Tag Archives: premiumization

Winebits 619: Premiumization, presidential wine, alcohol consumption

premiumizationThis week’s wine news: Another expert says premiumization is hurting wine, plus wine for world leaders and U.S. alcohol consumption

• “Doom loop:” Who knew a big-time market analyst would agree with the Wine Curmudgeon? Sonoma State’s Damien Wilson says premiumization “can be a path to ruin.” He even has charts and statistics to prove his point. Wilson, writing for Wine Business International, says “European wine market history shows that failing to recruit new wine consumers is the last thing the U.S. wine sector should be doing right now. As the number of wine consumers in the U.S. has stalled in recent years, the local wine sector should avoid profiteering in favour of new market investment. Here is where the US wine sector’s global leadership in business practices can come to the fore.” In other words, higher prices for the sake of higher prices scare off new wine drinkers and then demand slows. And we’re where we are today – flat growth and overpriced wine.

• World power wine: What does one serve the president of France and the Chinese premier at a leading international trade show? High-end French wine, of course. France’s Emmanuel Macron and China’s Xi Jinping sampled three amazing bottles – Louis Latour’s Corton Grancey Grand Cru 2010, Gérard Bertrand’s Château L’Hospitalet 2016, and the Cheval Blanc 2006. That’s about $900 worth of wine, though the Bertrand is a comparatively inexpensive $35.

U.S. booze consumption: The typical U.S. resident drinks the equivalent of about a case of wine a year, according to the OECD, an international group that tracks a variety of economic indicators. The agency’s 2019 report on beer, wine, and spirits consumption shows that the U.S. is not only exactly average for the 36 countries in the survey, but that consumption is almost unchanged from 2007. So it becomes even less clear what the neo-Prohibitionists are complaining about.

Photo: “Modern wine tasting” by kellinahandbasket is licensed under CC BY 2.0 

Wine prices 2019 update: Are prices coming down despite premiumization?

wine prices 2019Way too many grapes and continuing flat demand may lead to lower wine prices 2019

At the end of the summer, I was talking to an official for one of the big grape grower trade groups. I asked what he thought wine prices would do through the end of the year, as well as into 2020.

“Wine prices are coming down,” he said. How can that be, I asked. Because, of course, premiumization — its reason for being that wine prices are never going down again.

He laughed. “That may be,” he said. “But when you have too many grapes, which we do, and flat demand, which we do, wine prices come down. There’s nothing premiumization can do about it.”

The trade group official was not alone in his take on wine prices 2019. Whenever I interview a retailer or producer, I always ask about business. And their responses over the past nine months have not been nearly as optimistic as the last couple of years – and certainly not as optimistic as the official wine business position: “Ever more wine sold at ever high prices!”

The consensus: Business may not be bad yet, but it’s certainly slowing. And, no, this isn’t a highly scientific survey process, and yes, it’s overwhelmingly anecdotal. But, like the Wine Curmudgeon Wine Sample Index, it rarely steers me wrong. Because other signs point to the same thing:

Reports one trade website: California “supply levels remain higher than ideal and therefore the market remains favourable to buyers, with wineries quoting the lowest bulk wine prices in 5 years.” In other words, lots of grapes in the supply chain, and not too many buyers, so lower grape prices.

And that’s because the 2018 harvest was record-breaking, and the 2019 harvest may be equally as gigantic.

• And we all know about flat demand. In 2018, about one-fifth of regular U.S. wine drinkers were older than 65, compared to 16 percent in 2015. But the youngest regular wine consumers, ages 21-24, are decreasing, dropping 13 percent from 2015.

• Canceled grape contracts. Large producers are refusing to buy grapes they agreed to buy, ostensibly because of smoke damage from the 2018 wine country wildfires. But there’s a suspicion that the wildfires had nothing to do with the cancellations; rather, it’s because the producers already have too many grapes and don’t need any more.

• Wholesale alcohol inventories, measured in dollars, are at an all-time high, according to the U.S. Census Bureau. This could be nothing more than a side effect of premiumization – the same amount of wine in warehouses, but since it costs more, its value is setting records. Or it could mean there is a lot of wine stacking up because no one wants to buy it.

Last week’s tariff news should only make things worse, since it will raise prices for many European wines, while most cheaper French and Spanish wines could disappear from U.S. shelves. Which will further cut demand and increase the overall supply.

If, in fact, wine prices are coming down, will it happen in time for the holidays? Probably not, though I’m willing to bet we could find terrific deals as producers, distributors, and wholesalers try to get rid of select wines they have too much of.

The real selloff may come at the beginning of next year, and especially if the holiday season is as slow as it looks like it will be. And then, finally, we could be able to see the beginning of the end of premiumization.

More abut wine prices 2019:
Wine prices 2019
2019 SVB wine report
The biggest factor in California wine prices

Photo: “Wine section of a supermarket” by piropiro3 is licensed under CC BY 2.0 

Premiumization be damned: $139.36 for 14 ½ bottles of cheap wine

cheap wine

Look at all those bargains at Jimmy’s just waiting for us to buy.

It’s still possible to buy quality cheap wine for $10 a bottle

So what if the cheap wine news these days is about failure? The Wine Curmudgeon, undaunted by the obstacles of premiumization, perseveres. The result? 14 ½ bottles of quality cheap wine for less than $10 a bottle.

How is this possible? I followed the blog’s cheap wine checklist. It’s even more valuable today, when $15 plonk is passed off as inexpensive. So look for wine from less pricey parts of the world, wine made with less common grapes, and shop at an independent retailer who cares about long term success and not short term markups.

The retailer was Jimmy’s, Dallas’ top-notch Italian grocer – so the wines are all Italian. Here are the highlights of what I bought for less than $140, which includes a case discount but doesn’t include sales tax.

• A couple of bottles of the Falesco Est Est Est, $10 each. This white blend used to be $7 or $8, but it’s still a value at $10.

• A 350 ml can of the Tiamo rose for $5 – hence, the half bottle in the headline. There wouldn’t be an onus about canned wine if all canned wine was this well done, . Highly recommended.

• Banfi’s Centine red Tuscan blend, $10. The Centines (there is also a white and rose) are some of the best values in the world. This vintage, the 2017, was a little softer than I like, but still well worth $10.

Principi di Butera’s Sicilian nero d’avola, $10. This was the 2016, but it was still dark and plummy and earthy, the way Sicilian nero should be. Highly recommended.

• A couple of roses – a corvina blend from Recchia, $8, and the Bertani Bertarose, a $15 wine marked down to $8. Because who is going to buy a $15 Italian rose made with molinara and merlot? They were in similar in style – fresh and clean, with varying degrees of cherry fruit.

More about buying cheap wine:
Cheap wine checklist: $82.67 for a case of wine
Once more: A case of quality wine for less than $10 a bottle
Nine bottles of wine for $96.91

Wine prices, razor blades, and premiumization

razor blads

“Dude, shaving is so old school.”

“Lower shaving frequency” is a fancy way of saying razor blades cost too much, which means men don’t shave as often

More men are apparently growing beards, costing one of the biggest companies in the world $8 billion this year. The reason? “Lower shaving frequency,” according to the financial analysts. I prefer the reason given by one of the Millennials quoted in the story in the link: Razor blades cost too much money.

In other words, men aren’t shaving as much; they’re shaving better. Sound familiar?

In this, the wine and razor businesses are eerily similar. A handful of big companies control each category, which means oligopoly pricing. A razor and two or three blades can cost more than $20, and there’s no way the actual cost of a little metal and some plastic is anywhere near that.

And razor-speak can be as indecipherable as wine-speak: “Gillette Fusion ProGlide Razor Handle with FlexBall Technology,” for example. Can anyone who doesn’t work for Gillette’s ad agency explain what that means?

The high cost of shaving

Obviously, there’s more going on here than the high cost of shaving. Most importantly, the culture has changed; the days of coats and ties and offices, where men had to shave every day, are something for TV shows like “Mad Men.” My beard dates to the late 1980s, and even then they weren’t common. And we certainly didn’t grow them to be hipsters, a common occurrence these days.

But you can’t ignore the cost of razors and blades. Says a Millennial in the MarketWatch story: “I don’t love the $5 price for a replacement blade, since it equates to a yearly expense of more than $200 — an amount equal to a good dinner at a decent restaurant, even perhaps with a bottle of wine. And trust me: I’d much rather be dining in style than shaving.”

In all, the men’s shaving products market has shrunk by more than 11 percent in the past five years. This dovetails with a recent Nielsen survey, comparing the drinking habits of Millennials, Gen Xers, and Baby Boomers.

Overall, a little more than two out of five Millennials don’t drink for health reasons and almost one-third don’t drink because it’s too expensive. Drill down, and Nielsen finds that the youngest group is 11 percent more likely to not drink because it costs too much, compared to their parents and grandparents.

High wine prices, decreased consumption. High razor blade prices, decreased use. Does anyone else see a pattern here?

Wine business history: The more things change, the more they stay the same

wine business historyIn the wine business, history repeats itself – and we know what premiumization, overpriced wine, and consolidation mean for consumers

Premiumization, overpriced wine, and consolidation are nothing new in the wine business. Go back 80 years, and wine business history is eerily familiar. In this, some of the earliest and most influential wine critics, including Leon Adams and Frank Schoonmaker, warned the industry about the mistakes it was making.

And I would be remiss if I didn’t quote Winston Churchill here: “Those who do not learn from history are doomed to repeat it.”

Premiumization

Schoonmaker was a wine importer and wine writer whose 1930s’ “The Complete Wine Book” might have been the first attempt to explain wine to the U.S. consumer. In 1947, in a piece for Gourmet magazine, Schoonmaker lamented what sounds a lot like what we’re seeing now:

And in the past five years we have hardly seen any real vin ordinaire (by which I mean a common, inexpensive table wine) sold in America. The humble gallon jug virtually disappeared in 1943 from our wine merchants’ shelves; instead, the undistinguished reds and whites from the mass production areas of California appeared in fancy dress at a fancy price, and elaborate advertising campaigns were launched to convince us that bottles which we used to buy reluctantly for 60 cents were suddenly worth $1.50 and were being sold us as a special favor.

In other words, $15 wine is the new $8 wine.

Overpriced wine

Adams was perhaps even more influential in his time (the end of Prohibition to the 1960s or so) than Robert Parker was in his heyday. He is usually given credit for pushing the California wine business into the 20th century; he advocated for regional wine long before there was much of it; he helped start the Wine Institute; and he wrote several of the most important wine books in U.S. history.

He also had no use for over-priced wine, and regularly urged California producers to make wine that most of us could afford:

They should be as cheap as milk. High price wines are not for daily consumption with meals. Real wine drinkers know this; most Americans still don’t.

How spooky is that quote, that it’s still so relevant today?

Consolidation

Adams also saw the dangers of too few wineries producing too much of the country’s wine, something he first warned about shortly after World War II. He explained this in a 1974 interview:

The point was mine, and I think it has stuck to this day, that the little wineries should be encouraged to exist. The larger the number of small wineries that operate in the United States, the safer the big wineries are from attack, legislative attack in particular. If the wine industry ever fell into the hands of only a few major factors, the wine industry and the whole cause of wine would be in trouble. It would be endangered. … The big wineries have never agreed with me about the need to foster the small wineries. … My purpose is to encourage the use of wine, to introduce the use of table wine, which local wineries can do. Moreover, it’s especially to the advantage of California to thus expand the wine market, because with the ideal grape-growing climate of this state, California wines will always be the best buys.”

I wonder: How many of the biggest California producers have ever read that?

Photo courtesy of Sedimentality blog using a Creative Commons license

Has the next phase of the wine slowdown started?

wine slowdownToo many grapes, younger people who don’t drink alcohol, and slowing sales among all age groups are signs of a wine slowdown

Call it a tipping point if you don’t mince words or an easing of momentum if you do, but the results are the same. It looks like a major change in U.S. wine consumption is underway. Call it the post-recession wine slowdown.

Know four things:

• California wineries, faced with an oversupply of grapes from yet another bumper harvest and lagging sales, don’t seem to be buying as many grapes this year. In fact, their attempt to get out of grape-buying contracts in some parts of the state is causing controversy and bad blood.

Wines sales have slowed, so that even an industry cheerleader termed growth for this year at a “sluggish 0.2% projected pace.” These numbers, from the company that publishes the Wine Spectator, confirm what has been reported elsewhere many times – U.S. sales by volume won’t exceed the increase in the drinking age population for the foreseeable future.

• One of the world’s biggest spirits companies expects that the “low-[alcohol] and no alcohol cocktail movement will increasingly shape the bar world” in 2019. The report went on: “What is most notable, though, is the differing consumption habits of the younger demographic, with 46 percent of people under the age of 35 likely to order a mocktail (non-alcoholic cocktail), versus just 16 percent of over-35’s. “

Rob McMillan of Silicon Valley Bank, one of wine’s leading statistical gurus, says the industry is at that tipping point. McMillan says there will be more grapes than are needed to meet slowing demand, and that the industry must come up with a Plan B to sell its product in this more challenging environment.

In other words, we have too many grapes, younger people who don’t necessarily want to drink alcohol, and slowing sales among all age groups. But the industry is hellbent on selling more expensive wine as if none this was relevant – if it was still the heyday of scores and wine magazines in the 1990s and that post-recession premiumization would go on forever.

Consumers – and that includes most wine drinkers – vote with their debit cards. You can only sell overpriced and lower-quality wine for so long before they put their debit cards away. If that is happening now, and I think it is, then we have a wine industry selling something fewer people want to buy. And that is not a recipe for success.

Four things to know about the rose boom (and that don’t have anything to do with Instagram or memes)

rose boomThe rose boom isn’t about Instagram and memes; it’s about quality wine at a fair price

Listen to the wine wise guys, and the rose boom is about “rose all day” and Instagram posts. Of course, these are the same people who didn’t catch on to pink wine until it was already a hit. Given that, why should we believe anything they say?

So here are are four things to know about the rose boom that don’t have anything to do with Instagram or memes – but show that wine drinkers know value when they see one. Which explains rose’s continuing popularity more than all the hype and the glitter in the Hampton’s.

Consider:

• There’s so much demand for rose that some retailers and distributors are trying to sell old, worn out junk, figuring we’re not smart enough to know the difference. I’m seeing more and more of this, with pink wines as old as 2013 and 2014 finding their way to store shelves. Remember, if a rose is more than 18 months old, it’s probably not worth drinking.

We’re buying $10 rose, no matter that our betters are telling us we’re supposed to spend more. In the 52 weeks between April 2017 and April 2018, we bought five times as much $10 rose as we did $20 rose. In fact, rose costing $10 or less accounted for almost 60 percent of sales over that period. Suck on that, premiumization.

• Overall, reports the same study, U.S. wine sales remain flat. But rose sales increased 53 percent from 2017 to 2018. So consumers, given the choice between buying quality $10 rose or overpriced $18 wine, are buying quality $10 rose. Why isn’t anyone noticing this?

Millennials don’t drink the most rose; it’s still the province of older wine drinkers, according to the Wine Market Council. This makes perfect sense if you look at overall wine consumption, where Millennials are generally at the bottom of the list. But wine industry hype rarely makes perfect sense or any sense at all.