Most importantly: Consumers dislike wine premiumization, no matter what the wine business wants us to believe
Last week’s wine premiumization analysis kicked up more than a little dust in the cyber-ether – it was the most visited post on the blog in almost 2 ½ years. The comments and emails covered the spectrum, from people blaming me for wine’s problems (and that there wouldn’t be any if not for people like me) to those who offered their take on premiumization (pro and con) to those who thought I was spot on.
In all of this, I learned five things after writing the wine premiumization post:
1. Consumers dislike premiumization, no matter how much the industry insists otherwise. I wasn’t sure about this until I saw the reaction to the post, since all the data suggests we’re paying more for wine. So if we’re paying more, then we’re happy, right? But since fewer of us are buying wine, and those of us who still buy wine are buying less, how happy can we be?
2. Talking about wine prices is even more taboo today than it was when I started writing about wine in the late 1990s. There was a sense then that pricing was not to be questioned. Because, wine. I’ve never understood this, and my emphasis on cost vs. value has always annoyed people in the wine business. It annoys them even more today – and some are way past annoyance.
3. The economics of the post-modern wine business stink for almost everyone who isn’t Big Wine. I sympathize with those producers, and have agonized over their plight many times. But overpriced wine is overpriced wine, regardless of the reason why. Is any bottle of wine really worth $80 or $100? Or, as hard as it is to believe, thousands of dollars?
4. I taste thousands of wines a year, at all prices and from all over the world. My friends also taste thousands of wines a year, and we talk about what we taste. So how am I not qualified to say that wine quality is not what it was before the recession? One friend, a well-known wine judge and critic, will start his pinot noir rant without one nudge from me. Yes, technically the wines are OK — not oxidized, not tainted with VA and so forth — but are they interesting to drink? Are they fun to drink? Unfortunately, not nearly as many of them as in the past.
5. Wine writing, even in the second decade of the 21st century, is still expected to be positive and to sell wine. I had hoped the Internet would change that. I was wrong.
Top two teams will represent U.S. in world championships
Byanca Godwin didn’t expect much when she entered the U.S. Open wine tasting championship last year. All she wanted to do, she says, was to get a little blind tasting experience in as she prepared to take the various certification exams she had scheduled.
So how did she end up representing the United States at the 2018 World Wine Tasting Championships in France?
“I tried it just to have some fun blind tasting, instead of practicing like I usually do,” says Godwin, a wine retailer who will compete in this year’s U.S. Open on Sunday in Ventura, Calif. “I thought it might be interesting to compete. And then I finished third, which I didn’t expect.”
The Wine Curmudgeon has always thought blind tasting should be a competitive sport. Blind tasting is difficult enough, but imagine it with the pressure amped up – an audience cheering (or booing) as the contestants sniff, swirl, sip, and spit. Talk about grace under pressure.
The U.S. Open offers all of that. Two-person teams work their way through a dozen wines, getting points for correctly identifying the wine’s producer, its varietal, vintage, and region. And they have just eight minutes until another wine comes along. The top two teams will compete for the U.S. in the world championship in October in France. Belgium won the 2018 competition, followed by Finland and France.
“You really have to approach this like an athlete,” says Godwin. “When you’re competing, you have to stay focused on the wines and pay attention. You have to find the answer in the glass. Being distracted by the audience does not help your performance.”
One addition this year: Event organizer John Vilja says audience members can taste the wines as the contestants taste them in a sort of mini-competition. There’s also a blind tasting app.
Convenience store wine: Table wine sales increased 20 percent in 2018
Table wine sales in U.S. convenience stores increased 20 percent in dollar terms in 2018, the second year in a row that c-store sales outperformed the overall U.S. market. That 20 percent figure could be as much as five times the growth in the overall U.S, wine market.
And no, I don’t understand why, either.
But those are the statistics in the 2018 state of the c-store industry report, published by the National Association of Convenience Stores. Convenience store wine sales in 2018, which include sparkling wine, fortified wine, and wine coolers, totaled $1.66 billion. That’s an amazing number. Take out the wine coolers, which the wine industry numbers may not include, and it’s possible that almost 2 percent of the wine sold in the U.S. last year came from a 7-Eleven, RaceTrac, QuikTrip, Speedway, and the like.
Association spokesman Jeff Lenard says there may be several things going on to account for all of that wine:
• About one percent more convenience stores sold wine in 2018. That total is almost half of the 153,000 U.S. locations.
• “More than anything else,” he says, “the increase in wine sales pairs (pardon the pun) with the increase in food service and more upscale foods that more convenience stores are selling.” In other words, fresh sandwiches and salads, which have become a c-store staple over the past couple of years, lend themselves more to wine sales than Big Gulps and those rubbery, orange-ish hot dogs spinning away in a corner.
• Younger consumers (18-34) are the predominant age group for convenience stores. And those of legal drinking age tend to be less fussy about where they buy wine than Baby Boomers, says Lenard. “Younger consumers are the ones who are least likely to think about a specific channel to purchase wine. They think wine or liquor store. Or dollar store. Or online wine club. Or gas station.”
• Women, who buy most of the wine in the U.S., are slightly more likely to buy gas in the evening, he says. “So can they also pick up wine for dinner then? Absolutely.”
Photo courtesy of Monica E using a Creative Commons license
Wine premiumization: Prices keep going up, quality keeps going down, and fewer people are drinking wine. Am I the only one who thinks that’s not a coincidence?
This is how deeply premiumization has upended the wine business: A reader emailed me to say I shouldn’t use the prices I paid for wine in my reviews. Instead, I should use the prices on an industry website, which are typically more than what I pay.
What twisted wine universe do we now live in? Is premiumization so deeply ingrained in the system that cheap wine should not exist, even if it actually does?
Premiumization is the idea that consumers are trading up, that we’re willing to pay more money for a better quality bottle. In theory, this makes perfect sense. Of course I will pay $15 for wine if I know it’s going to be appreciably better than a $10 bottle.
But theory, to paraphrase the economist John Maynard Keynes, is for dead people. The wine business, in its dedication to short-term profit at the expense of long-term growth, is selling us more expensive wine that isn’t appreciably better. It just costs more money, and we’re supposed to accept that as the natural order of things.
I got a sample of an Italian white wine this summer, which came in a flowery bottle with an even more flowery name. My tasting note? “Very nicely done $10 blend (chardonnay, pinot bianco) with a little lemon, minerality, and crispness. For some reason, the suggested retail price is $20, making it one of the most overpriced wines I have ever tasted.”
It’s not just me
A friend of mine, who has been selling quality wine at Dallas’ best retailer for more than 30 years, told me he no longer understands how wine is priced. He cited two examples: Spanish albarino, once $10 and $12 and delicious, is now $18 and $20 and not very albarino-like, while French picpoul, “which should cost $8, costs $16.” These are wines that people in Spain and France drink daily; in the U.S., they’re priced for special occasions.
I write all of this in the shadow of the end of the wine boom: Flat sales, more young people who see wine as something for their parents and grandparents, and experts who say drinking will kill us as surely as cigarettes. It’s what Rob McMillan of Silicon Valley Bank calls the new normal – that wine consumption won’t return to what the industry wants. Instead, he writes, “don’t be surprised if young consumers drink less alcohol tomorrow, and those who do drink continue to embrace craft spirits and beer instead of wine.”
Given all of this, shouldn’t it be time for the industry to put an end to the premiumization that gives us $8 worth of wine for $15? If wine is in a fight for its future, shouldn’t it focus on selling well-made and affordable products in response to the competition from craft beer and spirits?
That makes perfect sense
But I long ago stopped expecting that sort of wisdom from wine. In this, I thought I saw the end to wine premiumization several times over the past couple of years, and I’m not the only one who did. But just when you think it has run its course and this foolishness can’t go on forever, it does a Freddy Kreuger. How else to explain when the man who runs Jackson Family Wines wants the federal government to eliminate his competition with a tariff wall?
All of which leads me to wonder how far we are from something that wine economist Mike Veseth has predicted for several years: That wine will become like opera, which was once mass entertainment but is now reserved for a wealthy elite.
And this spring and early summer, I have received more samples than I’ve gotten since the recession, maybe three or four times the usual amount.
As noted, this is highly anecdotal and decidedly un-mathematical, and I’m not sure the blog’s official statistician would approve. But the pattern has been there since the blog started in 2007. During the recession, I got more wine than I could drink, including $100 bottles. But the samples dried up in the couple of years after the recession ended, when wine sales recovered and premiumization took hold. I don’t write about the kind of wine that has dominated the market since then, so why send me something to review?
But now, apparently, they need me. I’m getting samples from producers who haven’t contacted me in years, and they’re sending wines that cost $25 and more. Just the other day, in fact, an email me offered a case of wine, only one of which cost less than $24 and five of which cost more than $30. Hasn’t the marketer ever read the blog?
More samples are coming from people who want me to write about their wines in the hope that my review will generate retailer interest as opposed to sales. They want to use a good review to place the wines in more stores in more parts of the country. That also happens more often when wines sales are slow.
In other words, any port in a storm, and this storm is beginning to look particularly intense. Know that samples are an expensive form of marketing – not just the cost of the bottles, but the cost of shipping, which can run as high as $100 a package. But wine sales are so flat and so many people are so worried that spending all that money to send me samples looks like a better investment than letting the bottles languish on a warehouse shelf.
Will this storm turn into a category 5, Hurricane Wine Recession? The sample index can’t tell me that. One sign of optimism: I still don’t get asked to attend trade tastings, where producers and distributors show off their wines for writers, retailers, and the like. Those invitations ended after the recession, too. So if trade tasting emails start to arrive, then maybe it is time to batten down the hatches.
I talked to a couple of attorneys who practice liquor law and they weren’t quite ready to pronounce three-tier dead. Said Lou Bright, the former executive counsel of the Texas Alcoholic Beverage Commission, the state’s liquor cops: “There will be lots and lots and lots of screaming and arguing about this in the coming weeks and months and years. You might consider just reporting the facts of the case with a ‘stand by for further screaming.’ ”
Still, the 7-2 decision seemed unequivocal: Since the residency requirement “has little relationship to public health and safety, it is unconstitutional,” Justice Samuel Alito wrote in the majority opinion.
The key phrase in the decision is “relationship to public health and safety,” which has been the bedrock of three-tier since the end of Prohibition. Every part of three-tier rests on the assumption that each state can regulate alcohol as it sees fit, since it’s protecting the public health and safety. Hence, every restriction in how we buy wine, beer, and spirits in the U.S., no matter how foolish or outdated or left over from the days when Al Capone controlled the liquor business, has been defended in court.
Because public health and safety
• Can’t buy wine on the Internet? That’s the various states protecting our health and safety.
• Can’t buy discounted wine where you live? That’s the various states protecting our health and safety.
• Can’t buy wine in a grocery store where you live? That’s the various state’s protecting our health and safety.
• Can’t buy wine directly from the winery where you live? That’s the various states protecting our health and safety.
• Can’t by a wine where you live even though it’s sold in a neighboring state? That’s the various states protecting our health and safely,
And Justice Alito’s majority opinion seems to turn all of that on its head. He invoked the Commerce Clause of the Constitution, which says states can’t favor their residents ahead of anyone else. That has been the law for more than 200 years, though exceptions had often been made for alcohol laws.
In fact, that was the defendant’s argument in asking the court to uphold the residency law, which made it all but impossible for anyone not from Tennessee to open a liquor store. The defendants said that the state, by essentially outlawing out-of-state chains like Total Wine, was protecting the public health and safety. Resident owners, because they were residents, would sell alcohol more responsibly than anyone else.
“I think the decision made it more difficult for states to use residency laws to regulate alcohol sales as part of three-tier,” Lewis said Wednesday afternoon. “But I’m not so sure it will affect more than residency laws. The idea that it may change other parts of three-tier, I just don’t see that.”
So the Tennessee decision may make it possible for supermarkets to sell spirits in Texas, which they can ‘t do currently because state law says only residents can get a license to sell whiskey, gin, and so forth. But it probably won’t help consumers in Michigan and Connecticut, where state law mandates minimum wine prices and forbids discounts, 20 percent off sales, and the like. And it won’t help consumers in New York, who can’t buy potato chips in a liquor store (perhaps my favorite part of three-tier’s vast and bizarre grip on the country).
And it almost certainly won’t do anything to loosen the stranglehold that distributors have over the wine, beer, and spirits supply chain. That’s the most fundamental tenet of three-tier, that consumers must buy directly from the retailer and restaurant, and that the retailer and restaurant must buy from a distributor. Only the distributor can buy from the producer (with minor exceptions like direct shipping), something that exists in almost no other consumer goods category. And if a wine doesn’t have a distributor in your state, you can’t buy it – something that will become even more common now that the top three distributors control 60 percent of the market.
Imagine not buying being able to buy a computer from Dell because the state is protecting the public health and safety – and then wonder why we have to endure that in wine.
Will the roo have to find a new job if there is a Yellow Tail sale?
What does a Yellow Tail sale say about the future of cheap wine in the U.S.?
This year’s unprecedented cheap wine sell-off might include an even bigger shocker — a Yellow Tail sale. The $7 Australian supermarket wine is the biggest imported wine in the U.S., but the company acknowledged last week that it had been approached by several prospective buyers. This came after an Aussie financial newspaper reported that the Casellas, the family that owns Yellow Tail, had hired an investment bank to help them sort through the offers.
Know that almost all of the wine brands in these deals are profitable, and some immensely so. In fact, Yellow Tail is the fifth best-selling brand in the U.S., while Banfi’s marketing agreement with Ruinite helped it sell 2 million cases a year. And Constellation was so eager to rid itself of its cheap wines that it sold them at a tremendous discount and included Black Box, the sixth best seller in the U.S.
Does any of this make any sense? Not really, if this was 1999. But it’s 2019, and the wine business is obsessed with premiumization, and that trumps all. There was an odd and meandering story on wine-searcher.com last week, which asked if popular wine brands could be successful. This seemed, at first glance, like asking if rain was wet. How could something like the 20-million case Barefoot not be successful?
Because, said the article, size doesn’t matter. And, given the perspective of premiumization, that makes perfect financial sense. Whether it’s good business is a post for another day.
Hence, it’s not enough to sell millions of cases of wine anymore, like Yellow Tail, Ruinite, and Black Box. In this, Yellow Tail seems to be a private equity takeover target, just like any other business with cash flow and a well-known brand. The new owners would buy the company with cheap borrowed company, cut costs, strip Yellow Tail of its least profitable assets, goose up the bottom line, and then re-sell it.