We are starting to gear up for the State of the Industry session at the 2023 Unified Wine & Grape Symposium and it looks like we will have a lot to talk about. The challenges the wine industry faces are significant and this year’s expert panel (Danny Brager, Glenn Proctor, Dr. Liz Thach MW, Jeff Bitter) is well-prepared to help us navigate the wine-dark seas.

Everyone wants to know what’s in the future — what will the U.S. wine market look like a a year? Five years? Ten years? Prediction is difficult for a variety of reasons, however, not least because the wine economy is embedded in the national and global economies, which are themselves full of uncertainty these days.

Looking for a Crystal Ball

Back in the days when I was writing university-level economics textbooks I told students looking for clues about the future to consult what are called leading economic indicators. The idea is that there are a lot of economic statistics available. Some tell you what has already happened (these are the lagging indicators), some give you an idea of what’s going on right now (coincident indicators), and a few offer a glimpse of possible future trends (leading indicators).

The number of new building permits and housing starts are leading indicators, for example. Once a permit is issued or construction begun, that sets in motion a chain reaction of economic activity that extends out into the future.

Durable goods orders are another leading indicator of economic activity in general, but they speak to attitudes and expectations. Durable goods, by definition, are long-lasting and need not be re-purchased every week or month. If consumers and business increase durable goods purchases, then it suggests that they are optimistic about the future and willing to make an investment now rather than wait for the future.

One economist, famous for his mastery of esoteric details, used to focus in particular on sales of new brooms on the theory that an old broom will always do if you are concerned about future finances. Buying a new broom is therefore a clear statement of economic optimism. That makes sense when you think about brooms as a gateway durable good.

It is maybe a little bit disturbing to learn that Alan Greenspan, the former Fed chair, once identified sales of men’s underwear as an important leading indicator. Really? Apparently, underwear sales are pretty steady, so any blip one way or another says something significant about consumer expectations. If you want to start an interesting conversation, try asking your male friends how long it has been since they re-stocked their underwear drawer. “Why are you asking?”  People are so suspicious!

Where is Wine Headed?

There are many other recognized leading indicators for the overall economy — the yield curve, for example — but there isn’t room here today to talk about them because I’m interested in the wine industry and I wonder what statistics might be particular useful in forecasting the future of wine sales?

One approach is to use the chain-reaction theory. Where does the decision to buy more or less wine begin? What early indicator can we monitor today that will reveal something about how much wine, what kind of wine, and at what price consumers will choose in the future? Corkscrews? Well, I suppose that’s a wine-specific durable good, but I don’t think tracking corkscrew or even wine glass sales is going to help much.

Recently I stumbled upon news that I think is relevant to the “wine leading indicator” search, even if the data is not exactly what I am looking for. The news? Costco has decided not to raise its membership fees this year. Here’s why I think the Costco news could be important.

The Costco Effect

Lots of people enjoy wine and it is sold in lots of ways and places. But, as we all know, the core wine market is surprisingly narrow. When you take away the U.S. consumers who don’t consume any alcohol (about 35% according to a Wine Market Council study a few years ago) and then those who use alcohol but not wine (21%), the residual is surprisingly narrow.

While 29% of consumers buy wine a few times and month or year, the industry actually relies on a relatively small number (15%) of high frequency wine drinkers who pull corks or unscrew caps pretty much every week. The demographics of this group — and especially the high-end buyer subset — is key to the future of American wine.

If you want to know what these consumers look like, I think a good place to start is by going to your closest Costco warehouse store. I am not saying that the Costco demographic matches up perfectly with wine demand or that purchases in other sales channels are unimportant. It is just that the relatively affluent user base at Costco, the people who are willing and able to pay the $60 to $120 annual membership fee here in the United States, are a group worth watching closely. They buy lots of stuff at Costco, including a surprisingly large amount of wine given the limited number of stores.

Now you might think that tracking Costco wine sales would be good economic indicator, but it doesn’t serve our purpose here because it would be a lagging or maybe coincident economic indicator and not the forward-looking insight needed. But there is one bit of Costco data that I think it useful — and it is flashing yellow (but not yet red) right now: the annual membership fee.

Hot Dogs and Rotisserie Chickens?

Most prices at Costco rise and fall with market forces (the costs of rotisserie chickens and the hot dog meal are notable exceptions having been fixed for years). The membership fee is a critical factor at Costco. The fees themselves account for a substantial amount of the company’s net profit and the renewal rate is high — over 90 percent. Costco typically adjusts its membership fee about once every five years, according to news reports, and the last time they did was in 2017. So no one would have been surprised if a rise was announced in 2022.

But this time around the Costco gurus looked hard at their customer base … and blinked. They decided to pass on a fee increase, which could mean a lot of things but might mean that they believe even their affluent member base is feeling the economic heat. And that’s not good news for wine, since these are the customers driving the U.S. market these days.

Is this the leading indicator for wine sales I was looking for? No, it isn’t, so I am still looking. Ideas? Please let me know. In the meantime, while as a Costco member I am glad that the annual fee is frozen this time around, it will be good news for the wine trade when Costco decides that their affluent, wine-drinking patrons are secure enough to tolerate a rise in rates.