The Wine Curmudgeon

The 2012 Wine Market Council report: More of us are drinking cheap wine more often

Are more of us drinking wine more often? That’s one of the conclusions from the Wine Market Council’s annual report, which tracks U.S. wine consumption habits and trends.

The report, which has been published since 1994, says that core wine drinkers – those of us who drink wine at least once a week – make up 25 percent of the U.S. adult population and drink 93 percent of the wine. The good news? That the number of core wine drinkers has increased by two-thirds since the first study.

"Wine drinkers are gravitating towards higher consumption," says John Gillespie, the president of the market council. "And the driver seems to be they see more occasions as wine drinking occasions."

But, even then, we're watching prices. More than 9 of 10 core wine drinkers said it's possible to buy wine without spending a lot of money. (Insert plug for The Cheap Wine Book here). Says the report: "The most desirable characteristics in a wine bought at retail are value, high quality, previous trial, and a high level of comfort when serving it to friends." Note that this does not say anything about scores, reviews, or any of the things that drive the traditional wine business.

This fact, tempered with the demographic information that showed that Millennials (consumers ages 21-36) drink more wine than the Baby Boomers, should make everyone in the wine business break out in a cold sweat. Because, though Boomers make up 38 percent of wine drinkers, they consume only 32 percent of the wine. The numbers for Millennials are 29 and 38 -- and that doesn't include the 8 million of them who aren't old enough to drink yet.

There are still some numbers in the report that bother me, not the least of which is that per capita wine consumption in the U.S. has remained more or less the same for 40 years. But, says Gillespie, that's probably not as big a problem as I think it is. His focus is on the core numbers, which shows that Americans are taking wine more seriously than ever before. I'll settle for that.

So long, Champagne, it's been good to know you

The wine business continues to do things no one expects, and the latest Champagne sales numbers are a striking indication of what’s going’s on.

This French wine service story is stunning in its conclusions: “Champagne was dominant 10 to 15 years ago, but the world has changed.”

The story, though written for the European market, is well worth reading because it documents the trend we’re been talking about here for several years (and not just because I’m trying to put together The Cheap Wine Book). Today, when consumers have a choice between two quality products, they’re more likely than ever to buy on price. Champagne exports declined 2.8 percent last year, while non-Champagne sparkling wine accounts for 70 percent of the European market.

In other words, we’re buying more cava and prosecco and so are the Europeans -- and that it’s not Champagne doesn’t seem to bother us.This is shocking news, and especially for the Europeans. Their market never, ever worked that way.

This also demonstrates the continuing evolution of the wine market into two tiers – everyday wine drinkers, who are mostly ignored by the Winestream Media, and a much smaller, score-driven minority that still buys wine the old-fashioned way and is doted on by most of the wine world.

And how cheap are these wines? Cava costs €8 (US$11) or less in most European retailers, while prosecco ranges from €5 to €15 (about US$7-$20). Those of you who buy either in the States will note that’s pretty much what we pay for it. Call it the pricing power of the biggest multi-national wine companies (cava giant Freixenet’s annual production is about two-thirds of the entire Champagne region), and they’re more than willing to trade margin for market share – another theme we’ve discussed in detail here.

What's next for sweet red wine?

Expect more sweet red wine to hit the market in 2013.

Sweet red enters the new year as the next big thing for U.S. wine – up 62 percent in retail outlets in the 52 weeks ending Dec. 8. That’s twice the growth of moscato, last year’s next big thing, reports Nielsen, and sweet red has a 1.1 percent share of the domestic wine market.

That growth is nothing short of unimaginable. Just a couple of years ago, for all practical purposes, sweet red didn’t exist. What little there was was the province of regional wine, and mostly mocked at. Today, it’s such a big deal that seminars are held about the subject at major industry trade shows.

And sweet red is only to get bigger. Sweet table wines, including sweet red, moscato and white zindandel, account for 11 percent of the U.S. retail market, reports Nielsen – a bigger share than pinot grigio, pinot noir, or merlot. Given that white zinfandel sales are about half of what they used to be, and that there isn’t enough moscato for increasingly spectacular growth (and its growth was half in 2012 of 2011), wine drinkers will turn to sweet red.

Yet it doesn’t seem, as so many in the industry have hoped, that sweet red is the Holy Grail – the introductory wine that brings new drinkers to wine. Nielsen's Danny Brager says “only a small amount of volume has been gained by folks new to the category.” Instead, according to Nielsen, most of the growth seems to be from non-sweet drinkers shifting to sweet and sweet drinkers drinking more sweet wine.

Also worth noting: Sweet red drinkers skew younger and more Hispanic, though the Nielsen numbers aren’t definitive, says Chari. The category is just too new for anyone to know anything for certain.

Having said that (which is why I reserve the right to be wrong), it looks like sweet red – as incredible as its growth has been – won’t transform the wine business. It will make a lot of companies a lot of money, but could, in the end, do nothing more than what white zinfandel did during its heyday – give wine drinkers who want something smoother and sweeter than cabernet sauvignon, chardonnay and merlot an inexpensive option. What it won’t do is convince people who prefer beer or soft drinks that wine has something to offer them.

Update: Wine prices in 2013

Try wine for free? Doesn't get much cheaper than that

Still lots of confusion about what wine prices are going to do this year, even after the authoritative Silicon Valley Bank report that pretty much summed everything up: ““Wine businesses expect to increase bottle prices in 2013, although SVB believes that will prove difficult.”

Which is what I’m hearing. One distributor said his bosses told him to raise prices whenever possible.The catch, of course, is the word possible.

I don’t think the wine industry has adjusted to the way the business has changed since the recession started. Producers and distributors, looking at their costs, want it to be 2006, when they could do pretty much anything they wanted with prices.

But, in the new reality, that isn’t possible. The best example is the  financial discomfort that the company that makes YellowTail is experiencing. It’s still selling tankers and tankers of wine, but it’s losing money because the Australian dollar is so strong. The obvious solution would to be raise prices, but the company hasn’t done that. And why not? Because it’s likely terrified that consumers would switch to Barefoot or Cupcake or whatever, and then it would be in even worse shape.

In fact, consumers are more price resistant than ever before. A clerk at a Dallas World Market practically snorted when I asked if her customers were paying more for wine. They’re still looking for value, she said, and are just as stingy as they were during the recession. (She also said a couple of things about scores and wine writers, but this is a family blog.)

The other thing that has changed dramatically since 2006 is that the biggest producers are even bigger, and have that much more pricing power. This has been difficult for many in the business to see, given wine’s traditional Mom and Pop nature.

But companies like Constellation and E&J Gallo dwarf even YellowTail. And, when you’re that big, says Michigan State’s Phil Howard, who has written the definitive big wine producer study, you can do all sorts of things, including better volume discounts for the distributors and retailers who are your best customers.

Case in point: The neck hanger at the top of this post, courtesy of Treasury Wine Estates (which owns Rosemount). Even if no one asks for their money back, the cost of this kind of program is prohibitive for all but the biggest multi-nationals. Remember what I wrote about Big Wine and marketing? Prescient, wasn't I?

Understanding these changes also helps identify those wines that could increase in price. They have limited availability, are usually made by smaller producers, and are in higher consumer demand. But that’s a small portion of the wine world – some higher-end Napa Valley reds, well-regarded French wine, and the like. But even that’s no guarantee, as the Champagne pricing crisis demonstrates. When consumers have a choice, they’re voting cheap.

Big Wine: 5 companies, 60 percent of sales, 200 brands

Call it serendipity. Shortly after my blog posts about Big Wine at the end of last year, a Michigan State study offered even more data about how Big Wine works and how it has changed the business.

The paper, “Concentration in the U.S. Wine Industry,” was compiled by Phil Howard, an associate professor who studies consolidation. After doing soft drinks and beer, he told me, wine was the next logical step.

“And even I was surprised by what I found,” Howard said. “Wine was much different than what I thought. If you go to the stores, it seems like you have all these choices, because the shared ownership is not very apparent. We wanted to help consumers understand what they were really buying.”

More, after the jump:

Winebits 263: Cheap wine edition

News about cheap wine from the cyber-ether, as part of 2013 $10 Hall of Fame celebration:

• How to buy cheap wine: This older post from the Brooklyn Guy Loves Wine blog offers some outstanding advice, including this: “Its excellence must derive from the smell and taste of the wine, and from its expression of place, not from the mere fact that it is palatable and costs $10.” Couldn’t have said it better myself. The only drawback? He recommends Chambers, one of the great wine retailers in the world, for its cheap wine selection, and 99 percent of us will never get a chance to shop there.

• These people make cheap wine: The Wine Spectator, of all places, has a two-parter about four winemakers who make wine that I write about. It’s a bit sloggy to get through, but worth the effort if only for the technical information one doesn’t see much elsewhere. At Chateau Ste. Michelle, for example, wine is produced in two facilities, using 82,574 barrels and 475 stainless-steel tanks. Some of the tanks hold as much as 380,000 bottles of wine.

• Seal of approval: Eater, a very au courant website for people who call themselves foodies, has decided that cheap wine is in. Jordan Mackay, who writes for San Francisco magazine, reports that "it's never been a better time to be a cheap wine drinker. Maybe I've just been bludgeoned for too long into thinking I needed to spend more for decent quality and interest. Spending less on wine makes me happy on its own, but the fact that often times I actually prefer the unadorned, straightforward, and open nature of such wines makes it a win-win.” Shocking news, no?

Wine prices in 2013

Apparently, we have to listen to this one more time.

They’re not going anywhere, no matter what you may read elsewhere. Some higher-end wines, like Napa reds, red and white Burgundy, and classified Bordeaux, may be able to take increases. Though, interestingly, Champagne is in a quandary over cutting prices.

But the cost of the wine that most of us drink will stay more or less the same.

Details are after the jump: