Tag Archives: wine sales

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Winebits 431: Arsenic, private label, craft beer

arsenicNot in my legal system: A California state judge has dismissed the infamous arsenic lawsuit filed against two dozen California wineries, apparently on a technicality related to the warning labels that most wine bottles have. Needless to say, the plaintiffs were not happy and vowed to appeal. contained illegal and toxic levels of arsenic. My favorite part of the story? This line: “… budget wines produced by more than two dozen California wineries contained illegal and toxic levels of arsenic.” Because, of course, we have to distinguish between the cheap wines in the lawsuit to protect the real wines produced in California — the non-budget wines — from guilt by association.

No more private label: Talk to retailers, producers, and distributors, and a great many are wary of private label wines — those sold only in one retailer, like Trader Joe’s Two-buck Chuck. In public, though, a discouraging word is rarely heard. Why is that? British wine writer Jamie Goode explains: “Private label is bad for the consumer, because most of the time they end up paying rather too much for a pretty mediocre wine.” Goode’s post is one of the best explanations about how private label works, why it’s so popular, and why wine drinkers don’t have any idea what’s gong on. It’s the sort of wine writing we don’t see enough on this side of the Atlantic.

Wine in the rearview mirror:  Lew Perdue at Wine Industry Insight reports (according to research firm bw166.com and published in Wines in Vines), that 2015 U.S. wine sales totaled $38 billion. “Since California Wine Institute data estimates that California represents 65 percent of U.S. dollar sales, that means $24.6 billion in 2015 U.S. wines sales came from California.” He estimates, given craft beer’s 16 percent growth rate, compared to three percent for wine, that craft beer sales in the U.S. could overtake the entire California wine industry by the end of this year: $25.8 billion vs. $25.3 billion. But talk to people in the wine business, and they’ll tell you that everything is OK, mostly because of premiumization. And I make millions of dollars a year from the blog.

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Has the death of $10 wine been greatly exaggerated?

$10 wineThe death of $10 wine, according to the wine pundits, is just around the corner. That corner, though, looks to be in a completely different part of town.

How else to make sense of U.S. sales figures for the 52 weeks ending Jan. 24, where 19 of the top 20 selling brands cost less than $10? And that eight of the top 20, all selling for less than $10, showed double digit sales growth in a market has been essentially flat for the past three years?

In this, what is happening with wine sales shows again the divide that has developed between the top end of the market and the wine that most of us drink. The Winestream Media and the analysts can talk all they want about the growth of wine that costs $15 or more, but that they continue to ignore what’s happening at $10 speaks to their wishful thinking. Barefoot, at $5.59 a bottle, is the best-selling wine in the country, selling almost 10 million cases last year, according to these sales figures. That would make it the seventh biggest winery in the U.S. if it wasn’t part of E&J Gallo; how can analysts continually dismiss this as the exception that proves the rule?

Also big sellers: Black Box, the boxed wine that is the equivalent of four bottles, up 18 percent at $5.01 a bottle; my beloved Bogle, up 14 percent at $9.49 a bottle; and 14 Hands, up 14 percent at $9.79 a bottle.

So why the $10 wine blind spot?

? Too many wine writers are snobs about cheap wine, and look for sales data that supports their bias. So if sales at $15 and more are growing more quickly, even if it’s from a smaller base that was depressed during the recession, it’s evidence that the stuff they think is beneath them is going away.

? Let’s hop on the Millennial bandwagon, because they are going to spend more money on wine than their parents did. This is about as wishful as it gets, as Rob McMillan at Silicon Valley Bank has shown, but it still gets recited as gospel.

? These are grocery store wines, and grocery store wines don’t count. Would I buy most of the wines on the top 20 list? No, but that doesn’t mean there isn’t quality for the price, including Bogle, 14 Hands, and Chateau Ste. Michelle.

Yes, wine that costs $5 and less is seeing sales declines, some significant, but this has less to do with price than with demographics. The audience for those wines is aging and doesn’t buy as much as it used to, in the same way the big beer brands are seeing significant sales declines as their audience drinks less. My guess is that the Millennials are buying Black Box instead of their elders’ Franzia, and it’s probably not a coincidence that a craft beer costs about as much as a Black Box bottle. But who in wine wants to believe that?

More about wine sales trends:
? Big wine growth 2016
? Is the U.S. wine boom over?
? Wine prices in 2016

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Big Wine growth 2016

Big Wine growthThree sets of numbers — two public, one passed to me by my source in Big Wine — show just how dominant Big Wine continues to be, and how Big Wine growth will affect everything we drink.

The first public chart, reproduced here, was compiled by Lew Perdue at Wine Industry Insight, and shows that the three biggest companies — E&J Gallo, Constellation, and The Wine Group — control almost half of the U.S. wine market. In this, the eight biggest companies sell 60 percent of the wine in this country, which leaves more than 7,500 wineries to fight over the other 40 percent.

Those are almost the same numbers in the second public study, the annual Wine Business Monthly top 30 producers list, which are similar to the finding in the magazine’s 2014 report, when Gallo, Constellation, and The Wine Group controlled half the U.S. market. Meanwhile, the top 30 companies in the 2016 report accounted for 74 percent of all the wine sold in the U.S. Interestingly, that’s less than they reported in 2014, when the top 30 sold 90 percent of the wine; chalk that up to bigger companies, like Diageo, selling their brands to smaller companies.

The three biggest companies (again, Gallo, Constellation, and The Wine Group) controlled about half the U.S. market in the landmark 2011 Big Wine study conducted by Phil Howard at Michigan State.

It’s important to understand how big big is. First, the Wine Business Monthly top 30 total just .04 percent of all U.S. wineries, which makes the infamous One Percent look like an all-inclusive kumbaya sing-along. Second, Jackson Family, which makes Kendall Jackson and is about as close to a national brand as wine has, isn’t one of the half-dozen biggest producers in the U.S. It’s eighth in the Wine Industry Insight chart and ninth in Wine Business Monthly’s rankings with almost six million cases. That’s still big, but the biggest companies are so gigantic that even some of their brands, like Gallo’s Barefoot, sell more than all of the Jackson Family portfolio.

In other words, every time we buy wine, the odds are better than not that we’re buying a Big Wine product even if we don’t want to. My colleagues in the Winestream Media pooh pooh this whenever I write it, arguing that wine drinkers have more choice than that. What about those other 7,500 wineries? The catch, and what they don’t understand, is that most of us don’t shop in places that sell wine from the other 7,500. We shop at Costco and Walmart and grocery stores, and those retailers account for almost half the wine sold in the U.S.

Case in point: Sales statistics for 2015 that my source in Big Wine passed to me for 10 U.S. states (none of which are California), and where Big Wine (defined as a company that appears in either the Howard study or the Wine Business Monthly top 30) dominates at all prices:

? 9 of the 15 best-selling wines between $15 and $20 are from Big Wine, including La Crema (Jackson Family), Louis Martini (Gallo), and Meomi (Constellation).

? 12 of the 20 best-selling wines between $12 and $15 are from Big Wine, including Wild Horse (Constellation), Kendall Jackson (Jackson Family), and Chateau Ste. Michelle (Altria). And I didn’t include Hess and Rodney Strong, both on the Wine Business Monthly Top 30 list but family run.

? All of the 20 best-selling wines between $9 and $12 are from Big Wine, including Menage a Trois (Trinchero), Cupcake (The Wine Group), and Apothic (Gallo).

 

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Wine trends in 2016

winetrendsWine trends in 2016? Expect to see consolidation continue, producers continue to aim at the consumer smooth tooth, and retailers focus even more on private label. And, not surprising given all of this, more of us move away from wine in favor of craft beer:

? Distributor and importer consolidation: Big Wine will get bigger in 2016, which won’t be anything nothing new. The real news will take place among distributors and importers, as the biggest among those two groups buy smaller companies. We’ve already seen some of this, and there will be more for two reasons. First, historically low borrowing costs, which will make it possible for the biggest companies to buy more smaller companies than usual and even to overpay. Second, the graying of the family distributors and importers who started their businesses in the 1980s and 1990s and who brought us so much interesting wine. If you run a family business and you’re nearing retirement, and someone throws a ridiculous amount of money at you, wouldn’t you sell, too?

? Keeping it smooth: The number of red blends and pinot noirs, which have grown like crazy over the past couple of years, will keep growing. This includes (most importantly) sweet red wine, as well as any red blend tasting of massive amounts of fruit and without much in the way of tannins. It includes pinot nor, because pinot made for less than $20 is usually blended. It also includes Prosecco, which has jumped in sales the past couple of years and is increasingly being made to fit the smooth flavor profile even if that doesn’t necessarily taste like Prosecco.

? Bring on the private labels. One of the most important statistics about wine was buried in a Nielsen marketing report last year — 4,200 new wines were introduced in 2014, about 12 1/2 percent of the market. Those weren’t necessarily wines from new producers or new wines from old producers, but wines made for specific retailers, whether grocers or chain wine stores and called private label wines. They can be sold for a little less than national brands, or even the same (right, Kroger?) but reap more profit.

? Flat wine sales. Since the recession ended, annual wine sales have hardly grown at all. As wine market analyst John Gillespie has written, that could be because we’re switching to craft beer, where sales have surpassed almost everyone’s expectations. The most telling number: The craft beer market is worth $24 billion, which is two-thirds of the entire U.S. wine market. And it’s not like craft beer has been around for very long.

Call me cranky, but the first three things on this list explain the fourth. If wine is becoming boring — the same kinds of wine made by the half-dozen producers who dominate the U.S. market, why wouldn’t we look for something else to drink? Throw in that these are increasingly ordinary products, which so much private label is but are sold for higher prices, and wine’s sales slump seems obvious.

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Why Big Wine will keep getting bigger

Big WineThink this year’s wave of Big Wine buyouts was impressive? Just wait. Big Wine is only getting started.

The wine industry is going through unprecedented consolidation, and even I’m surprised — and I’m the one who predicted it. That’s because three things have made this the perfect time for companies like E&J Gallo, Constellation, and The Wine Group to snap up smaller producers the same way a small child attacks Chicken McNuggets. This is a mixed blessing for the consumer, who will get increased access to well-made wine, but at the cost of much of the wine tasting the same regardless of where it’s from and who made it:

? Cheap money. Interest rates are not just at historical lows, but have been there for almost 10 years. That makes the cost of borrowing to buy a winery so low that even those of us who aren’t M&A geniuses understand how much sense it makes. Plus, rumors of an interest rate hike this fall may have spurred this summer’s wave of buying, so that Big Wine could lock in all that cheap money.

? The biggest wine companies are preparing for a world where we buy most of our wine at grocery stores, warehouse stores like Costco, and large chains like Total Wine. This will happen sooner rather than later (if it hasn’t already), and anyone who doesn’t understand how important this is is missing the biggest change in the wine business since the end of Prohibition. Big Wine wants product to fill all those store shelves, and the easiest way to do that is to buy another winery. Could the local wine shop, with someone who waits on you, become as quaint as the corner drug store and gas stations with attendants who clean your windshield?

? The end of the family winery era in California, which started in the 1980s and did much to make California wine some of the best in the world. But wine is not immune to the laws of family business, which say that any family business that lasts past the first generation is the exception. And most of the family wineries that have been sold in the past couple of years are first- and second-generation companies. As one banker told me, there are more wineries that want to sell than anyone can imagine.

The other thing about all these buyouts? That wine, despite what so many think, is no different from any other industry, and the same kind of consolidation that has transformed U.S. business since the beginning of the century — Heinz buying Kraft, for example — will transform wine. This is a change many don’t like and even more don’t understand, but it seems inevitable.

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The continuing grocery store wine revolution

grocery store wine revolutionFirst, Nielsen reported that 42 percent of all wine sold in the U.S. is sold in supermarkets. Then IRI, which also also tracks consumer purchases, reported that wine was the seventh biggest selling item (in dollar terms) in U.S. supermarkets in 2014. Call it one more piece of evidence pointing to the grocery store wine revolution.

Yes, part of that sales ranking is because wine is more expensive than most grocery store merchandise. But even allowing for the higher prices, says my supermarket consultant, this is the kind of change that transforms an industry. The increase in sales in dollars was greater than the increase in the number of bottles sold, which means grocery store wine shoppers are buying the more expensive wine that they used to buy in liquor stores and wine shops. Given that wine sales in the U.S. have been flat for a couple of years, that should terrify every wine shop owner in the country.

More thoughts about the grocery store wine revolution:

? Wine was ranked ahead of cold cereal (No. 8), coffee (No. 11, and also relatively expensive), bacon (No. 17), dog food (No. 27), and diapers (No. 92).

? Keep in mind that wine did this well despite three tier’s sales restrictions — reduced hours for purchase in many states, and that it isn’t sold in supermarkets in key states like New York and Pennsylvania.

? Wine sales were 37th in the number of items sold, despite its higher prices. That may be the most mind boggling fact, given that wine in grocery stores was almost unheard of when I started drinking wine in the early 1980s.

? Wine sales increased 5 1/2 percent in dollar terms, also impressive given its higher price.

For more on grocery store wine:
? How to by wine at the grocery store
? Why grocery stores love wine
? Wine education: Four things you don’t needs to know about wine

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Update: Sweet red wine is taking over the U.S.

sweet red wineThe surprising thing about this month’s sweet red wine post is how muted the reaction was. Hardly anyone seemed surprised. Dismayed maybe, or irritated, but not especially surprised. That’s because the people who follow these things had an idea it was going on, and those who don’t — like most of the Winestream Media — don’t consider it important enough to be surprised.

And the wine drinkers buying all that sweet red? They weren’t surprised, dismayed, or irritated. They’re just happy someone is making wine they enjoy. Or, as a 30-something woman told me about her favorite sweet red, Cupcake’s Red Velvet: “It’s really good, and it’s really about the only red wine I like.”

The one thing most everyone agreed on? That the numbers, though imprecise, offered a real sense of how big sweet red has become — the fifth biggest category in U.S. wine sales, behind chardonnay, cabernet sauvignion, pinot noir, and merlot. Given its momentum, I wouldn’t be surprised to see sweet red pass merlot for fourth in the next couple of years.

So it’s not a coincidence that red blends accounted for 40 percent of all new wines over the past two years, compared to just 18 percent for chardonnay and cabernet combined, according to Beverage Media magazine. Yes, not all red blends are sweet, but sweet reds are at least two-thirds of red blends, based on data in the first post. This is another sign of how important sweet red has become.

How sweet is sweet? About 1.0 or 1.2 percent residual sugar, compared to less than .08 residual sugar for dry red wines. Other highlights in the wake of the first story, combined with additional reporting that I did:

? Consumers don’t necessarily see sweet red as sweet, says Christian Miller of Full Glass Research, who has probably studied this subject more than anyone in the country. ” ‘Sweet’ is not an attribute that large numbers of regular consumers use with regards to these wines,” he said. “They are more apt to regard them as flavorful or smooth or interesting. Many consumers jump back and forth between dryer and sweeter versions of these wines.”

? The wine industry remains uneasy about calling a sweet wine sweet, says Miller. “It ?s possible that some of these companies have tested adding the word sweet to the label or description, and found it harmful. On the other hand, based on my experience in the wine industry, the number of decisions based on gut instinct, trade notions, or small unrepresentative samples is surprisingly high, even among large MBA-ish companies.”

? Since sweet red doesn’t depend on appellation or specific grapes, it can be made with fruit from anywhere in California, Or, as wine economist and author Mike Vesteth told me, sweet red can be made with all the merlot and syrah that wouldn’t be sold otherwise, and which costs less to use. Hence higher profit margins than more traditional wines.

Finally, no one — not even anyone at E&J Gallo, whose Apothic started all of this — expected sweet red to do this well. Gallo, I have been told, developed Apothic to appeal to Millennials, to compete with the Menage a Trois red, and to earn supermarket shelf space. That it might change U.S. wine never really occurred to anyone.

For more on sweet red wine:
? The ultimate Internet guide to sweet red wine
? What’s next for sweet red wine?
? Wine terms: Sweet vs. fruity