The end of the U.S. wine boom will change the wine business, and consumers almost certainly won’t be the better for it
I’ve written about this before on the blog, but usually in bits and pieces – that the 40-year U.S. wine boom may have ended. But this story, which I wrote for the trade magazine Wine Business International, goes into all the grisly details. There’s a lot of math involved, and the last quarter of the piece is business-oriented, but still worth reading for those of us who love wine.
That’s because the end of the wine boom will change the wine we are able to buy, how we are able to buy it, and who makes our wine – and not necessarily for the better. Consider:
• The growth that made the U.S. the biggest wine consuming country in the world has ended. Instead of the 5 to 10 percent annual increases that weren’t unusual during the four-decade run-up, look for wine consumption to grow only as much as the increase in the country’s drinking-age population, about one percent.
• Prices could well remain flat, since more and more wines will be chasing the same number of wine drinkers. By one analyst’s estimate, there are about 125,000 wine labels on U.S. shelves in any one year, but the high frequency wine drinker buys only about 75 bottles a year. Who is going to buy the rest?
• Flat prices are good news for the consumer, but the bad news? Consolidation among retailers, distributors and producers, which shows no sign of ending, could make it more difficult for all but the biggest producers to make an impact on wine drinkers. Who else will have the money to market wine in that glutted a market? And the wines they’ll be marketing will almost certainly be boring, focus-group driven, and all taste the same. In other words, red blends run amuck.
Those three things may also offer an explanation for premiumization. If you can’t sell more wine, and prices are flat for the wine you can’t sell anyway, then invent new, more expensive wine to sell. Which sees to be what has happened since the recession started in 2007 – the value of the wine sold in the U.S., as measured in dollars, has increased more than the amount of wine sold, 25 percent to 21 percent.
Finally, the trade magazine post has generated a fair amount of buzz on the cyber-ether, and Forbes even picked it up (though the piece misspelled my name). Which is all well and good, but why didn’t anyone notice this before? Were we too busy focusing on toasty and oaky to see what was going on?
Photo courtesy of Peachridge Glass, using a Creative Commons license
This week’s wine news: The end of the U.S. wine boom, plus the profitability of organic wine and returning wine gifts
• Is the fat lady singing? Those of us who rely on facts instead of “this is the way it’s always been” to parse the wine business got more bad news last week. “Two measures suggest that the U.S. market for wine may have peaked – or at least paused. There has been a reduction in the average consumption per head of wine in the last few years, coupled with a reduction in the number of very frequent wine drinkers – that is, those drinking wine on a near daily basis.” This, from a report by the Wine Intelligence consultancy, confirms what has been reported elsewhere – the 40-year-old U.S. wine boom seems to be over. What happens next, as more producers and retailers chase fewer consumers, is anyone’s guess. I’m going to write about this quite a bit over the next year; it’s probably the most important trend in wine in this country since the fighting varietals of the 1970s.
• Not much of a market? Organic wine, whether it’s labeled as organic, made with organic grapes, or farmed bio-dynamically, has never been much of a factor in the U.S., and certainly not the way organics are for tomatoes and the like. This article from the Western Farm Press trade magazine is about as technical as you would expect from something called Western Farm Press, but the gist is that growing organic grapes is not easy and not necessarily profitable. Sheep grazing for weed control, anyone?
• What about the leftover wine? The Wine Curmudgeon, who has insisted that giving wine for a gift should be done with thoughtfulness and considerations, is always impressed when someone else feels the same way. Hence this article from the Courier-Post in Camden, N.J..: Unless “you’re specifically asked to bring wine to contribute [to dinner[, do not be offended if the bottle you bring isn’t opened. Sometimes, wine is specifically chosen to go with the food being served. Although you may bring a perfectly wonderful wine, it may not complement the dishes being served that evening.”
That’s the question that the annual Silicon Valley Bank state of the wine business report addressed last week, and the answer? It does look like the U.S. wine boom is over — for now, anyway. And though Rob McMillan, who writes the report, was optimistic that the slump may be short-lived, the fact that he cut through the usual pom poms and short skirts that pass for wine business analysis speaks volumes about how serious the situation is for anyone who loves wine.
The report predicts a decline in U.S. per capita wine consumption after more than 20 consecutive years of growth, and while overall sales in dollar terms will increase slightly, sales measured by the amount of wine sold will remain flat for the fifth year in a row. That is also the end of a two-decades-old trend; after sales bottomed out in the early 1990s, they increased annually, even through the recent recession.
McMillan points to three reasons for the change:
• The collapse in sales for wine that costs less than $6 a bottle, the boxes and jugs of Almaden and Carlo Rossi that have been some of the biggest cash cows in wine retail history. “That market is gone,” he said during the report’s webcast last week, “and it’s not coming back.” Yes, consumers are buying more expensive wine, but not as many of them are buying wine overall, and premiumization seems to stop at $15. There is little evidence that anyone is trading up higher than that.
• Competition from craft beer and spirits, which are more appealing to younger consumers. The report didn’t go into detail about why they’re more appealing, but as a 20-something woman told me the other day (and she worked in a wine shop): “Wine is such an anachronism.”
• Generational change, and McMillan said what few others in wine want to admit publicly. The Baby Boomers who powered the 20-year wine boom don’t drink as much as we used to, and we’re going to drink even less as we age. Meanwhile, the Gen Xers and Millennials aren’t making up the difference, whether because they’re drinking craft beer or can’t afford to. I talked to McMillan after the report came out, and he was blunt: “The Millennials are not going to spend the money on wine that the Baby Boomers did.”
In fact, most news reports of the study downplay that bit about the Millennials, who are supposed to be the wine business’ savior. But anyone who is clear-eyed about the economy understands that that may not be possible. First, this isn’t the 1990s, when the gross domestic product grew three to four percent a year. Second, the Millennials, for all the talk about peak earning years, don’t have access to the same high-wage jobs the Boomers did 20 years ago. And third, without those high-wage jobs, they will have even more difficulty paying off an unprecedented $1.3 trillion in college loan debt. All of which means it’s more likely they’ll buy a $5 craft beer instead of a $15 bottle of wine.