There’s a [Wine] App for That!

January 1, 2011 By Mike Veseth in Constellation Brands, history, popular culture, technology, Tesco, wine education, wine research 9 Comments

Happy New Year! I’ve just finished reading final papers from The Idea of Wine class I teach at the University of Puget Sound. This semester several students probed the intersecting worlds of wine and technology. Here, for your consideration, are quick summaries of five papers that explore variations on this very contemporary theme.

There’s an App for That!

Anna wrote about wine Apps. Apps are creatures of the 21st century — application programs that run on smart phones, iPads and similar electronic devices. There are thousands of Apps (the iTunes App Store and Android Market are full of them) and so it is no surprise that there are wine Apps, too.

Anna discovered five basic types of Apps, which she classified as wine journals, wine glossaries, wine-food pairing programs, electronic sommeliers that provide recommendations from lists of wines and wine quizzes and games. SmartCellar is an example of a sommelier-type App — restaurants can use SmartCellar-equipped iPads instead of printed wine lists to help their guests make well-informed wine choices.

Project Genome, a Constellation Brands study, identified six distinctive groups of wine buyers ranging from Overwhelmed to Enthusiast. Anna matched wine Apps with buyer profiles and concluded that there is something for everyone. But are any of them perfect?

No. Anna imaged the perfect wine App for her — given her particular interest in wine today. No single existing App would satisfy all her needs, she concluded, but there soon will be given the pace at which new Apps appear.

QR — the New Face of Wine?

Jack wrote abut QR (Quick Response) codes. QR codes work on the same principle as Universal Product Codes, but whereas UPC codes can store 12 characters of information, QR codes hold much more. You scan a QR using an App on your smart phone and the App uses the embedded information to direct its display. QR codes are everywhere these days, especially in advertisements. Jack reports that some new graves in Japan feature QR codes that, when scanned, show photos of the deceased. QR codes at Japanese tourist sites provide detailed visitor information.

Jack found several applications of QR codes to wine, but he thought that the potential of this technology is not yet fully exploited. QR codes in advertisements or wine labels are a way to give the consumer more information. More advanced technology — already in use in other consumer goods markets — would allow QR Apps to connect with local retailers or to interface with online communities like CellarTracker.

“The more you think about it, the more it’s clear that QR codes have the potential to change everything about wine shopping,” Jack concluded. “They are free, easy to make and will soon have an army of smartphone users” to exploit them. Japan has been using them for 16 years, he said. Time for wine makers and buyers in the U.S. to catch up.

Wine and Social Media

Alyssa and David wrote very different papers about wine and social media. Social media refers to electronic communities that link people in flexible arrangements and allow them to interact and to share information of various sorts. Alyssa examined Facebook, Twitter and the blogosphere to find the potential of each to forge durable wine-based interest groups.

David’s paper explored the role of the Internet (and social media) in building or sustaining consumer communities using a very creative approach — comparing wine with beer. Beer has long been marketed as a group thing — a bunch of people get together and have a good time over a few beers. Wine’s marketing is not as consistently focused, David asserted, and the community element not so clearly developed.

This has an effect on how beer and wine build communities on the web. Beer brings community to the Internet, according to David, but wine tries to draw community from the web — an interesting point. “Every day, more and more people are being brought to wine through the Internet,” he concludes, “and lovers of wine are finally finding the community they’ve always wanted.”

Napa Valley versus Silicon Valley

Finally, Ben’s paper looked for linkages between Northern California’s two famous valleys. Not Napa and Sonoma (although that would be an interesting paper) but Napa and Silicon. What can we learn about wine, Ben asked, by looking at microchips? Quite a lot, he discovered.

Ben compared Annalee Saxenian’s account of the development of Silicon Valley in her book Regional Advantage: Culture and Competition in Silicon Valley and Route 128 with James Lapsley’s history of the Napa Valley wine industry, Bottled Poetry: Napa Winemaking from Prohibition to the Modern Era. He found rather interesting parallels between the two seemingly separate spheres of California life and concluded that Saxenian’s model of high tech regional development explains Napa’s evolution very well.

Going further, however, Ben asserts that both valleys reflect a certain regional spirit. “That this culture of creative destruction permeates as diverse of industries as IT and winemaking demonstrates the influence that a regional consciousness can have over all manners of activities that will within its physical purview.”

“In this sense,” he concludes, “Napa is a genuine reflection of its terroir … Wine is a microcosm of our collective ties to our environment and the various techniques and technologies used to elucidate a certain character from a wine are ultimately efforts at understanding and strengthening this relationship. And in that pause given to us by that perfect glass of wine, we cannot help but feel closer to the world around us.”

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Sorry, I cannot distribute these papers directly, but if you are interested I will try to connect you with the student authors.

Retail Wine Sales: Big versus Hot (Hot Hot)

November 30, 2010 By Mike Veseth in Argentina, Australian wine, Constellation Brands, Gallo, New Zealand, Supply and Demand, wine markets, wine price, Yellow Tail 18 Comments

I thought it would be interesting to take a look at what’s “big” in the wine market (where the most consumer dollars are going) versus what’s “hot” (or “hot hot hot” as in the video above), showing the fastest growth. I’m using U.S. off-premises wine sales data from Nielsen for the 52 weeks ending 9/18/2010 taken from the December 2010 issue of Wine Business Monthly.

Baseline information: Off-premises wine sales in the U.S. totaled $9,172 million in the period covered here according to the Nielsen report, with an overall growth rate of 3.2%.

Which product categories are the largest in absolute terms and which are growing the fastest? I’m going to break down the data by wine varietal, country of origin (for imported wines) and price category. Take a minute and write down what wines/countries/price points you think will be at the top in each category and see if you’re right. Here goes

Chardonnay Leads the Way

Forget what you thought you knew about Chardonnay being so yesterday and Pinot Noir kicking Merlot’s butt. In terms of the overall retail market sales, the giants (or are they dinosaurs?) still dominate.

BIG varietals

Varietal	$ million
Chardonnay	$1,996
Cabernet Sauvignon	$1,347
Merlot	$911
Pinot Gris/Grigio	$734
Pinot Noir	$526
White Zinfandel	$427

–

American wine drinkers are nothing if not traditional, reaching again and again for familiar varietals, so the usual suspects come top of the table. Pinot Noir has indeed surged in the post-Sideways era, but its lead over wounded White Zin is not large and it still lags far behind arch nemesis Merlot.

Obvious Chardonnay is the consumer default with a 50% lead on Cabernet and double the sales of Merlot. Pinot Grigio, the #2 white varietal, lags far behind.

I find the varietal “hot list” below quite interesting. The fastest growing wine varietals are Riesling, Pinot Noir (of course), Sangiovese and Sauvignon Blanc. (Interestingly, varietal Sangiovese is rising while Chianti is a shrinking category in the Nielsen league table.)

HOT varietals

Varietal	Increase
Riesling	9.4%
Pinot Noir	8.9%
Sangiovese	8.7%
Sauvignon Blanc	8.5%

–

It seems to me that while the “big” varietals are wines that many consumers purchase to drink on their own (because of their high alcohol levels and for other reasons), the “hot varietals” are a bit more likely to be food wines. I wonder if that’s a trend?

World Wine Web

Most of the table wines that Americans drink are American — there is a very strong home country preference. Domestic wine sales totaled $6,524 million for the period covered here while imports accounted for $2,648 million. What countries supply the most imported wine as measured by total expenditures? Here’s the Big list:

BIG import countries

Country of Origin	$ million
Italy	$804
Australia	$771
Chile	$243
France	$228
Argentina	$187
New Zealand	$125

–

As the table shows, Italy and Australia are #1 and #2 respectively in off-premises sales. It is interesting that France has fallen to #4 behind Chile. Argentina and New Zealand make the cut here (Spain did not!) as you might expect, but bear in mind that Italy still sells more wine in the U.S. than Chile, France, Argentina and the Kiwis combined. The concentration ratio in this market is very high: Italy and Australia may be struggling at the moment, but they are in a league of their own.

Italy and Australia will not be over-taken soon, but the market momentum seems to have has passed. Look at the big growth numbers that Argentina and New Zealand are putting up below! Wow. Annual growth rates of more than 20%!

HOT import countries

Country of Origin	Increase
Argentina	27.6%
New Zealand	21.1%
Germany	4.4%
Chile	1.7%
Spain	0.6%
Portugal	0.3%

–

Now look at the gap between the really hot ones and the rest! Germany comes in at #3 on hot list, but with a low 4.4% increase for the year. Sales of most wine imports (including Italy and Australia) have actually fallen in the last year. Spain and Portugal squeeze onto the list at #5 and #6 by simply avoiding utter collapse. The import wine segment is slumping badly, with Argentina and New Zealand the only significant exceptions.

The Price is Right

Finally, let’s look at the market in terms of price points. What are the biggest and hottest parts of the wine wall in terms of price?

BIG price points

Price Segment	$ million
$3.00 – $5.99	$2,688
$6.00 – $8.99	$1,903
$9.00 – $11.99	$1,868
$12.00 – $14.99	$910
$0 – $2.99	$794
$15.00 – $19.99	$557
$20+	$446

–

You can see from the data why Gallo is having a good year (or probably having a good year, since they are a private company and don’t release data so I can only guess). Their brand portfolio is aimed at the heart of the market, from $3.00 to $11.99. Lots of good targets there!

You can also see why Constellation Brands is probably finding this a challenging year. They reconfigured their brand portfolio to take advantage of what they saw as upmarket opportunities. They moved up the wine wall a bit but the market changed directions and went downmarket, leaving them in a less competitive position.

HOT price points

Price segment	Increase
$9.00 – $11.99	9.1%
$20+	7.4%
$12.00 – $14.99	5.0%
$3.00 – $5.99	4.5%
$15.00 – $19.99	2.5%
$0 – $2.99	(0.1)%
$6.00 – $8.99	(4.0)%

–

But Constellation’s upmarket bet may yet pay off. The hot price segments are all in the wine wall’s upper strata.

The Old Elasticity Trap

The rise in spending in the super-premium + categories is an encouraging sign, but I think some caution is necessary in interpreting the data. Many observers see the big increase in expenditures on $20+ wines and conclude that consumers are coming back to this segment strongly — that the demand curve has shifted. But I suspect that there is a lot of bargain hunting taking place and that margins are falling – bad news. Maybe we are just following discounted prices down the demand curve.

For many of today’s buyers a $20+ retail wine is a highly discretionary purchase and so the demand curve may be quite elastic. Econ 101 students will remember that total expenditure increases when price falls for a product with an elastic demand.

The large percentage expenditure increases we seen in the data could result from discounting — $30 wines being sold off for $25 and so on — rather than an actual increase in demand or shift in the demand curve. The increased revenues are good and inspire optimism, but they may disguise the bad news of shrinking margins.

(As I am writing this, the neighborhood Safeway is offering an extra 20% off any wine selling for $20 or more. I suspect sales revenue will increase at the lower retail markup.)

Overall conclusions? I’d rather not, thanks. These data are interesting more for the questions they raise than the answers they provide. But the questions about how the U.S. wine market is changing are worth pondering (hopefully over a nice glass of wine). Cheers.

Restaurant Wines: Good, Bad and Ugly

September 21, 2009 By Mike Veseth in brands, Constellation Brands, economic crisis, French Rabbit, Gallo, restaurant wine, Supply and Demand, The Wine Group, wine distibution, wine price, wine research, Yellow Tail 1 Comment

Many people have written to me over the years expressing their dismay at the sorry state of restaurant wine. Usually they complain about high restaurant prices and ask how they can possibly be justified. They are seldom satisfied with my answer — restaurants charge high prices because people will pay them. Now, however, the critique has shifted to the wines themselves and what they reveal about wine in America.

What Does American Really Drink?

My recent post on “Olive Garden and the Future of American Wine” (see previous post) seemed to catch many wine enthusiasts by surprise. It reported data from Restaurant Wine magazine for the best-selling wines in American restaurants as determined by distributor “on-premises” shipments. This data, based on volumes shipped to all “on-premises” establishments in 2008, reveals that when America goes out it drinks a lot of White Zinfandel, Pinot Grigio and (gasp!) “Chablis.” Only one red wine made the top 20 list: Yellow Tail Shiraz.

The list changes only a little if we look at the data for wine brands (as opposed to specific wines):

Kendall-Jackson
Sutter Home
Beringer Vineyards
Franzia Winetaps
Inglenook
Yellow Tail
Copper Ridge
Cavit
Woodbridge
Salmon Creek (Bronco)

The complete list of the top 20 brands is dominated by America’s three largest wine companies with three brands each from Constellation Brands (Woodbridge, Taylor California Cellars and La Terre), Gallo (Copper Ridge, Barefoot Cellars and Ecco Domani) and The Wine Group (Franzia, Inglenook and Almaden). These three giants have large brand portfolios and strong distribution machines. They get their wines into every nook and cranny, both retail and on-premises sales. You can see the results virtually everywhere.

Only 4 of top 20 are international brands (Yellow Tail, Cavit, Ecco Domani and Mezzacorona). I think the fact that three of these four are Italian wine brands says something about the importance of Italian restaurants, including especially Olive Garden, in the American wine market.

Another Picture: The Wine & Spirit Rankings

The Restaurant Wine data give us one picture of the market, Wine & Spirits magazine’s annual restaurant report (April 2009 issue) provides a different (and perhaps more comforting) image. W&S asks a group of wine-focused restaurants to report which wines are on their lists — now how much they sell, but which ones are on offer. Since wines don’t stay on lists long if they don’t sell, this is an indirect measure of availability and popularity, although it isn’t the same as as volume rankings. Here is the W&S top 10 for 2008.

Sonoma-Cutrer Vineyards
Cakebread Cellars
Jordan Vineyard & Winery
Silver Oak Wine Cellars
Ferrari-Carano Winery
Robert Mondavi Winery
Veuve Cliquot
Chateau Ste. Michelle
Rombauer Vineyards
Kendall-Jackson Vineyards

Sonoma-Cutrer is #1 on this list, yet it appeared on only about 14% of the surveyed wine lists (and, as noted above, there is no indication of how much was sold). Only one winery appears in both top 10 lists – Kendall-Jackson. Only two other wineries appears in both top 20s – Beringer and Chateau Ste. Michelle. Gallo and The Wine Group are missing from the W&S top 20, although Constellation Brands makes the list through Robert Mondavi.

Looking over the data, I find myself especially impressed by the performance of Kendall-Jackson and Chateau Ste. Michelle. Both makers seem to combine wide distribution with a range of wines at attractive price points. It isn’t surprising that they rank high on both lists. Perhaps other producers will try to emulate K-J and CSM, especially given this tough economic climate.

Good, Bad or Ugly?

If the first list of restaurant wine brands depresses you, then ignore it and focus on the second list, where White Zin is much harder to find, but don’t get too smug. Remember that there are many markets for wine and that the US is no different from other countries in this regard. Compared to Germany, in fact, much more fine wine is sold here and proportionately less of the bulk product.

For myself, I see a glass half full. My experience working with college students who study wine is that the inexpensive wines serve a really useful function of introducing students to wine and diverting them from beverages that are more closely associated with binge drinking.

Although some White Zin drinkers suffer from arrested development and never move beyond it, I am persuaded that many do. Every staircase, no matter how high it reaches, needs a bottom step. We have a broad first step in America — no surprise there — but I think it is a step up.

Decanter’s Wine Power List

July 14, 2009 By Mike Veseth in British wine market, Constellation Brands, cork vs screwcap, Costco, critics, decanter, Economic impact, EU wine reforms, globalization, Tesco, wine brands, wine critics, wine distibution, wine magazines, wine markets, wine ratings Leave a comment

Decanter, the self-proclaimed “World’s Best Wine Magazine,” takes its rankings very seriously. Wine rankings, of course, and, in the July 2009 issue, Power rankings. Who are the most powerful people in the world of wine and what does the power list tell us? Let’s see if we can find the message in this bottle.

The Power List

The names on the power list are very interesting but the story that they tell about wine today is perhaps more important. Here are the first ten (top ten) people on the list.

Richard Sands, USA, Chairman, Constellation Brands
Robert Parker, USA, wine critic
Mariann Fischer Boel, Denmark, EU Commissioner for Agriculture
Mel Dick, USA, Southern Wine & Spirits (wine distributor)
Annette Alvarez-Peters, USA, Costco wine director
Dan Jago, UK, Tesco wine director
Jean-Christophe Deslarzes, Canada, President of Alcan Packaging
Jancis Robinson, UK, wine critic, author and journalist
Nicolas Sarkozy, France, President of France
Pierre Pringuet, France, Pernod Ricard

Since Decanter is a British magazine with very small US distribution you might be surprised that three of the top ten positions (and both of the top spots) are held my Americans, but don’t be. Constellation Brands is the largest wine company in the world and accounts for one out of eight bottles of wine sold in the UK. And Robert Parker is best known for his ratings of French wine, not Napa bottlings, which is important to British buyers and merchants. The presence of Sands and Parker at the top of the list does not reflect any sort of US-centrism, just the realities of the global marketplace. It really is a global list. Or at least, like those famous New Yorker cover illustrations, the globe as seen from London.

I won’t list the second ten names (out of 50 in total), but the I think they illustrate the global reach of the wine market today: America, China, Chile, Australia, Spain and so on. Even India, an emerging wine market, makes the top 50 ranking.

The list is complete and up-to-date (Gary Vaynerchuck, the US internet wine guru, shows up at number #40), but there are some interesting gaps. Fred Franzia, the godfather of Two Buck Chuck, is nowhere to be found, for example, despite his obvious influence on the US market, while Judy Leissner of Grace Vineyard in China, who perhaps represents the future of Chinese fine wine, makes the “Ones to Watch” list.

No wine economists make the list, alas. Greg Jones, the respected Southern Oregon University wine climatologist, is the only professor (#33). Maybe next year …

The Story

It is fun to see who makes the list and who doesn’t (why Jancis and not Oz?), but the ranking is more interesting if you strip out the personalities and consider what market forces they represent. Herewith my version of this story.

The world of wine is very unsettled. Although wine is one of the most fragmented global industries (much less concentrated than beer or spirits, for example), size matters more and more as consolidation continues. [Hence the power of Constellation Brands, Pernod Ricard and Southern Wine & Spirits.] Reputation matters, of course [Parker and Robinson], but the world is changing and everything is up for grabs from how and where wine is sold [Costco and Tesco] to how the bottle is sealed [Alcan].

Although change is generally associated with New World wine, this is no longer the case. The biggest threats to “business as usual” for Old World wine come from inside the European Union itself. On one hand, the new EU wine regime [Mariann Fischer Boel] will pressure Old World wine to compete with the New World head-on and without continuing EU support. On the other hand we have an unexpected prohibitionist movement [symbolized by Sarkozy] that seeks to regulate wine like the Americans do (even as some parts of America are changing) — as a dangerous controlled substance. It is thus imperative for Old World wine to master the tricks of the New World industry — tricks that Constellation and Southern and Costco symbolize.

These changes take place, of course within the context of the expanding global market, global climate change and a continuing global economic crisis (that’s where a wine economist would have been a useful inclusion).

I won’t pretend that the Decanter Power List is a scientific ranking (Decanter doesn’t claim this in any case), but it is an interesting peek into how wine insiders view their industry. I’ll be curious to see how the names and the story lines change when the next Power List appears.

The #1 Sauvignon Blanc

June 9, 2009 By Mike Veseth in brands, Constellation Brands, globalization, Marlborough Sauvignon Blanc, New Zealand, Supply and Demand, wine brands, wine markets 1 Comment

Decanter.com reports that Nobilo Marlborough Sauvignon Blanc has overtaken Kendall Jackson as the best selling Sauvignon Blanc in the United States. The ranking is based upon sales volume, but the wines retail for about the same $10 to $12 price, so Nobilo probably ranks first by value as well. An amazing achievement, given the many obvious challenges the New Zealand wine industry faces in terms of size, production cost, shipping distances, access to US distribution and so on.

A Matter of Style

It is interesting to consider how Nobilo and the New Zealand industry have managed to achieve this success. The first reason is the distinctive quality of Marlborough Sauvignon Blanc itself. Even wine critics who don’t think very highly of Sauvignon Blanc in general (I’m talking about you, Jancis Robinson) acknowledge that the Marlborough wines are distinctive and that the best of them are truly exceptional. In my house they set the standard for Sauvignon Blanc.

Why are these wines so good (and so popular)? Winemakers always start with the vineyard and it is certainly true that Marlborough seems ideally suited to produce Sauvignon Blanc grapes. (Ironically, no grapes at all were grown there before the mid-1970s). The skills of the winemakers are also important. The distinctive style of the wines is another factor. The June 2009 Wine Business Monthly includes a fine article by Curtis Phillips on Sauvignon Blanc yeasts that nicely explains the NZ style. NZ SB, he writes, emphasizes a varietal style, letting the fruit speak forcefully. The French SB style is “anti-varietal,” he says, emphasizing texture and minerality over fruit aromas and flavors.

Finally there is the oak-influenced style, which originated in France but was made famous by Mondavi as Fumé Blanc. This barrel-fermented SB style remains very popular in the U.S., but has obviously been eclipsed in the marketplace by the fruit-forward Marlborough product.

The New Zealand varietal style is a hot commodity. New Zealand producers should hope that it stays hot and doesn’t fade as some popular regional styles have done (I’m thinking about how quickly Australian Shiraz has fallen from favor).

The International Influence

Nobilo’s rise to #1 in the US market is not an accident, according to the Decanter.com article. Nobilo is a Constellation Brands product — one of five New Zealand export brands of ConstellationNZ (see logos above). Joe Stanton, the ConstellationNZ CEO, explains that his company’s strategy was to make Nobilo the top US SB by focusing on “traditional” wine buyers and giving them what they expect in the way of packaging for premium wine: cork instead of screw-cap, for example, and flint-colored glass bottles instead of traditional French green. Plus, of course, the intense Marlborough aromas and flavors. New wine in old bottles (and closures), I guess, and it worked.

ConstellationNZ accounts for 40% of all NZ wine sold in the US — an astonishing figure, but understandable given the strong brands that it has acquired (Nobilo, Kim Crawford, Drylands, Selaks) or built (Monkey Bay)and the efficient distribution system that has evolved to get these wines and all the other Constellation products on store shelves and restaurant wine lists.

In fact, the New Zealand industry is dominated by foreign-owned wineries, as wine writer Michael Cooper points out in the new edition of his fine Wine Atlas of New Zealand. Of the top wine producers only two (Delegat’s and Villa Maria) are Kiwi-owned. The largest producer is Pernod Ricard NZ (formerly Montana wines), part of the big French drinks group. Pernod manages 25 NZ brands according to their website, including of course Montana (sold as Brancott Estate in the US), Corbans, Church Road and others.

The most famous NZ wine — Cloudy Bay — is owned by LVMH Möet Hennesy-Louis Vuitton, the French luxury goods conglomerate. Matua Valley, another leading NZ producer, is part of the Australian Foster’s Group. The list goes on.

It is tempting to consider the pluses and minuses of international ownership as Michael Cooper does briefly in the article linked above. This is a topic that I plan to analyze in more detail my next book. In the meantime, however, it is perhaps best to consider how the combination of the local (New Zealand’s wonderful terroir) and the global (big multinationals like Constellation and Pernod Ricard) have combined to both produce New Zealand’s tasty wines and to deliver them to our doorsteps.

New Zealand has done specutacularly well in the global wine market so far. What lies ahead? Watch this space!

Wine Recession Reports

May 20, 2009 By Mike Veseth in Constellation Brands, economic crisis, Economic impact, emerging wine regions, globalization, Supply and Demand, wine markets, wine research Leave a comment

Economists joke that data usually come in one of three forms: the incomplete, the inaccurate and the forthcoming. No wonder we are such unreliable oracles!

Wine economics data generally takes one of three forms, too: highly processed statistics, persuasive but unscientific anecdotes (bloggers are a big source of these) and public reports, such as newspaper and magazine stories. Each type of data has its uses and each has its weaknesses.

The wine economist’s job is to try to piece them together to get a reasonably accurate picture of what’s going on. This post tries to do just that — I use a recent statistical release, a personal anecdote and a magazine report to reveal an outline of some of the ways the economic crisis is affecting the wine market.

Lies, Damned Lies and Statistics

There are three kinds of lies, Mark Twain said, and statistics are the worst of them. They can be pretty useful, however, if you know how to handle them. The Global Drinks Market: Impact Databank Review and Forecast has just released data about worldwide wine consumption and the news is a bit grim. Global per capita consumption of wine was down in 2008. At 3.5 liters per capita, the global average is a full liter per person per year than in 1990.

A close look at the data indicates that the falling average is the net effect of two opposing trends. Wine consumption in the New World continues to grow in volume terms (the increase in terms of value is somewhat less due to the on-going trading down effect). At the same time wine consumption in the Old World, where both production and consumption are still the highest, has fallen off the table (also continuing a trend).

New World consumption is rising, but not enough to compensate for falling Old World demand. The falling per capita average is real, but it masks somewhat an even more important trend — a fundamental global restructuring of the wine world.

A Wine Spectator’s article reports that

Until recently, overall wine consumption was growing, thanks to emerging markets. But the recession has depressed total consumption as well. The United States still represents tremendous potential for the world wine market—Americans consumed an average of only 9 liters per-capita last year, compared to 51 liters and 44 liters, respectively, for the French and Italians. Canada, Chile, South Africa and Australia have all enjoyed steady consumption growth also, as have the emerging markets of India, Taiwan, South Korea and Norway. But China will probably account for much of the future growth in global wine consumption, as the Chinese drink less than a bottle of wine per person annually. The financial crisis has slowed down this growth momentum somewhat, but huge opportunities still abound, especially for large multinational wine companies doing business in China.

I remain suspicious of the potential of the Chinese market, especially in the short run, but I agree with the gist of this. When examined closely, the data tell an interesting story.

Listening to the Wine Wall

Anecdotes are a second source of wine market information. Anecdotes are dangerous because, while they are usually more casual observations rather than rigorous studies, people find them incredibly persuasive. It is their personal nature that is so appealing, I guess, and the fact that you can dine out for weeks on a really good story. A good statistic or table of econometric results (sigh) just can’t compare.

My anecdote is about a particular wine, Leonetti Cellars Merlot. Leonetti is an iconic Washington State wine producer. The conventional wisdom is that you cannot buy it — they sell out every year to insiders, people say. The Leonetti Cellars website hints at this without saying it. The “mailing list,” it says, is full. There is a waiting list to get on the waiting list, but it will probably take 5-8 years to get to top of the wait list.

My friends who are on the mailing list (or the wait list for the mailing list) vouch for Leonetti’s scarcity. They snatch up their allocated 3 (or however many) bottles quickly, knowing that people like me, lacking insider status, will never get a taste. (Note: Leonetti doesn’t say that their wine is impossible to buy, only that their waiting list is limited. And I think that limiting the wait list is a good business decision.)

Many people tell me that iconic wines like Leonetti are recession -proof because they are so hard to get that there will always be a market for them. So (here is the anecdote) I was a bit surprised to see Leonetti Merlot advertised a few weeks ago in a Wednesday supermarket ad for a local upscale farm store. Yup, we’ve got it, the wine buyer told me — want some? We’re even doing a tasting later in the week, she said. Further conversations with my wine business friends suggest that Leonetti (and some other “impossible to buy” wines) have often been available, although they are a bit easier to come by now. You just have to ask.

I suspect that some wine distributors find themselves with more high priced wine that they would like to carry in stock right now, especially with restaurant sales slumping in many areas, and the surplus is filtering down the distribution chain, even showing up on farm store shelves. It’s only a story, but it suggests that the economic crisis is hitting wine producers even at the top of the ladder.

And the grocery store ads that arrived today (anecdotally) back this up — they feature more hard-to-get wines and, unlike the Leonetti case, they are being sold below their release price!

RH Phillips, RIP

The Sacramento Bee reports today that Constellation Brands is closing the RH Phillips winery. Here is an excerpt from the report

R.H. Phillips Winery is being shut down by its parent company, Constellation Brands Inc. The Victor, N.Y.-based company, which also owns the Robert Mondavi Corp., is the world’s largest wine company with annual sales of 95 million cases of wine.

R.H. Phillips Winery’s 1,700 acres of vineyards, in the Dunnigan Hills area of Yolo County, will remain under the ownership of Constellation Brands.

“(The closure) is part of an ongoing strategic initiative for efficiency,” said Nora Feeley, a Constellation spokeswoman. “We could produce the wines and keep the grapes, but produce them with no damage (to quality) to the wine at Woodbridge.“

RH Phillips and Toasted head wine will still be made, but production is being shifted to the big Mondavi plant in Woodbridge, which apparently has some excess capacity. A big loss for the local community, apparently, and an opportunity to save cost through consolidation for Constellation.

What does this article tell us? Well, it is more like an anecdote that a statistic in that it reports just one story that may or may not be representative of the broader population. It tells us, I think, that the weak wine economy is putting pressure on even the largest players to cut costs and increase efficiency. The wine recession is affecting the entire market, not excluding Toasted Head and RH Phillips, wines that sell in the intensely competitive $8-$12 range.

Surrounded by Data

It is pretty hard to prove anything with wine economics data but sometimes you can use a combination of statistics, anecdotes and news reports to sort of surround a question. The three stories I’ve reported here don’t prove anything, but taken together they suggest that the wine recession is being felt globally, nationally and at the local level and at every shelf on the wine wall.

The wine recession is real. Restructuring is already under way. Or is that just a rumor, too?

Wine Distribution Bottleneck

May 5, 2009 By Mike Veseth in Charles Shaw, Constellation Brands, Economic impact, Rabobank, Supply and Demand, Trader Joe's, Two Buck Chuck, wine distibution, wine markets, wine spectator 10 Comments

I have often argued that to really understand an industry you first need to understand where the bottlenecks are in the value chain. Bottlenecks disrupt the efficient flow of resources and so industries tend to evolve around them. I believe that this observation holds especially true for wine. Herewith a brief update on the current situation.

Do the Math

Silicon Valley Bank released their annual State of the Wine Industry Report yesterday. SVB is a major lender to US wine producers and thus has a strong interest in producing clear, relevant wine economics research. (I also admire the wine economics research produced by the Dutch agricultural lender Rabobank.)

The report provides some good news along with many worrisome observations (click on the link above to download the study) and fresh data on the biggest single bottleneck in the U.S. wine industry — distribution.

Here’s the basic math. SVB estimate that there are 6000 wineries actuve in the US market producing about 7000 wine brands. All these brands need to squeeze through the U.S. three tier distribution system bottleneck. This means they need to go from maker (first tier) to state-licensed distributor (second tier) to local retailer (third tier). That’s the law here in the United States, where we still think of wine as a controlled substance.

There are only limited opportunities for producers to skip a step. I understand that Bronco Wines, for example, can sell its Charles Shaw brand directly to Trader Joe’s in California because of a legal loophole there, but has to use an independent distributor in other states. That’s why Two Buck Chuck costs $1.99 in L.A. but $2.99 here in Washington State. That extra buck is the cost of the extra distribution layer.

The Big Squeeze

Now we get to the big squeeze. These 7000 brands get funneled through about 550 major distributors according to SVB (obviously this does not count many smaller Mom-and-Pop and specialized distributors that I am familiar with), which is about half as many as a few years back. Hopefully you can appreciate the bottleneck — 7000 brands worth $30 billion in retail sales have to squeeze through 550 distributors in 50 states on their way to 76 million wine consumers. Any blockage in the distributor tier backs up the whole industry.

And the problem gets worse because the distributors are obviously getting squeezed themselves by the economy — falling sales, trading down, shrinking margins, credit limits and counter-party risk. Expect distributors to consolidate in some cases and pull back to reduce cost and risk in others.

The net effect is clear — distributors are reducing their SKUs (stock keeping units to non-economists) and focusing a smaller number of reliably profitable products lines. This means that it is harder and harder for new and niche wineries to get on the warehouse pallet.

The Missing Middle

I’m not sure exactly how this all will shake out, but I suspect the problem will be worse in the middle market. Very small wineries can often successful self-distribute. Very large ones will probably get distribution because of the volumes they can generate. The middle falls awkwardly in between — too big to sell it all yourself, too small to be worth a major distributor’s time. The fact that the distribution system is fragmented into 50 (plus DC) pieces just makes the situation worse.

In the same way, SVB data suggest that lower priced fine wines ($35 and less on their scale — remember that a lot of SVB’s customers are in Napa Valley) are still selling pretty well and very expensive icon wines apparently are doing OK, too. The mid-range is in trouble. SVB calls $35-$50 a “gray area” and $50-$125 a “dead zone.” Ouch.

I would hate to be a new 3000-5000 case winery trying to sell wine made to be priced in the dead zone. Unfortunately, I think there may be a lot of new wineries coming on line now who planned to do just that back when economic conditions were sunnier. It will take exceptional effort (or truly exceptional wine) to make this business model work in the current economic environment. I recently talked with one middle-sized premium winemaker who has already figured this out and pulled back — lower output, lower prices — to get clear of the dead zone.

This is the “missing middle” effect that economists are familiar with in other contexts (small family operations and huge corporate businesses survive, the middle simply disappears). The distribution bottleneck isn’t necessarily the cause of the coming missing middle effect in the wine industry, but it will certainly make it worse.

Australian Winequake

June 12, 2008 By Mike Veseth in Ascentia, Australian wine, brands, Constellation Brands, Foster's, The Wine Group, wine brands, Yellow Tail Leave a comment

Market tremors seem to be felt everywhere — food, fuel, money, natural resources. And now in the wine world.

Wine Tremors

It has been hard to ignore the feeling of instability in the wine world for the last few months. There has been a lot of shifting around of brands and alliances, as if the big wine producers are feeling off balance and need to get recentered. In January, for example, Constellation Brands, the world’s largest wine company, sold off their high volume Almeden and Inglenook brands along with the Paul Masson winery to The Wine Group. The reported logic was that Constellation wanted to focus more on premium and superpremium wines. The Wine Group is a privately held San Francisco-based company that has its roots in Coca Cola’s old wine division. (See Note below.) It makes and markets a variety of high volume brands, including Franzia, Concannon, Corbett Canyon, Glen Ellen, Mogen David and several international brands.. It is the third largest wine company in the United States, behind on Gallo and Constellation, with 44 million case sales in 2007.

I felt another tremor on Tuesday, when a Decanter.com story reported that Constellation had sold more of its wine brands, this time to a new Healdsburg, California-based group called Ascentia Wine Estates. The wineries are Geyser Peak Winery in Alexander Valley, Atlas Peak in Napa, Sonoma Valley’s Buena Vista Carneros, Gary Farrell Winery, Washington’s Columbia Winery and Covey Run, and Idaho’s Ste Chapelle. They produce about a million cases of wine a year between them. Vineyards in Napa and Sonoma county were included in the $209 million deal. The logic, the article said, was to allow Constellation to continue to sharpen its focus on key upmarket brands.

There are several interesting things about this sale. From the Constellation standpoint brands like Geyser Peak, Buena Vista Carneros and Columbia are a good deal more upscale than high-volume Almaden and Inglenook brands that were sold in January. Constellation sold 59 million cases of wine in the U.S. alone in 2007, so the loss of a million case capacity is less important, I think, than the sign that the company is very serious about reshaping itself to adapt to changing market conditions. Constellation says that they are going to focus on fewer brands at the top of the pyramid and I guess they really mean it.

Ascentia is clearly making a different bet. Ascentia is a private group that includes major investors GESD Capital Partners, a San Francisco-based private equity fund, wine distributor WJ Deutsch & Sons and Jim DeBonis, former chief operating officer of Beam Wine Estates (several of the brands included in this deal were part of the Beam Wine Estates portfolio when Constellation acquired that operation last year).

The involvement of the Deutsch family is significant. Deutsch is the masters of marketing and distribution of value-priced wines. They partnered with Australia’s Casella family to create [Yellow Tail], the best selling import wine in the U.S. (I have written about this in my [Yellow Tail] Tales article. They also import and distribute George DeBoeuf, J. Vidal Fluery and other important wine brands. They clearly see opportunity where Constellation does not. It will be interesting to see how this group adapts to the shifting wine landscape. I cannot believe that they are through assembling their new portfolio because I think there may be more wine brands on the market soon (see below).

Winequake

The news from California on Tuesday regarding the Constellation-Ascentia deal was interesting. But the news from Australia in yesterday’s Financial Times as stunning and represents the first of what might prove to be a series of significant winequakes.

Foster’s, the big Australian drinks group, announced major write-downs of its wine assets and the resignation of its CEO, Trevor O’Hoy. The FT’s Lex column summarized the situation like this:

We all know the feeling: a night of bacchanalian excess followed by regrets and a light wallet the next morning. Foster’s, after a 12-year bender in which it spent A$8bn in the wineries of Australia and the US, has a severe hangover. Australia’s biggest beer and winemaker on Tuesday announced A$1.2bn of write-offs, lowered profit forecasts and parted company with its chief executive.

Foster’s last big splurge, the A$3.7bn purchase of Southcorp, is partly responsible. Foster’s bought the Australian winemaker in 2005 for a generous 14 times enterprise value to forward earnings before interest, tax, depreciation and amortisation, among the highest multiples for deals in the wine sector at the time. It even mocked Southcorp, as it attempted to defend itself against the hostile takeover, for being unduly conservative with respect to its own earnings forecasts.

Fast-forward three years and the hubris has been punished. Integration was botched, partly due to the ill-judged decision to blend sales forces into a single unit in Australia. In the US, distribution was poorly managed. External factors packed the final punch. Australia’s vineyards produced a glut of wine and prices plummeted. The Aussie dollar surged, from about 76 US cents at the time of the acquisition to 95 cents today. Foster’s reckons that every cent move lops A$3.2m off the wine business’ earnings before interest and tax – forecast to total A$1.2bn this year.

Fosters owns 22 wineries in five countries and 60 wine brands, including Beringer, Lindemans, Wolf Blass, Penfolds, Rosemont and Matua Valley. Among other things it is writing off A$ 70 million of bulk wine inventory. It will try to trim its US inventory by 1.4 million cases. (Fosters was the fifth largest wine seller in the U.S. in 2007 with 20 million cases, about the same as Bronco wines and its Two Buck Chuck brand). This is more than a tremor. What does it mean? It is a Foster’s problem, or does it have larger significance?

The assumption for the last few years has been that bigger is better in the global wine market and that big global firms like Constellation and Foster’s had an unbeatable advantage. Is this just a shakeout, or are these recent events a signal that the world of wine is experiencing a fundamental change? Watch this space for updates.

Note: Coke purchased Franzia some years ago and built its wine division from that foundation. The Franzia family now owns Bronco Wines, the Two Buck Chuck company.

The Sub-Prime Wine Crisis

May 20, 2008 By Mike Veseth in brands, British wine market, Charles Shaw, Constellation Brands, critics, Supply and Demand, Tesco, Trader Joe's, Two Buck Chuck, wine brands, wine critics, wine markets 2 Comments

What does the sub-prime mortgage crisis have to in common with the market for wine today? More than you might think! Read on …

Liquidity Problems

Here’s a simplified version of the sub-prime mortgage crisis narrative. A housing bubble masked the inherent risk of the mortgaged-backed securities that financed the bubble itself. Investors were unable to fully assess risk because the complicated financial vehicles were not very “transparent” and the rating agencies did not prove to be trustworthy guides.

When the crisis came, liquidity dried up and the market deflated (crashing in some cases). The solution to the problem, many think, is to increase transparency — to make it easier to figure what is in a mortgage-backed security and how to assess its risk and return.

Some wine buyers will find it easy to relate to elements of this story, according to the Project Genome study recently released by Constellation Brands (I have written about Project Genome in my post “What are wine enthusiasts looking for?”).

According to this study, the largest single group of wine consumers are”overwhelmed” by the choices confronting them and cannot adequately assess the risk they face when staring down a crowded supermarket wine aisle or endless restaurant wine list. Their “liquidity crisis” is a real one — they are afraid to invest in complicated wine products due to a lack of confidence in their knowledge and lack of transparency regarding what’s really in the bottle. Intimidated, they buy a lot less wine than other groups. They lose and winemakers lose, too.

Project Genome estimates that overwhelmed consumers represent 23% of wine buyers, but make just 13% of all wine purchases. They are the “bottom of the pyramid” of wine and many industry people figure that a fortune awaits anyone who taps this market.

Making Wine More Transparent

So what’s the best way to make the wine buying process more transparent and end the overwhelmed consumer’s liquidity crisis? Better information is one approach. Wine critics are the bond rating agencies of the wine market. Their scores give many wine buyers the confidence they need to make what really is a risky purchase. At their best, wine critics serve a useful function of reducing uncertainty about what’s in that bottle and whether it is worth the price.

But there are dozens of wine critics and their ratings, using different scales and ranking protocols, do not always agree and are not always a clear guide. How many disappointing wines have you bought because of the “89-point” rating on the shelf tag? It only takes a few highly-rated losers to discourage an overwhelmed buyer from taking a chance.

Wine critics are part of the answer, but they are also part of the problem. What other options are available? The May 15, 2008 Wall Street Journal included an interesting article by Charles Passy (the “Cranky Consumer” columnist) that examined how some wine retailers are trying to demystify wine. “For Novice Shoppers, a Little Wine 101” describes four retailers, WineStyles, Total Wine & More, The Grape and Costco, and their different marketing strategies (I wrote about Costco’s system in an earlier post, “Costco and Global Wine“).

I’ve been to a WineStyles store so I can give a personal report. The store is arranged according to wine style profiles (crisp, silky, rich, etc.) rather than varietal type, production region or retail price. So if you know you like a crisp wine, you go to that wine rack and you find wines such as Washington Riesling, Chilean Sauvignon Blanc and South African Chenin Blanc. You are directed to the style you like and hopefully encouraged to try unfamiliar types of wine. If consumers can actually figure out what they like about wine and if they develop confidence in the style categories, this system helps them make better and more self-assured choices.

Food and wine writer Cynthia Nims reports on another strategy on her blog, Mon Appétit. Cynthia discovered a line of branded wines called “Wine that Loves” that are intended to simplify the wine-food pairing choice. Are you looking for something to serve with roast chicken? Pick up “Wine that Loves Roast Chicken.” Fish tonight? Look for “Wine that Loves Grilled Salmon.”

The chicken wine is “Predominantly Garnacha” according to the label — not a wine that an overwhelmed consumer would probably risk as a varietal choice, but might try and like in this format. The salmon wine is a Pinot Grigio/Garganega/Chardonnay blend. I like this concept because it links wine to food, which is very important, and encourages experimentation. It will be interesting to see if buyers embrace it or if it is just a novelty that soon fades.

The British System of House Brands

Great Britian is the most important wine market in the world in part because British retailers have developed a number of successful strategies to increase wine buyer confidence. Supermarkets are the big players in the U.K, and house brands are key to their wine strategies. Tesco, Waitrose, Sainsbury’s and Marks & Spencer all have their own brands of wine (sourced from around the world). Buyers are willing to try an unfamiliar wine because their confidence in the supermarket chain transfers over the the wine.

(It doesn’t hurt that at least some of the house brand wines are very good, of course. A M&S house brand wine is one of the highest-rated New World Sauvignon Blancs in the current Decanter ratings, for example.)

Trader Joe’s uses this strategy here in the U.S. (I have written about this in 300 Million Bottles of Two Buck Chuck). Trader Joe’s sells vast quantities of Charles Shaw (a.k.a. Two Buck Chuck) wine each year and the key is reputation. Not the wine’s reputation — the store’s. Trader Joe’s has a reputation for value and quality, which lends credibility to their house brand wine. As I have said before, the miracle of Two Buck Chuck isn’t that you can sell a wine for $1.99, it is that you can get anyone to buy it. The $1.99 price point just screams “rotgut.” But people happily buy wine at Trader Joe’s at price points they would never think of considering at Safeway or Kroger because they have confidence in the TJ brand.

My local upscale grocer, Metropolitan Market, is trying the house brand route, apparently with success. For the last year or so they have occasionally stocked limited-release house brand wine specials such as the 2007 Columbia Valley “White Selection #1” shown here. The wines go for $8 per bottle or $88 per case and they are stacked in big displays that remind me of, well, Trader Joe’s.

These house brand wines are kind of interesting. The first release of the year was a Rosé — hardly an easy sale given upmarket consumer resistance to pink wines (too close to White Zin!) and the chilly spring we have had — and now a white that turns out on close inspection to be an oak-free Semillon blend. I like Semillon quite a bit, but I don’t think you could sell it by the case at a neighborhood grocery store with a traditional brand name and varietal label. But “Met Market White #1” and the Rosé are products that buyers seem to embrace as safe bets and good values because of the store’s reputation for quality.

They fly out the door, according to the satisfied customers in line with me last week. You might have trouble selling them as ordinary branded varietals, but they go down easy as trusted house brand wines. The British know the wine game really well. We are smart to learn from them.

Confidence Game

Everyone is trying to solve the overwhelmed consumers’ liquidity problem. Here in the Pacific Northwest we have consumer friendly labels like House Wine (produced by the Magnificent Wine Company) and Wine By Joe, an Oregon brand. Like the Met Market generics, these are good quality upmarket answers to the question, what should I buy to drink tonight? The reputations these brands have developed for value and quality makes buying their wines a comfortable experience for many consumers. (My Costco sells the House Wines brands by the case.)

Take a close look at your supermarket wine aisle and I think you will see a lot of products designed to make wine easier to understand and buy. With so much creative energy at work here, I am confident that the needs of overwhelmed wine buyer market are being well served. Maybe they’ll stop being overwhelmed and their liquidity crisis will end. I wish I had the same confidence about the financial markets!

What are wine enthusiasts looking for?

April 5, 2008 By Mike Veseth in brands, Constellation Brands, Costco, critics, decanter, Masters of Wine, wine critics, wine magazines, wine markets, wine research 8 Comments

The Search for Wine Drinker DNA

According to the data that WordPress collects about visitors to this website, the three most frequently viewed posts on The Wine Economist are

The World’s Best Wine Magazine?, an analysis of Decanter magazine, part of the ongoing series on wine critics and publications;
Costco and Global Wine , which examines Costco’s wine strategy in the context of the three most important global wine markets, the U.S., Great Britain and Germany, and
Masters of Wine (and Economics), which is about the prestigious Masters of Wine (MW) qualification and the importance of wine economics in its curriculum.

(Other popular posts include my discussions of global climate change, problems in Australia, rising wine prices, and the Hong Kong and Chinese markets.)

What can we learn from the fact that these three posts get the most hits? A closer examination of the WordPress data show that many visitors to this site are looking for information about the “Best” – the best wine, the best wine price, the best wine magazine and so forth. The search for the best and not just the good seems to be very important.

Wine enthusiasts also seem to be searching for credible authorities – people and publications that can guide them and tell them what to buy and drink.

Not unrelated to this is in the interest in Costco (and Trader Joe’s) and other retailers that seem to make the choice concerning good wine or good value wine a little simpler. Costco is now the largest wine retailer in the U.S., as the blog post explains, and it does this in an unexpected way – by giving consumers fewer choices than a typical upscale supermarket (about 120 different wines at typical Costco versus more than 1200 different wines at your supermarket), but also giving them more confidence in the choices that they make.

Project Genome

Visitors to The Wine Economist reflect many qualities that research by Constellations Brands (the largest wine company in the world) has uncovered. The study is called Project Genome, which suggests that it is an attempt to sequence wine drinker DNA. Wines and Vines reports that

The original 2005 study of 3,500 wine drinkers was one of the largest consumer research projects ever conducted by the wine industry. The new study examined the purchases of 10,000 premium-wine consumers–defined as those who purchased wine priced at $5 and higher–over an 18-month period. While the first Project Genome study asked online survey participants to recall their wine purchases during the last 30 days, the Home & Habits study tracked the actual purchases of Nielsen Co.’s Homescan® consumer purchase panel, which employs in-home bar code scanners and surveys to map consumer buying behavior across a demographically balance

Nielsen measured consumer attitudes and purchase behavior within multiple purchase channels, including warehouse clubs, supermarkets, mass merchandisers, drug stores, liquor stores and wine shops. The scan data were supplemented with online interviews to classify consumers by Project Genome consumer segments identified in Constellation’s original study: Enthusiasts, Image Seekers, Savvy Shoppers, Traditionalists, Satisfied Sippers and Overwhelmed.

The largest group of wine consumers are the Overwhelmed (23% of consumers). They are described as

Overwhelmed by sheer volume of choices on store shelves
Like to drink wine, but don’t know what kind to buy and may select by label
Looking for wine information in retail settings that’s easy to understand
Very open to advice, but frustrated when there is no one in the wine section to help
If information is confusing, they won’t buy anything at all.

The second largest group are Image Seekers (20% of consumers). They

View wine as a status symbol
Are just discovering wine and have a basic knowledge of it
Like to be the first to try a new wine, and are open to innovative packaging
Prefer Merlot as their No. 1 most-purchased variety; despite “Sideways,” Pinot Noir is not high on their list
Use the Internet as key information source, including checking restaurant wine lists before they dine out so they can research scores
Millennials and males often fall into this category.

Traditionalists (16% of consumers)

Enjoy wines from established wineries
Think wine makes an occasion more formal, and prefer entertaining friends and family at home to going out
Like to be offered a wide variety of well known national brands
Won’t often try new wine brands
Shop at retail locations that make it easy to find favorite brands.

The Savy Shoppers (16% of consumers)

Enjoy shopping for wine and discovering new varietal s on their own
Have a few favorite wines to supplement new discoveries
Shop in a variety of stores each week to find best deals, and like specials and discounts
Are heavy coupon users, and know what’s on sale before they walk into a store
Typically buy a glass of the house wine when dining out, due to the value.

Satisfied Sippers make up 14% of consumers. They

Don’t know much about wine, just know what they like to drink
Typically buy the same brand–usually domestic–and consider wine an everyday beverage
Don’t enjoy the wine-buying experience, so buy 1.5L bottles to have more wine on hand
Second-largest category of warehouse shoppers, buying 16% of their wine in club stores
Don’t worry about wine and food pairing
Don’t dine out often, but likely to order the house wine when they do.

And, finally, Wine Enthusiasts are the smallest group, accounting for just 12% of all wine buyers. They

Entertain at home with friends, and consider themselves knowledgeable about wine
Live in cosmopolitan centers, affluent suburban spreads or comfortable country settings
Like to browse the wine section, publications, and are influenced by wine ratings and reviews
47% buy wine in 1.5L size as “everyday wine” to supplement their “weekend wine”
98% buy wine over $6 per bottle, which accounts for 56% of what they buy on a volume basis.

The Fortune at the Bottom of the Pyramid

Not surprisingly, Wine Enthusiasts and Image Seekers account for nearly half of all wine sales while Overwhelmed consumers purchase disproportionately little wine. While wine magazines find a ready market at the top of the pyramid, retailers and wine companies probably view the Overwhlemed as the potential “fortune at the bottom of the pyramid.” There is a lot of money that can be made if wine can be simplified (or these consumers educated) so that they move up the wine buying ladder.

Visitors to The Wine Economists seem to fall into three of Constellation’s categories: Enthusiasts, Image Seekers and the Overwhelmed based upon the limited and superficial “most popular post” data reported here. It will be interesting to track further Project Genome results as they are released and to see how Constellation Brands uses this information in its wine market strategies.