Category Archives: wine price

Chutes and Ladders: Wine and the Premiumization Game

March 7, 2023 By in wine, wine markets, wine price 6 Comments

I believe that the games we all played when we were younger taught us valuable lessons, both about life in general and life in today’s wine industry in particular. Risk, for example, taught us to be strategic in analyzing any situation. Checkers and chess taught us to think beyond the next move or the one after that, to anticipate our competition’s reaction to each possible action.

Monopoly, of course, prepared us for the wine industry’s continuing consolidation with big getting bigger at every level — retail, distribution, winery, and vineyard.

Up and Down

Chutes and Ladders (or Snakes and Ladders for some of you) is the game to play if you want to get a sense of the premiumization game that is a distinct characteristic of the wine industry today. Chutes and Ladders is a race to get from the bottom of the playing field to the top. You can climb up one step at a time, but ladders sometimes zoom you to a higher level. That’s great, but there are also chutes that send you tumbling down again.

Wine businesses have been encouraged to play the Chutes and Ladders game because the growth in the market has ratcheted upscale with surprising speed since the global financial crisis. Sales of wine at lower price points have languished or declined. The growth zone has shifted to higher and higher price points (which entail lower and lower volumes). The sweet spot in the wine market is a moving target. Talk about Risk!

Sometimes it seems like if you are not climbing the ladder you must be falling down the chute. Growth-seeking wine brands must keep climbing market ladders as the sweet spot shifts, but (to mix metaphors) it is hard for a tiger to change its stripes. Once a brand has established an identity, it is dangerous to cut prices and difficult to raise prices. Climbing the premiumization ladder can be a roll of the dice.

Early Mover Disadvantage

I have seen this with some European wines that entered the US market back in the day when market conditions were different, It is hard for them now to change stripes. Take the popular-priced red wines of Valpolicella, for example. These were once some of the best-selling imported wines on U.S. shelves and still do very well, but the bargain prices that drew attention back then no longer make the same impression.

Montepulciano D’Abruzzo faces some of the same challenges. Buyers may think of good value, not high quality when they see this wine, which is a problem if spending growth is focused on higher price points.  When we were doing research for our trip to Abruzzo last year, for example, most of the Montepulciano d’Abruzzo wines we found were in the “good value” category — a legacy of the region’s early successful entry into the U.S. market.

The low point came when we found a popular brand of Montepulciano d’Abruzzo in a Grocery Outlet store selling for just $5.99 per 1.5-liter bottle. Not the image you want to see, especially since the region has so much potential.

Climbing the Ladder

We found excellent wines during our trip to Abruzzo. We were especially impressed by the small wineries of Villamagna DOC, for example, and the Cantina Frentana cooperative showed that quality and quantity could go hand-in-hand.

We’ve recently been sampling the Villa Gemma line of wines from  Masciarelli, and they are terrific. The Montepulciano d’Abruzzo Riserva 2017 is an example of a wine that can help redefine the category.

The classic-level Masciarelli wine sells for $12.99 at the upscale supermarket down the street and for just under $10 at a local big-box alcohol superstore. That’s a good price point, but with premiumization moving the ladder, market growth seems to be shifting up a level. Hence a focus on super-premium Villa Gemma and wines like it to take advantage of premiumization without sacrificing the existing profitable market.

North and South

Here in the U.S., we have the tale of Washington state’s Chateau Ste Michelle, which prospered just a few years ago when the sweet spot for wine sales growth was $8 to $10. The wines are very good, but they were pigeonholed by their price point and now the market has shifted higher.

New Zealand wines present the other side of the situation. New Zealand entered global markets at what were then surprisingly high prices. New Zealand’s average export price for still wines was for some years the highest in the world (remember that world wine flows include vast quantities of inexpensive bulk wines, which are not part of the New Zealand portfolio).

Having entered the US market at a higher price point, New Zealand wine (mainly Sauvignon Blanc) has benefited from each upward shift so far. But, seeing the writing on the wall, some Kiwi producers are getting ready for the next ladder climb. For example, we have recently sampled wines from Babich, which seem to be intended to scale the next ladder.

The Babich ladder begins with the classic Babich Marlborough Sauvignon Blanc and then climbs through Black Label, Family Estates, Select Blocks, and Winemaker’s Reserve tiers. Babich is a well-known champion of sustainable wine-growing and this is part of the brand ladder. The classic that we sampled was certified Sustainable and the Select Blocks wine was made with organic grapes.

The classic wine and the Select Blocks were very different  from each other when we tried them — as they should be. The classic was a refined variation on the now-familiar Marlborough Sauvignon theme. The Select Blocks wine was even more elegant and perhaps defines a new category — which is great in terms of product differentiation. But it didn’t say “Marlborough” to us as much as we’d liked.

How High is Up?

How much longer will the premiumization game of Chutes and Ladders last? And who will the eventual winner be? The wine market is like a dynamic pyramid and the volume of wine is smaller at the top of each ladder compared with the one before.

Like the housing bubble of a few years ago, this process doesn’t seem sustainable. That means that Stein’s Law probably applies: if something can’t go on forever … it will end.

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Note: Masciarelli has released a special wine, Pecorino Castello di Semivicoli 2022,  with proceeds to raise funds to support a charity that assists the parent of autistic children. Bravo, Masciarelli family!

Wine & Stagflation: What Will Happen When Wine Prices Rise?

May 17, 2022 By in economic crisis, wine, wine markets, wine price 2 Comments

The conventional wisdom is that we are likely entering the first significant period of stagflation — inflation + stagnant economic growth — in several decades.  We have experienced recessions in the recent past, but not rising inflation, and not the two of them at once.

Inflation is in the headlines every day, but unemployment is very low — so why worry about slow growth or a recession? The answer is that while Federal Reserve policies will try to finesse the situation and bring inflation down to a “soft landing,” most observers think that a sharp contraction will be necessary to bring inflationary expectations down. Growth will fall while inflation still runs high, at least for a while.

So, these are uncharted waters for business and government leaders, especially since it comes on the heels of the covid crisis, which has shaken so many economic and social structures. It is, as I have argued here, uncharted territory for the wine business, too.

So far, as I suggest in last week’s Wine Economist newsletter, wine prices overall have not risen to the degree you might expect given the many cost pressures the industry confronts. Average wine prices seem to have actually fallen in real terms so far according to the data I have surveyed.

It may be premature to begin worrying about how wine consumers will react to higher prices in the stagflation context if and when they arrive.  Or — and this is my point — it might be strategic to consider possible scenarios in order to prepare for the eventuality. Because this is uncharted territory — and because, as Jon Fredrikson says, there are no one-liners in wine — it makes sense to consider the range of consumers responses rather than to look for a single silver bullet answer.

Herewith, therefore, a brief and incomplete list of possible consumer responses to rising wine prices in the context of stagflation.

Econ 101: substitution, income, and wealth effects. 

We begin with Econ 101 basics. An increase in the relative price of wine would create a substitution effect to some extent. It might be to substitute other beverage alcohol products for wine or — the trading down effect — to substitute less expensive types of wine for previous purchases.  How this plays out depends on a number of factors. Younger drinkers, for example, are known to be less loyal to wine and more prone to dividing their purchases among many beverage types, so the substitution effect may be stronger for them than for boomers, for example.

Of these three effects the substitution effect is the most interesting to me because we don’t have much recent experience of supply-driven price increases in wine (versus demand-driven “premiumization”.

The income effect, driven by both higher wine prices and higher prices in general, points towards lower consumption of wine overall. Wine is already more expensive than most beer and spirits on a per-serving basis, and so vulnerable to income-driven consumption adjustments.

There is also likely to be a wealth effect, with wine consumption falling as consumers (mainly but not exclusively boomers) re-assessing buying decisions in light of changing net worth. Rising interest rates implemented to fight the inflation tend to reduce the value of bond holdings directly and equity values indirectly through their impact of the present value of corporate cash flows. Substantial interest rate rises are likely to affect portfolio balances and 401k holdings. If you have been watching the way that equity markets have reacted to the Federal Reserve’s initial 1/2 percent interest rate increase you know what I am talking about.

Stalking the Illusive Wine Bargain

In a perfectly competitive market the “Law of One Price” rules, but the wine market has many quirks and peculiarities, so similar products can sell for very different prices. Rising wine prices are likely to push price-sensitive buyers to even more aggressive bargain hunting efforts. Expect your local Grocery Outlet store to do even more wine business.

But bargain hunting doesn’t necessarily mean searching for rock bottom prices. We recently received samples of two wines that represent good value in their respective categories. The pitch that came with the wines was that these are inflation-fighters. The first wine was Villa Maria Marlborough Pinot Noir Private Bin, which retails for about $19.00. It is an excellent wine that sells for less that many comparable products from, say, Oregon or France.

The second wine was Le Volte dell’Ornellaia, a “Super-Tuscan” from the Bolgheri region that, at around $29, represents a way for many consumers to raise a glass in high style without breaking the bank. How do you find inflation-fighter wines like these? Start by asking whoever sells you wine to solve a puzzle — I’d like a wine like this, but I want to pay something more like that. A good wine seller will appreciate the challenge.

Risk Management

Buying wine is not easy because it is what economists call an “experience good.” You won’t really know if you will like a particular bottle of wine until you buy it and pour yourself a glass.  Reviews and so forth help, of course, but the taste of wine is ultimately very subjective and the risk of disappointment almost inevitable.

As inflation pushes wine prices higher, the disappointment risk becomes more of an issue. One strategy that consumers are likely to adopt in this circumstance is to concentrate their purchases on a few tried-and-true brands or grape varieties that they trust to consistently please. Trying new wines from different regions and brands made from different grape varieties is great fun, but the high reward when you find an exceptionally pleasing wine comes with high risk of disappointment.

So don’t be surprised if consumers — and the stores and shops who sell them wine — react to wine inflation by doubling down on tried-and-true wines. This reinforces a trend that emerged during the pandemic wine surge.

But don’t forget that all this is predicated on wine prices finally rising as fast or faster than the general inflation rates. This hasn’t happened yet … and it might not happen at all. Stay tuned.

Wine and Inflation: Will the Rising Tide Lift Wine’s Boat?

May 10, 2022 By in economic crisis, Economic impact, wine, wine markets, wine price 1 Comment

The U.S. is experiencing the highest inflation rates since the 1980s and cost-of-living increases are on everyone’s mind here and around the world. The Federal Reserve has signaled that it will speed up monetary tightening to try to reverse rising inflationary expectations — too little and too late, according to   the Economist newspaper (The Federal Reserve Has Made a Historic Mistake on Inflation).

I am very concerned about how higher inflation will impact the wine industry, especially when combined with a stagnant overall economy (GDP actually fell in the US in Q1/2022).

The Big Squeeze

Costs are increasing, some dramatically, throughout the wine and grape commodity chains and rising interest rate expenses will add to cost woes. The list of cost factors is long and includes energy, fertilizer, transportation, glass and other inputs, and especially labor, which remains in short supply.

Will growers and wineries be able to hold on to their margins by passing higher costs along to consumers in the form of higher prices? A lot of people I talk to think so. Surveys suggest that many wineries plan to raise prices in 2022 and there is an attitude that consumers might not push back too much, given that the price of everything else is rising, too.

So I am a little bit surprised that some of the data suggests that wine prices have not risen along with the prices of other goods — at least not yet.  Wine Business Monthly, for example, cites NielsenIQ data on average bottle prices. The May 2022 issue reported an average price of $8.52 for the most recent 4 week survey period, up from $8.18 reported in the May 2021 issue — an increase of 4.1  percent. Average domestic bottle price rose  from $8.12 to $8.46 and average import bottle prices rose from $8.35 to $8.69.

The Booze Bust

Prices are rising, according to these figures, but at about half the current rate of overall inflation. NielsenIQ doesn’t measure all sales channels, of course, and there is a lag in the data, so maybe prices are really rising faster than these numbers suggest and wine industry margins will hold.

But the IRI data shown above, taken from a recent Rabobank report about inflation and the beer market suggest that wine in particular and beverage alcohol in general is struggling to increase prices in line with rising costs. Take a close look at the top half of this table, which shows that some non-alcohol beverage categories have been able to boost price much faster than the roughly 8% general inflation rate for the U.S. economy — topped by sports drinks with an incredible 17%+ annual rate price increase. Wow!

Beer, wine, and spirits have all increased average prices, but much less than, say, coffee, and substantially below the overall inflation rates. In other words, the real price of wine, on average, has actually fallen in the last year and the relative price of wine with respect to some other beverage categories has fallen, too. Averages hide a lot, of course, and some strong brands have successfully pushed prices higher while others have not. But beverage alcohol generally, according to the Rabobank figures, has fallen behind in terms of price.

Why haven’t wine prices increases faster.? Here are a few of the many possible explanations.

  1. Radar’s Rule. Wine prices will increase — “wait for it,” as Radar used to say on M.A.S.H. — it just takes time for price changes to work their way through the system.  It is hard to refute this because it is impossible to know the future. Maybe there is something about wine’s annual production cycle that causes price changes to come more slowly. But then why do beer and spirits, which are in continuous production, also lag behind the inflation rankings?
  2. The Wall. Consumer pushback is too strong in the wine category for large price increases to take hold. Yes, I agree that wine buyers are very price sensitive, but prices do rise when they are driven by short supply. And of course there is the whole premiumization phenomenon, where consumers pay more for what they see as better products while resisting price rises on products they already buy.
  3. The Hidden Price Increase Trick. Candy bar makers sometimes try to disguise price increases by simply shrinking the size of the product. Wine makers can do something a bit like that by shifting grape sources from coastal to inland vineyards and in some cases by blending in wines from earlier vintages. Consumers may not notice (just as they might not immediately realize their candy snack has shrunk a little).  Wineries can also increase their average revenue by reducing production of lower-tier wines, shifting the grapes up the ladder.
  4. Three-tier Blues. It’s the three-tier system, where producers sell to distributors who sell to retailers who sell to consumers. On one hand this system means that there are three margins at stake and to each tier has an interest in raising the price at which it sells wine. But each tier also has an incentive to resist increases in its cost of goods. So distributors push back on producers who want to raise price, retailers push back on distributors, and consumers push back on retailers.  The three-tier effect may explain why the lowest average price increases in the Rabobank table above are for beer, wine, and spirits.

More Questions Than Answers

There are other theories and explanations about inflation and the wine category, but perhaps the most important thing to say is that, with the most recently experience of significant U.S. inflation so far back int he rearview mirror, we are left with more questions than answers.

All the basics — the who, what, when, where, how, and why of the wine market have changed very dramatically since the 1970s and 1980s.

Will wine prices rise in line with inflation? If so, when? And how will consumers react? Come back next week for more analysis.

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Thanks to Steve Fredricks at Turrentine Brokerage for stimulating my thinking on this topic.

What Can Wine Learn from the Cruise Ship Industry?

August 10, 2021 By in wine, wine markets, wine price 4 Comments

Here is a “flashback” column from pre-covid 2017 that asks what wine can learn from the cruise ship industry? That’s an  unexpected question but, as you will see below, I think there are some potential insights.

What does wine have in common with cruise ships? As we have seen, both on-premise wine sales and cruise ship revenues have been badly affected by pandemic restrictions. But there is more to it than that. Package tours are a bit like the “mystery box” wine promotions that I wrote about in May 2021.  Mystery boxes are popular in China these days because they allow wine companies to sell off surplus products without cutting individual product prices in a way that can undermine brand positioning. Very clever, don’t you think?

Cruise packages and proprietary wine clubs (like those sponsored by the New York Times and Wall Street Journal, for example), have more in common than you might think and provide potential insights into the psychology and economics of wine consumer behavior. Enjoy!

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I keep finding cruise brochures folded into the weekend newspapers that arrive here at Wine Economist world headquarters. Ads of various sorts for wine clubs associated with those same papers show up frequently, too. That got me thinking, which is usually a mistake. What do ocean or river cruises and those wine clubs have in common? Intrigued? Read on.

They come in the mail and stuffed in weekend papers — brochures for ocean and river cruises and barge-and-bike tours. It is hard to resist the temptation to thumb through them and imagine visiting all these far-away places. You’ve done it, haven’t you?

Thousands and thousands of full-color printed brochures — this seems like a pretty expensive way to solicit customers. There must be something about having those pages and pictures in your hands that is especially important. Or maybe it is that the demographic that still reads a physical weekend paper and can afford to pay for it is a juicy target.

Experience Deficit Disorder

Several things about the tours strike me as important and relevant to wine. The first is that tours are “experience goods” — you cannot really know if you will like river touring, for example, until you actually try it. And then, if your experience is a good one, the odds of a second trip go way up (and the cost of customer acquisition way down).

The most important thing in marketing an experience good is to get people to try it the first time. The cruise industry seems to be good at this, so perhaps there is something to be learned by studying their strategies.

Wine is obviously also an experience good. Hard to know if you will enjoy a wine (or how much) before you pay the bill and open the bottle. If you like it, you are likely to come back for more. No wonder winemakers go to so much effort and expense to hold tastings of their wines.

The Olive Garden restaurant chain has a very successful wine program that is built around their practice of offering free tastes (as allowed by local law). One taste makes a customer more often than not.

Those colorful cruise brochures and television videos (think  PBS’s “Masterpiece Theater” sponsorship) try do the same — they give potential customers a “taste” of what cruise life is like. But for the most part neither wine now cruise ships can entirely overcome the obvious experience deficit disorder. So they need a strategy around it to give buyers confidence to take the plunge.

A Little of What You Fancy

Since cruise lines and independent “professionally curated” wine clubs of the sort that are often associated with newspapers and airline mileage programs cannot give all their potential customers actual samples of their products, they both seem to sell the glamour and exotic nature of the experience and hedge their bets in an interesting way.

Cruise tours seldom spend more than a few hours in any single port of call. If you love today’s stop, you can always come return on your own, but if you find you hate Venice (is this even possible?), don’t worry. You’ll be back on the boat and headed for another destination before you know it.

Some of the wine clubs that advertise in the weekend papers seem to work in the same way. Don’t worry about getting a case or even a six-pack of a particular wine you don’t like. Each case has at least six and sometimes twelve different wines. Don’t like this wine — don’t worry, because it is gone just like that. But you can order more of anything you fall in love with.

The fact that the details of the experience — the particular wines, the particular travel route — are made by experts, not the buyer, seems important, too. You buy the package and leave the rest to the experts. The modest commitment comes with relatively modest effort and emotional investment.

The low commitment strategy doesn’t appeal to everyone among either tourists or wine buyers, but its persistence in both spaces suggests that there is a market for it. Especially when there is a big discount involved.

Affordable Luxury

Nice wine and ocean and river cruises are luxuries from an economic point of view. No one has to buy them and there are always cheaper alternatives. The trick to getting the weekend newspaper-reading public to try them seems to be to make them simultaneously very luxurious and a tremendous bargain.

Thus the cruise lines advertise stratospheric rack rates for their services, which are then deeply discounted. The “full brochure fare” for the cheapest stateroom on a 10-day Mediterranean cruise in the flyer that arrived a few weeks ago is $9,999 (including economy airfare from certain gateway US airports). Wow, that’s a lot of money. Must be quite a cruise.

But wait, if you act now this wonderful experience can be yours for just $2,999 (airfare included) or $1,999 if you book your own flight. Lifestyles of the rich and famous at a fraction of the list price. Who can resist?

For the record the full brochure price of the most expensive cabin for this 10-day cruise is … wait for it … $33,998! But your price is just $14,999 or $13,999 if you pay your own airfare. Needless to say, this top-of-the-line listing makes the $2,999 of that bottom-tier inside stateroom seem an even better deal than before. Or maybe you would like to upgrade to the $4,599 veranda stateroom?

Wine club ads (and most supermarkets) adopt a similar strategies. Wine club ads seem to stress both the high retail value of the wines and the low low price that you will pay. Sometimes the introductory offer prices are so low that they must be intended solely to entice buyers into the first “experience” purchase, counting on repeat order for profits.

Foot in the Door?

I don’t see anything wrong with how cruise lines and wine clubs market their services. If this low-commitment affordable luxury strategy is successful in introducing people to wine and travel — and if they enjoy themselves — then that’s a plus.

Remember this. Most consumers don’t drink wine (here in the U.S. about 40% of adults don’t consume any alcohol at all). And most of those who do drink wine do it only a couple of times each month. There is much work to be done to introduce these consumers to the pleasures of wine and if thinking about wine as if it were a luxury river cruise can help, I am all for it.

The point of this that sometimes those of us in the wine space think that wine is so special that we fail to see how it relates to other products and experiences. It’s a good idea to pay attention to how other  experience goods present themselves to consumers and to note how those consumers react.

Vino-ligopoly: Zero-Sum Wine Game Strategies

November 10, 2020 By in coronavirus, economic crisis, recession, trade wars, wine, wine markets, wine price 1 Comment

Last week’s Wine Economist column was a thought experiment. What if the Covid recession was a game changer like the oil crisis of the 1970s? Both crises undermined fundamental economic assumptions and generated long-lasting impacts. In particular, drawing upon the work of MIT economist Lester Thurow, the oil crisis changed the nature of the game from positive-sum growth to zero-sum competition for shares of the pie.

Maybe the parallel is off base and maybe the game hasn’t really changed. But let’s think about the future the wine industry in the sort of slow growth, low inflation, high debt economic environment that many see on the horizon, with a focus on gaining market share in a stagnant economy.

Wine’s Zero-Sum Dilemma

Zero-sum market environments are nothing new for wine. As this OIV graph of wine demand volume shows, growth in the global wine market pie was once quite strong. Imagine a trend line for 2000-2007 and you’ll see what I mean.

Now draw a trend line for 2008- 2019. It’s pretty much a flat line, isn’t it?  The picture improves if we look at value and not volume because of the premiumization trend, but the the weight of stagnant volumes is still heavy.

So the focus is on gaining market share or raising margins rather than taking advantage of a growing overall market and this creates winners and losers. New Zealand has been a victor for many years. Marlborough Sauvignon Blanc sales have increased year after year, a trend that has continued in the Covid crisis environment. Imports from other countries have struggled here in the U.S. market with even powerhouse Italy under pressure. But the Kiwi wine wave rolls on.

Trading Spaces: On and Off

Perhaps the most obvious example of Covid’s zero-sum impact on the wine market is in the shift from on-premise to off-premise sales. Bars and restaurants have suffered both because of government restrictions on opening and also because concerned consumers have avoided crowded places in general even when not officially restricted. Wine consumption overall has not changed very much, but where consumption takes place and where products are purchased has shifted significantly.

The shift to off-premise consumption has many impacts, especially for wine companies that have worked very hard to place products on restaurant wine lists and for emerging brands that use on-premise sales to get a foot in the door. Shifting your restaurant sales to shops and supermarkets is not as simple as throwing a switch. Supermarkets especially favor big brands and broad product lines and there is some evidence that consumption patterns have moved in this direction, too.

One important impact of this shift, as I explained in an April 2020 Wine Economist column, is consolidation throughout the supply chain. Consolidation is a trend that extends far beyond the wine sector, of course. In an increasingly zero-sum market environment, large firms want to get even larger both in order to reduce margin-sapping competition and also to be able to negotiate better terms and lower costs. It’s not exactly wine-opoly — more vin0-ligopoly (insider joke for economics majors who remember the difference between monopoly and oligopoly, which is competition among a few big players).

Wine Wars / Price Wars

Econ 101 teaches us that one way that firms try to gain an advantage in a zero-sum game scenario is by cutting prices. This can quickly degenerate into a price war, of course, which is the ultimate negative-sum game for sellers (and a bonanza for consumers), especially if overall demand is price inelastic.

Are we seeing price wars on the wine aisle? As I explained in a May 2020 Wine Economist column, wine prices may be falling and rising at the same time, making it tricky to pick out net effects. If you are like me, your email inbox or Facebook news feed usually contains at least one discount offer from a winery or wine club — sometimes at incredibly low prices.

Looking narrowly at off-premise data, it appears that price premiumization continues. Sales of $25+ wines surged early in the pandemic period, for example. But, as I noted in May, these high price sales replace even higher-priced on-premise purchases at least in part. Those consumers were actually trading down as they shifted from restaurant meals and wine to home consumption. This is not a price war because it is cross-channel consumer behavior, but it will have that feel for wineries that cannot easily shift sales from on- to off-premise markets.

Game Changers

It isn’t easy to win if you think of the market in zero-sum terms (although not everyone agrees on this — President Trump famously proclaimed that trade wars were easy to win). Although there are many different strategies to consider, three stand out in my mind.

The first strategy is to analyze changes in market conditions and focus closely on growth segments. There is no single wine market, so a stagnant environment can a bit like a duck on a lake — quiet on the surface, but turbulent underneath. I wrote about Precept Wine in 2019, for example, highlighting their “Willie Sutton” strategy of putting resources into growth segments.

The second is simple: accept that the game is zero-sum and play hard to win on those terms. This means being very aggressive in terms of cost and price and making sure you are on the winning side was consolidation unfolds. Being big doesn’t guarantee success (small can be beautiful in a profitable niche), but there is no great advantage to being middle-sized.

The final strategy is to try to change the game. If wine vs wine is zero sum, try to shift the game to one with better odds. Don’t sell wine, sell a lifestyle. Don’t sell wine, sell community, culture, celebrity, or culinary connections. Ship the wine, sell the dream. Hitch your wine to a horse that can carry it to new market niches. Product differentiation — that’s what it’s all about.

What’s new about this? Nothing. The most popular wine magazines, for example, have long featured food, travel, and lifestyle as hooks for their wine stories.

In fact, using product differentiation to create and protect a profitable market niche is standard “monopolistic competition” theory.  But now might be a great time to think about what makes your wine’s offer distinctive and what you can do to protect yourself from head-to-head zero-sum competition.

Book Review: The Wines of South Africa

September 1, 2020 By in book reviews, South Africa, wine, wine history, wine markets, wine price 6 Comments

gi_157779_newsimage_vcsprasset_1603936_157779_a1e0438a-e7e6-4421-b354-a406a5fa9579_0Jim Clarke, The Wines of South Africa (The Classic Wine Library) Infinite Ideas, 2020.

Conventional wisdom holds that books with titles that begin “The Wines of …” are organized around what I call the “Three Ps” of wine: the people and their history, the places (geography, climate, terroir), and the plants (most important grape varieties). Good wine books provide interesting and informative accounts of each “P,” but the best ones find a way to rise above orthodoxy to give readers a taste of what really makes a particular region special.

Jim Clarke’s book on South Africa’s wine industry does just that and it is why I recommend it to you. Clarke is U.S. marketing manager for Wines of South Africa and that puts him in an excellent position to analyze South Africa’s wine sector. It is an important book and I encourage anyone interested in South Africa or global wine to read it, but it is not (and does not try to be) definitive for two reasons. First, Clarke wisely chooses to highlight selected wineries in each region rather than trying to cover them all. Balance is key — breadth can be the enemy of depth in this as in so many things. So you will want to have a recent edition of the Platter’s Guide for maps and comprehensive coverage of working wine cellars.

The pace of change is the second limitation. History is moving at warp speed these days — have you noticed? — and it is impossible for books to keep up, even if like this one they are hot off the presses.  Clarke tells the people story though his account of the twists and turns of South Africa’s wine history, which is necessarily intertwined with the country’s history more generally. One inevitable theme here is the importance of turning points — people and events that caused conditions to suddenly change, with effects that sometimes take years to fully unfold.

Balancing Act

2020 looks to be a year of turning points for South African wine. South Africa’s wine sector has for some time been balancing uncomfortably on an economic knife’s edge.
Some producers who go for high yields are able to coax out profits in most years despite low prices in bulk wine markets. Those who restrict yields and aim for higher quality achieve it — the best of the wines are simply spectacular — but often fail to earn prices high enough to produce profits. For at least part of South African wine, quantity pays better than quality. And many wine growers in both camps fail to earn sustainable returns.

Clarks explains this situation very well and the reader can sense his optimism going into 2020. Maybe this is a turning point moment when the country’s wines will finally achieve the widespread recognition (and higher prices) they need and deserve. I am optimistic about this, too.

But 2020 has turned out not to be that kind of turning point year. Instead it has been a year of disasters — the coronavirus pandemic, the global recession, and South Africa’s harsh national policies that have twice shut down domestic wine sales and once stopped export shipments, too. Wineries on the economic margins, many still recovering from severe drought, have been hard hit. A shake-out seems  likely and some wineries that went into 2020’s recession in weak condition will have trouble coming out the other side.

Follow the Money

The problem remains profitability more than wine quality and the collapse of global tourism flows adds one more woe to the pile. South Africa is a wine tourist dream, as Clarke suggests in a brief chapter on this topic, but it will take some time for wine tourists to return to the Cape Winelands in large numbers.

Who is going to lead South Africa’s wine sector out of the perfect storm it is caught in? As Clarke’s analysis makes clear, there is no shortage of institutions and organizations that aim to lead the industry in one way or another. A lot of people  — including a new group called Save SA Wine — are working very hard to limit the current damage and build a stronger foundation for the future.

I am not an insider, so probably I am wrong, but from my outside perspective I’ve always thought that the key must be Distell, the country’s largest private wine producer. Cooperatives, which are enormously important producers in volume terms, are unlikely to be able to lead the charge to boost prices in export markets, but Distell’s interests and those of the high quality wine sector in general are more closely aligned.

If Distell with its great scale and scope doesn’t do it, I don’t know who can or will. But I keep waiting for Distell to execute a sustained and ambitious strategy and make its big move. So far I’ve been disappointed.

Time Has Come Today

Time moves quickly in a crisis. The unfortunate facts of 2020 do not diminish this book’s relevance. In fact it is even more important now for us to understand South Africa wine’s underlying strengths amid significant challenges. And it is important to understand the stories of people and history that Clarke tells so well. South Africa has experienced turning points before and moved through them, drawing upon deep wells of strength and resilience.

Clarke captures South African wine’s bright promise, which we hope will shine through the current storm clouds. Excellent book. Very readable. Highly recommended.

Wine Goes Up the Down Staircase (Coronavirus Recession Edition)

May 27, 2020 By in Aldi, coronavirus, economic crisis, recession, wine, wine price 2 Comments

41f8v8blzal._sx301_bo1204203200_Wine consumers today seem to be going “up the down staircase” (to evoke the clever title of Bel Kafuman’s best-selling 1964 book). They are buying more expensive wine at lower prices. That sounds crazy! Read on for analysis and a look back to what happened in 2009.

The COVID-19 Wine Boom

Recent consumer trend  data from Nielsen and Wines & Vines Analytics present a complicated picture of off-premise wine consumer behavior for March and April 2020. Wine sales at supermarkets and other retail outlets have boomed, as you know. The initial pantry stocking frenzy was followed by a growth plateau, but high growth rates have returned in recent weeks.

The dollar value of off-premise wine sales in the Nielsen-measured channels has risen at a 30% rate since the COVID-19 crisis began compared to the same period last year. Wine sales in the week ending March 21 surged to 66% more than the previous, year which is amazing.

The rise in off-premise sales is partially offset by the collapse of the on-premise (bars,  restaurants) channel. Net sales are up, but not by as much as you might imagine. Nielsen estimates that off-premise sales need to rise by roughly 22% (by volume) to offset the falling on-premise sales. Wine volumes are up 27.7% since March 7, so that’s a 5% net volume gain.

Less is More? Or is More Less?

Since sales volume is up 27% and sales value has risen 30%, it is clear that unit sale price has increased and this is true because of the distribution of purchases in different price points.. While sales have increased in all price categories, the fastest growth is for wines $11 and higher. Interestingly, the highest percent growth rate is in the $20 to $24.99 price category.

Some speculate that this rise is driven in part by consumers who are substituting retail wines for the ones they would otherwise have purchased at a restaurant. A $25 wine purchased at retail and consumed at home (perhaps with a home-delivery restaurant meal) might seem like a bargain compared to a similar wine with a higher mark-up on a restaurant wine list. Bottom line: consumers are moving up the wine wall, but paying less at the same time.

Online wine purchases are booming, too, but the reported pattern is different according to shipment numbers for April 2020 from Nielsen’s partnership with Wines Vines Analytics in collaboration with Sovos ShipCompliant. Sales volume increased by 45% compared to the previous  year. But sales value rose by only 15%, which means that average unit price has fallen. 

Indeed, the average bottle price in this sales channel fell from $42 to $33. Some of this might be due to changes in the commodity composition on online purchases, but readers of this column probably guess that discounting also plays a part. Here at Wine Economist world headquarters our email inbox is filled with sales offers that start with free shipping and continue with increasing levels of discounts.

Napa Discounts 

Significantly, according to the Nielsen data, Napa Valley wines, which are the Big Dog in the DtC market, had the largest average price reduction. Our friend Allan found a Napa winery in obvious financial difficulty that offered full cases of their California- and Napa-appellation wines for the price of one or two bottles.  Some of the deals like this are shared with club members, but some are kept quiet indeed to avoid reputation erosion.

So it is up the down staircase. DtC buyers are snapping up expensive wines at discount prices. Many thanks to Nielsen’s Danny Brager, Senior Vine President Beverage Alcohol Practice, for sharing data and insights.

Up and Down in 2009

Consumers also looked for ways to go up the down staircase during the global financial crisis a few years ago. Here are two Wine Economist columns from 2009, when internet sales were less of a factor, that examine how wine consumers were shifting their buying strategies during the global financial crisis: Wine, Recessaion, and the Aldi Effect and Extreme Value Wine Goes Mainstream.

Significantly the bargain-seeking changes we saw then didn’t really disappear when the economy improved. Wine buyers continued to search out bargains, at both low and high price points even as “premiumization” swept through the market. Hey, that’s up the down staircase again!wine_awards_factsheet_thumb_9.13.17

Wine , Recession and the Aldi Effect

January 13, 2009

Aldi stores are about to expand in the United States, drawn here by the recession according to an article in today’s Wall Street Journal ( “Aldi Looks to US for Growth” ).  I wonder how this will affect the wine market?

A Tough Nut to Crack

Aldi is a German “hard discount” store chain.  A “hard discounter” sells a limited selection of house-brand goods at very low prices in small, bare-bones outlets.

Hard discounters are a niche, albeit a growing one, in the U.S.  Wal-Mart is a successful discounter, of course, but not a hard discounter because it still features many mainstream branded products, its prices are higher and its stores a bit more plush.  Aldi and other hard discount stores drove Wal-Mart out of Germany, according to the WSJ article, but the U.S. market has been a tough nut for the hard discounters to crack. American consumers are primed to buy brand-named products and they like lots of choice, marketing experts say, and so tend to resist the house brands that hard discounters feature, which has limited their penetration here.

Germans are more willing to sacrifice brand names for low prices, apparently.  Aldi and other hard discounters are dominant powers in German retailing. The WSJ reports that 90% of German households shop at Aldi stores and 40% of all grocery purchases are made in hard discount outlets.

Divide and Conquer

Interestingly, there are actually two Aldi store chains in Germany.  Aldi is short for Albrecht DIscount. The Albrecht brothers  who founded the company after World War II fell out over the issue of tobacco sales in their stores.  They divided the German market between them (Aldi Nord and Aldi Süd) and then, eventually, split up the world market too.  Here are links to Aldi USA and Aldi International websites if you want to learn more about this retailer’s local presence and international reach.

Wine is an important product in Aldi’s German stores, as you can see from the wine selections featured on their website.  I believe that Aldi is the largest single retailer of wine in Germany.

Since Germans are rich and Germany makes great wines, you would think that Aldi must sell mainly fine wines, but you would be wrong.  Aldi’s median  German wine sale is red not white, imported from a low cost producer, sold  under a house-brand name, packaged in a box or TetraPak and priced at around one euro per liter.

You could say that it is Two Buck Chuck (TBC) wine, but in fact TBC is more expensive.  TBC is to Aldi wine as Wal-mart is to Aldi itself. (Note: Wal-Mart now has its own brand of two dollar wine, which makes this comparison even more appropriate. It is called Oak Leaf Vineyards and is made for Wal-Mart by The Wine Group.)

The Aldi Effect

Aldi figures that the recession is its moment to press more vigorously for U.S. market share.  Data indicate that consumers are much more cautious now, so perhaps they won’t be so picky about brand names and will, like their German cousins, be willing to trade down for a lower price. The Financial Times reports that Aldi sales in Great Britain are up 25 percent! Aldi plans to speed up store openings in the U.S. and to expand into New York City. New York!  If you can make it there … well, you know.

The good news here is that Aldi’s U.S. push may also help drive wine deeper into the U.S. consumer mainstream.  You can say all you like about the quality of Two Buck Chuck but it sure did help expand the wine culture in the U.S. and some (but not all) my TBC-drinking friends have moved upmarket for at least some of their purchases. The wine may not be to everyone’s taste, but its market impact has not been all bad.

Will Aldi Succeed?

Will Aldi’s drive be successful?  There is reason to think it will be. They seem committed to tailoring their hard discount operations to local market conditions, which is important because markets have terroir as much as wine.

But there is a more important reason.  Both German Aldi chains are present in the U.S. now, although you are probably not aware of them.  Aldi Süd operates on under the Aldi name, of course, with the same logo as in Germany.  The owners of Aldi Nord invested years ago in a different chain, based in California and intentionally tailored for thrifty but upwardly mobile U.S. consumers. It’s an upscale Aldi Nord and it has been very successful here.

Perhaps you’ve heard of them.  They have limited selection, smaller stores, lots of house brands, and low prices.  They even sell a lot of wine.  The name?

Oh, yes.  Trader Joe’s!

Extreme Value Wine Goes Mainstream

November 1, 2009

groc_receiptOur friend Jerry doesn’t seem like the kind of guy who would go digging around in the closeout bin or shopping for wine at Aldi — too classy for that — but there he was at Joyce and Barry’s house on Friday showing off his latest finds: cheap wine from a Grocery Outlet store.

The wine wasn’t so much good or bad as simply intriguing — is it really possible for a sophisticated wine enthusiast like Jerry to be satisfied shopping for wine at an “extreme value” store? Only one way to find out, so we got in the car the next day and headed for the strip mall.

Searching for Extreme Values

Headquartered in low-rent Berkeley, California, Grocery Outlet bargain market is America’s largest extreme value grocery chain with more than 130 independently owned stores in six western states. It has been in business since 1946. Prices are low, low, low.

Grocery Outlet stores here in the Pacific Northwest are supermarket sized spaces filled with off brand and closeout products along with a wide enough selection of fresh goods to allow families to do all their grocery shopping in one place. They are nice if not especially fancy stores. I can see why budget-minded families shop there.

Mystery Wine

The wine corner at the nearest store was large and well-stocked. Most of the brands were mysteries (one was even named “Mystery” as in “Mystery Creek” or something like that), although a few third and fourth tier products from recognized mass-market makers were available. Mainly, I think, these were leftover wines closed out by distributors to raise cash or make room for incoming shipments along with no-name brands “dumped” under a bogus label.

The wines came from all over — California, naturally, Australia, France, Italy, Chile. There was even a $3.99 “Champagne” from Argentina. Honest — it said “Champagne.”

Prices were suitably low — most of the wines sold for $2.99 to $5.99. It isn’t hard to make money selling extreme value wine when you can buy up surplus bulk wine for just pennies a liter and package it up for quick sale.  Extreme value retailers are the perfect distribution channel for wines like these.

As you can see from my receipt, I walked out with three bottles of wine for a total of $13.97 plus tax. “By shopping with us you saved $28.00.”  That would mean an average of 67% off the retail price.

Unexplained Tales from Down Under

I wasn’t really surprised at what I saw as I surveyed the wine wall. Then, slowly, a different kind of wine mystery began to unfold.

Sue must have sharp eyes because she picked out the first surprise. Sam’s Creek Marlborough Sauvignon Blanc 2008 for $3.99.  That’s awfully cheap for a New Zealand wine here in the U.S. I’ve read about heavily discounted NZ wines in Great Britain but not here in the U.S. — until now.

New Zealand is a high cost wine producer that has succeeded in charging a premium price for its wine. Indeed, NZ earns the highest average export price of any country in the world despite surging production that threatens to create unmarketable surpluses. Everyone worries that one day the export limit will be hit and prices will start to tumble from $12-$20 down to, well, $3.99. Is that what this Sam’s Creek wine really means? The end of NZ wine’s premium price?

Frighteningly, Sam’s Creek isn’t a no-name closeout wine. The label says that it is made and bottled by Babich, one of the famous names in New Zealand wine, and the internet tells me that Waitrose sells it for about $10  in Britain. I wonder if the unsold British inventory has somehow made its way here?

Prestige Wine at Extreme Value Prices

Two more bottles raised more questions about New Zealand wines. I paid a whopping $5.99 for a 2008 Isabel Estate Marlborough Sauvignon Blanc.  I almost overlooked it, but the label caught my eye. Isabel Estate is one of the most famous Marlborough quality producers, exceedingly well-known in Great Britain where this wine sells for about £10, but not so widely distributed here in the U.S., I think.

How did it get here and who among the Grocery Outlet clientele would recognize its quality sitting there surrounded by cheap and cheerful closeouts?

The third wine makes the puzzle more complicated. It is a 2004 Te Awa Merlot from the Gimblett Gravels of Hawkes Bay. Te Awa Farm is another famous NZ producer and, while this wine — a estate product from a distinguished producer in a famous region — may be slightly past its prime and therefore a typical closeout risk, it is still very surprising to see it sold at a place like Grocery Outlet for $3.99 rather than the $16-$20 retail price.

These three New Zealand wines may be random surplus wines found in the sort of place where random wines go to be sold. Or they may be indicators of important changes in the world of wine. Kinda makes you wonder, doesn’t it?

Wine markets are all about supply and demand. It is pretty clear that a supply of interesting wines has appeared along with the rock-bottom remainders at extreme value stores like Grocery Outlet, pushed along, no doubt, by the slump in fine wine sales.

What about demand? And what does Grocery Outlet tell us about the wine market more generally?

Wine Economist 10 Under $10 Challenge: Nominations Open

April 14, 2020 By in Costco, recession, wine, wine price 29 Comments

redblendLast week New York Times wine columnist Eric Asimov published a list of “15 Wines under $15: Inexpensive Bottles for Stay-at-Home Drinking.”  It’s always fun and interesting to go through Asimov’s price-constrained wine lists (he often features 20 under $20 wines) and this one got me thinking about wine and coronavirus recession drinking.

Fifteen dollars is a good limit to consider — some wine critics have suggested that $15-$20 is the current “sweet spot” for everyday wines. But, in the spirit of hard times, why not step down just a little more in price and see what we can find?

Good Wines at Good Prices

And so I am soliciting nominations (use the comments section below) for a list of 10 wines under $10. Do you have a favorite wine in this price range? If so, tell us what it is, how much it costs, where you bought it, and why you like it. Sue and I will use some of our shelter-in-place time to vet the list to be published in an upcoming column. Nominations (one per reader) close at the end of April, so you have a couple of weeks to work on this. Drink up!

There are only two rules. First, the wine must be generally available here in the US market, which means basically we are looking at supermarket wines or their equivalent.  And, second, the regular price needs to be $9.99 or less. Close-out prices are sweet, but that’s a different story. Unfortunately, I think this rules out Grocery Outlet purchases from the final list, although I don’t object to hearing from you if you have a close-out favorite you’d like to share.

A Tuesday Night Wine

Just to get the ball rolling, I will nominate  Red Blend Portugal by Casa Santos Lima, which we bought at Costco for $5.99 a bottle. It is a juicy red blend that’s dry with just enough tannin. We drank up a case of it lightly chilled with barbecue over the summer  last year and we recently had it again during lock down with hearty ham and bean soup from the freezer.  It is a simple wine meant to drink, not something to philosophize over or lay down for the future — an example of what Sue calls a Tuesday night wine.

data

There’s another reason to think seriously about less expensive wines right now. As recent Wine Economist columns have explained, the global economy has slipped into a recession that is likely to be more severe than the global financial crisis of a dozen years ago. Short term growth forecasts (see table) released last week by the Economist Intelligence Unit paint a dismal picture of global economic conditions through the middle of 2020.

Income and wealth have already fallen dramatically in many parts of the world and unemployment has surged. More than 17 million ex-workers have applied for unemployment benefits in the U.S. in the last three weeks alone. Trading down to good wine at a lower price is not a ridiculous thing to consider in these circumstances.

We will be interested to see your nominations and perhaps to compare them with Asimov’s slightly more upmarket list. There’s a big difference between $10 and $15 in today’s wine market. Sales of wines in the $12 – $15 price range have been growing strong over the last couple of years (and not just during the recent stock-up surge) while sales of bottled wines in every segment below $10 have been falling.

The Big Squeeze

Why are cheaper wines in a slump? There are lots of explanations, but some of my industry friends privately tell me they think  that quality is a factor. Production costs keep increasing, they say, but consumers resist attempts to raise price. Something has to give in the cost-price squeeze and, in some cases corners are cut to preserve margins.

I don’t know how generally this is true, but the 10 under $10 challenge is an opportunity to see how much quality there is at this price point. And it will be kinda fun to see what wines people suggest.

Thanks in advance for nominating wines for the Wine Economist 10 under $10 challenge. Stay well. Be safe.

Is Sustainable Winegrowing Sustainable?

July 23, 2019 By in Italian wine, sustainability, wine, wine markets, wine price 11 Comments

Is sustainable winegrowing sustainable? Yes. But there are headwinds and challenges to overcome before this expanding movement will achieve its full potential. Here’s my report.

sonoma

Sustainability is a powerful movement in northeast Italy where Sue and I participated in a program sponsored by the Consorzio Collio. I spoke on a roundtable panel on sustainable winegrowing’s many sides. One of the other speakers had recently converted his family vineyards to organic viticulture and he talked about the experience and his commitment to sustainable winegrowing.

A hand went up. Now that you are spending less on chemicals and so forth, a journalist asked, will be you passing along the cost savings to consumers?

Wow — I didn’t see that question coming. Implicit in the query was the assumption that organic or sustainable wines should be cheaper than other wines, not simply better for the environment. Most winegrowers, however, hope that sustainable practices will be rewarded in the market place — that consumers will be willing to pay higher prices for sustainably-produced wines, not demand a discount. Environmental sustainability needs to be economically sustainable to survive.

Survey Says …

I would like to say that wines that are certified as sustainable or organic or biodynamic do command a price premium, but I don’t have the data to support this broad conclusion. Wine is a complicated product category and it isn’t easy to compare sustainably-produced wines with similar wines made using conventional practices in order to extract the existence and size of a general price differential (more about this below).

Much of the research on this subject, therefore, has involved surveys that ask consumers how much they hypothetically would be willing to pay for sustainablly-produced wines compared to others.

pay-more-for-eco-certified-wines

A good example of this research is a study that Sonoma State Professor Liz Thach MW reported in 2017, which is the source of the graph above. The survey sample of 301 wine consumers, which was weighted towards women (74%) and Millennials (65%), found a generally strong willingness to pay more for wines with sustainable certifications.

payup

Recently Lullie Halstead, CEO of Wine Intelligence, presented the results of a larger study of U.S. wine drinkers that both reinforced a strong willingness to pay and uncovered significant generational diversity among Gen Z, Millennial, Gen X, and Baby Boom consumers. Millennials in the study, for example, were more than twice as likely as Baby Boomers to say they would be willing to pay a $5+ sustainability premium while 43 percent of Boomers said they wouldn’t pay any extra at all.

The study suggests that consumers would be willing to pay about $3 more per bottle for a sustainably-produced wine. What do you think? How much more would you be willing to pay?

Walking it Back to the Vineyard

Since it is hard to determine if sustainable wine actually receives a price premium in the market, I decided to work backwards. If sustainable wine sells for an average $3 premium, then sustainably-grown grapes should sell for a premium, too. How much? The Law of 100 holds that in general if grapes cost $1000 per ton more, then the wine has to sell for at least $10 more per bottle ($1000/100) to pay the bills. It’s a back of the envelope sort of calculation — a long way from rocket science, but useful here.

Working backwards, the Law of 100 rule of thumb suggests that a $3 higher bottle price should translate into a maximum of $300 per ton grape price premium. That could be a substantial incentive for winegrowers to farm sustainably depending on the region.

What is the sustainable premium for wine grapes? Once again it is hard to generalize because there are all sorts of special cases in grape contracts. But I consulted two well-connected California colleagues and the answers they provided were very consistent. In general, sustainably-farmed wine grapes receive a premium of $15-$25 (average of about $20) per ton. That’s a lot less than I was expecting. It implies a very small potential bottle price premium — nothing like the $3 survey result.

Some contracts provide a premium up to 7.5 percent, I’m told, which can be valuable depending on the underlying grape price and yield. In many cases, however, the premium is exactly zero. Grape buyers specify sustainably-farmed fruit, but are not willing to pay extra for it. Bottom line: growers generally farm sustainably because these are sound practices, not (yet) for the money.

Why is the Sustainability Premium So Low?

Why is the sustainable grape premium so low? One answer is that premiums are low because it is a buyers’ market for some grape categories these days. With surplus grape supplies and wine in tanks from previous vintages, buyers don’t pay more because they don’t have to. That is bad news for growers in the short run but better news in the long run because the supply-demand imbalance is likely to adjust over time and perhaps improved prices will follow.

A second answer is that the grape premium is low because the premium for sustainable wines is low — much lower than the $3 per bottle estimate. How can this be? Are the survey-takers fibbing? Well, sometimes people do give “aspirational” answers to survey questions. But there’s another answer. Consumers may be willing to pay more for sustainable wines, but they can’t tell for sure which ones they are.

Organic and biodynamic are very clearly defined wine terms (although consumers may not fully understand them — especially biodynamic), but sustainable does not have a single meaning or certification standard. Most of the regions we visit have their own sustainability certification programs, each tailored to local conditions. So the term sustainable shows up a lot and doesn’t always mean the same thing. This is one reason why it is hard to calculate the price premium for sustainable wines.

My colleague Danny Brager tells me that his team at the Nielsen Company tries to track sustainable wines (by their measure they account for about 2.1 percent of the table wine market by value, growing at a fast 8.1 percent rate), but the lack of a clear definition means that anything that has “sustainable” on the label gets counted. That’s probably as good as most consumers can do because they don’t fully understand the difference between certified and non-certified wines or the variations among certification programs themselves. But it makes deeper analysis difficult.

Why Can’t Wine Be More Like Fish?fish2

The term sustainable is popular in part because of this ambiguity. I found one wine that boasted “Sustainably Dry Farmed” on the front label. On the back label I learned that this meant that the vines were actually irrigated (which seems like the opposite of dry farming to me) … but only as necessary to sustain the vines themselves. The fluid nature of the term “sustainable” makes all the difference.

Does that mean a one-size-fits-all certification program? No. I actually think that the fact that there are many regional sustainability programs is a good thing, even if it confuses consumers a bit, because it increases the proportion of the industry that adopts sustainable practices.

Sue points out that consumers support sustainable practices in other sectors when they understand them and appreciate their importance. Sustainable fisheries are important, for example, and many retailers and restaurants make a point of featuring sustainably-harvested seafood. The existence of different certification programs doesn’t seem to diminish the impact.

What? How? Why?

We meed to make sustainable wine as transparent and appealing as sustainable fish. Perhaps the key is to focus less on the what and how — what we are doing (certification) and how it is done — and more on the why. The why is pretty clear when it comes to sustainable fisheries. Maybe we can make the why of sustainable wine clearer, too.

Sustainability would be more sustainable from an economic standpoint if we could communicate better with wine buyers so that the sustainability premium is greater and trickles down to growers better than it does today. Sustainable sustainability? That’s a goal worth pursuing.

Wine Economist Top 5 of 2018

December 20, 2018 By in Charles Shaw, Shameless Self-Promotion, Trader Joe's, Washington wine, wine, wine markets, wine price 1 Comment

251626This week’s Wine Economist looks back at the five columns first published in 2018 that captured the most interest among the wine industry audience that frequents this page.

Sometimes it is difficult to find a common thread among the top columns, but not this year. Readers were concerned about U.S. wine sales and they focused on analysis that they hoped might give them insights into the changing market place and especially how to deal with the changing wine consumer base. Take a look at the Top 5 and see if you agree.

#5 U.S. Wine Sales: Five Surprising Facts

Concerns about wine sales were obviously on readers’ minds when this September 2018 column appeared. The premise of the piece was simple: we are all pretty familiar with the conventional wisdom about the wine market but the conventional wisdom doesn’t always hold in a changing world. Sometimes you need to look more closely at the data (Nielsen data in this case) to see what’s actually going on.

There were plenty of surprises to be found (five of them, as the title indicates), including Zinfandel’s high average price (higher than Pinot or Cab), Cabernet’s move past Chardonnay in total sales, the resurgence of French wine (think pink), Australia’s real sales challenge (price, not quantity), and Washington wine’s unexpected prominence when you shift the frame of reference a bit.

#4 Beyond Boom & Bust: Taking a Closer Look at the SVB Report

The Silicon Valley Bank‘s annual wine industry report always gets a lot of attention and with good reason. Timely analysis + innovative thinking + clear presentation = required reading.  But the complexity of the study is sometimes lost in the rush to report the headline conclusions. So I decided to take a deeper dive and shine a light on some of the aspects that weren’t getting the attention they deserved, especially with respect to the generational transition in the wine market.

This also gave me an opportunity to make a point of my own: sometimes the differences within generational cohorts are as important as the difference between them.

#3 Shaw Organic: Is This the Next Miracle from Bronco Wine & Trader Joe’s?

shaw1Organic food has moved from a niche to an important market segment. A lot of us have been waiting for wine to catch up. Bronco Wine, the makers of Charles Shaw (a.k.a. Two Buck Chuck), apparently got tired of waiting and, working with Trader Joe’s stores, introduced Shaw Organic, a line of affordable wines made with organic grapes.

Bronco is the largest vineyard owner in the U.S. (40,000 acres at last count) and has quietly become the largest grower of organic grapes as well. Is Shaw Organic the breakout wine — the wine that will create a critical mass of consumers who look for organic wine the same way that Two Buck Chuck democratized the wine market more generally? Too soon to tell, but it is a trend to watch.

#2 The Changing Face of Wine in America: The Cooper’s Hawk Phenomenon

Direct-to-consumer wine sales are on everyone’s mind. With costs rising faster than prices in most cases, those full-margin wine club sales have become a very high priority. Some say that many Napa Valley producers couldn’t keep the lights on without their wine club sales.

So who has the largest wine club? Incredibly, it is an Illinois-based restaurant and winery business called Cooper’s Hawk, which counts about 300,000 wine club members who visit their local restaurants once a month to pick up the latest wine. What makes Cooper’s Hawk so successful (and how can wineries reach the market they’ve developed)? And can the lessons of Cooper’s Hawk be applied more generally? Timely questions. No wonder this is the #2 column of the year.

#1 Outlaw Wine: 19 Crimes Succeeds by Breaking All the Wine Marketing Rules.

Millennials. They are the wine market of the future and the future is now. But what do they want and how do you get their attention? This May 2018 column, which is top of the list, looks at an incredibly successful Treasury Wine Estates product that was specifically developed to appeal to millennial men.

It is called 19 Crimes, which is kind of a strange name for a wine, and while I am not a big fan of the wine itself (it wasn’t crafted to appeal to me), I am very impressed with the way it has succeeded beyond all reasonable expectations by breaking all the wine marketing rules.

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This is the final Wine Economist column of 2018. See you next year!