smartphone and the apps that are designed to stimulate and engage in an intentionally addictive way. Simply irresistible. If you have your phone (and you almost always do), you have everything you need. Why bother with anything else?

Besides the obvious appeal of the phone itself is its ability to produce entertainment on command and to serve as a convenient purchasing platform for a world of products where wine is not always the most important part of the mix. Trust me, that device in your hands, purse, or back pocket may not entirely be the good friend you thought it was, at least not if your livelihood involves making or selling wine!

Strong Headwinds

The thing about these theories and some of the others I have heard is that they are based on long-term structural shifts and so do not project rapid short term improvements in wine’s market position.

But even if total wine demand doesn’t return to the pre-2007 growth path, there will be opportunities in the regions and market niches that do experience growth as we wait for the structural forces to work themselves out.

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We will be in Sacramento next week for the Unified Wine & Grape Symposium, so the Wine Economist will take a short break. Back soon!

7 responses

  1. Interesting piece. Glad I didn’t have a phone when I was learning to enjoy wine and sex as they have turned out to be life long passions!

  2. In my opinion Wine consumption has decreased because cheap wine tastes terrible , decent wine has become to expensive to drink regularly and the best wine can only be drank and sold to millionaires. Greed will always come back to haunt. I used to drink a lot of wine but for me wine now competes with Bourbon and IPA because what I like to drink is to expensive.

  3. You brought up the one thing I have failed to see, and after 33 years in the business! So obvious: Smart phones. Reminds me of that movie with Sylvester Stalone and Sandra Bullock (I think) in the future. He suggests having “real sex”, with her answer “you mean fluid exchange”? Yucchh, they have a better way electronically…

    My (boomer) generation will have a hard time understanding that.

    Thanks for a great piece.

  4. Millennials have been slow to ramp up as consumers in many ways (household formation, marriage, having children) owing to the economic headwinds that they’ve faced (recession, student loan debt). It does not seem surprising that they’re also slow to become consumers of wine. As we see the retirement wave of boomers crashing onto the demographic beach, millennials may find some uplift in their careers and incomes and finally grow into wine as part of their consumption.

  5. Mike – Linking declines in wine consumption to smart phones really comes down to the firehose of information that is “algorithmically” blasted to our individual screens. The darn things just bring so many options to the forefront I think it’s the sheer volume of information that is spreading out the market. So many options create what I call “Dabblers”. They try whatever has a compelling web site. Think of the animated movie where the dogs get distracted by squirrels continually.

    Then we can look at the rise of Wine Clubs as well. These folks are GOLD to smaller producers and are courted continually to take advantage of their membership. Making that club experience special means members will spend more there and experiment elsewhere less. You see that effect with folks that buy cabins or timeshares. They feel beholden to their investment so they focus their purchases at that purveyor.

    We found a wine company in Portugal that makes a great white and red wine at a bargain price in the US and made it our “House” wine. We explore Idaho and other regions and grab quality wines to enjoy and remember our travels with. Nothing beats the experience of meeting a wine maker in their shop or vineyard in my humble opinion. It’s all about the voyage.

    Thanks for the thought provoking piece!

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