Tag Archives: wine business

Big Wine 2020

Big wine

Big Wine isn’t enough for a healthy U.S. wine business these days.

Big Wine 2020: Just being big doesn’t seem to be enough to reinvigorate wine in the U.S.

We need some sexy brands at $7 or $8 per bottle, and I’m not sure how many people in the industry want to try and do sexy things with $7 or $8 a bottle.
— Wine analyst Jon Moramarco

That quote tells you pretty much everything you need to know about the 16th annual Wine Business News magazine survey, which tracks the yearly ups and downs of the U.S. wine business and ranks the 50 biggest producers in this country. In this, it’s the second consecutive year that the trade magazine has painted a Wine Curmudgeonly-future of wine in the U.S.

How big is Big Wine 2020? There are more than 10,000 wineries in the U.S., and the top 50 account for some 90 percent of production. But that’s just the beginning of how top-heavy the U.S. wine business is. Almost one out of every four bottles of wine made in the U.S. comes from E&J Gallo, the world’s biggest producer. The top 3 companies account for 52 percent, and the top 5 account for 77 percent.

So if we need someone to ask about what’s gone wrong, we know who, don’t we?

Among the highlights

• Sales by volume may actually have declined last year, depending on whose numbers you believe. Nielsen said sales dropped 1 percent as 2019 drew to a close, but Gomberg, Fredrikson & Associates estimated that volume could end 2019 up one-half to one percent. Regardless, it’s a far cry from the 3.5 percent annual growth rate during the wine boom, and it’s not enough to keep pace with the increase in the U.S. drinking age population.

• Even premiumization slowed. Sales by dollar volume were up just 1.7 percent in 2019; that compares to a 5 percent increase last year. Interestingly, several industry types quoted in the story insisted that cheaper wine was not the answer, since consumers don’t want to pay less.

• The average price of a bottle of wine sold at retail in 2019 was about $11. That’s more or less what it has been for the past several years, taking into account the various statistics used to calculate the cost.

• Gallo’s share of the U.S. wine market increased from 17 percent last year, even though its sales remained flat. Go figure.

• The share of the three biggest producers – Gallo, The Wine Group, and Constellation Brands – fell three points from last year and eight points from in 2017. In addition, the share of the top 10 companies declined for the fourth year in a row, from 84 percent in 2016 to 81 percent in 2017 to 78 percent in 2018 to 77 percent in 2019. That sounds awfully damn ominous, doesn’t it?

More about Big Wine:
• Big Wine 2019
• Big Wine 2018
• Big Wine 2017

SVB wine report 2020

svb wine report 2020

“I know those younger consumers are down here somewhere.”

SVB wine report 2020: The wine business is hurting, and things are going to get worse before they get better

How upside down is the wine world? This week, during the annual Silicon Valley Bank state of the wine industry webcast, one of the panelists said something that was almost unprecedented:

“We need to pay better attention to consumer demand.”

Which, as regular visitors here know, is the opposite of what we’ve heard for decades, and especially since the end of the recession and the growth of premiumization. The wine business knew best, and sold us what it said we needed, and not necessarily what we wanted.

Because that’s how we ended up where we are today, with decreasing wine sales, decreasing demand, and decreasing interest in wine among younger consumers. Which, not surprisingly, was the theme during this year’s wine industry webcast. Rob McMillan, the executive vice president and founder of the Silicon Valley Bank wine division, put it bluntly on Tuesday morning: The wine industry has to change the way it does business and focus on what makes wine worthwhile. It can no longer assume that consumers will drink wine because they always have.

And, reinforcing just how different things are from where they were just a couple of years ago, McMillan said it was time for wine to reconsider its objection to nutrition and ingredient labels. Because, of course, that’s what consumers want.

We ain’t in Kansas anymore, are we?

The rest of the webcast was depressingly familiar for anyone who has been paying attention to something other than wine scores and premiumization for the past decade:

• A price bubble exists for California’s best quality grapes, as prices continue to increase while demand doesn’t.

• Retail wine sales, measured by volume, have declined to where they were in spring 2015.

• The amount of bulk wine on the market is at record levels, which is a key gauge of wine industry health. More bulk wine means less demand, which means lower wine prices, which means wineries make less money.

Will the wine business take its head out of the sand and act on the report? McMillan isn’t necessarily optimistic. I talked to him this week, and he said that there is still tremendous denial among producers, save for the very biggest. Big Wine, he says, “is looking for ways to change the industry,” but it’s about the only ones.

Wine trends 2020

wine trends 2020

I wonder: Can I fit White Claw into this gizmo?

Wine trends 2020: The wine business will ride premiumization until it dies, plus more wine-like products, more neo-Prohibitionism, and a tariff that could kill the wine business

Wine prices 2020

Premiumization will continue until it doesn’t. This approach is scarily similar to what happened to the newspaper business. In the late 1980s, many industry leaders knew that the days of throwing papers from cars at 6 a.m. were numbered. I was even told that in a meeting. But no one did anything about it, because newspapers were still obscenely profitable and the industry had so much money tied up in printing presses. The smart people in the wine business know premiumization is on its last legs, but they don’t have another plan and they’re still making money, so it’s easier not to worry about what’s next.

• More wine-like products – bourbon barrel wine, fruit-flavored wine, and the like. Because, of course, White Claw. The irony is that producers see White Claw-like products as their chance to attract younger wine drinkers, when White Claw’s success is about its cost and low alcohol. Which, of course, has nothing to do with wine. It’s also worth noting that White Claw and its ilk are hurting beer more than wine, and that not just younger people drink it.

• Neo-Prohibitionism becomes an accepted part of American life. In other words, this will be the year when we find out Dry January isn’t just a story in a woman’s magazine. The evidence has been there for a long time, not that anyone in the wine business paid much attention. But when designated drivers, mocktails, and all the rest are as common as smoking and drunk driving were when I was a teenager, then the world has changed significantly. And the wine business better figure that out, sooner rather than later.

• The tariff. Or tariffs, as the case may be, since the threat of a more inclusive 100 percent levy is hanging over our heads. I’ll go into more detail in Monday’s 2020 wine prices post. But know that as bad as the 25 percent tariff will be, the 100 percent tariff could destroy the European wine business and wreak havoc in the U.S. And, as I have noted many times before, spite is not a good enough reason to do either.

• More three-tier excitement. That’s because 2019 saw a couple of significant legal decisions, and 2020 promises even more. My best guess, after talking to attorneys who deal with this stuff, is that there is momentum for change in the way beer, wine, and spirits are sold in the U.S. So there’s a chance that Internet sales could eventually become legal. And there’s also a chance (though much smaller) that some states may eventually make it possible for wines to be sold at retail without a wholesaler. This would vastly increase choice. Having said that, those things won’t happen immediately, and what we could see in 2020 are more legal decisions that continue to chip away at three-tier.

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

How do you write about quality cheap wine when the system is rigged against it?

Look out! They’re shelling us with premiumization and the wine tariff!

You keep a stiff upper lip, try to ignore the frustrations and complications, and soldier on – because quality cheap wine is worth it

How do you write about quality cheap wine when the wine industry and the federal government have gone out of their way to make quality cheap wine an anachronism?

Because, as we celebrate the blog’s 12th birthday, that’s the situation I find myself in. Premiumization and the 25 percent European wine tariff have made it all but impossible to find the kind of $10 and $12 wine that’s worth writing about. I feel like a character in one of those British Raj movies where the garrison is stranded in a fort on a remote hilltop and we’re being picked off one by one and we know the relief column isn’t going to arrive in time.

Yes, there is still plenty of cheap wine on store shelves, but just because a wine is cheap doesn’t mean it’s worth drinking.

So what’s the Wine Curmudgeon to do? Carry on, of course. What else is a stiff upper lip for?

The irony here is that I seriously considered ending the blog after this final birthday week post (with a Hall of Fame wrap-up in January). And if I had known about the wine tariff when I was pondering the blog’s fate this summer, it would have been that much easier to close it after 12 years.

Changing my mind

But two things happened to make me change my mind: First, and most practically, the site’s hosting company charged me for another year in August. So, if I closed the blog with this post, I would have been stuck paying for nine months of service I didn’t use. Second, four people whose opinions I admire and respect pointed out that if I didn’t keep doing this, who would? And that despite my frustration with the blog, there is and will be a need for it.

For the frustrations have been endless. These days, it’s not just about paying homage to our overlords at Google or dealing with out-of-touch producers and distributors and too many incompetent marketers. Or fending off the sponsored content and the fluff pieces that so many others in the wine writing business have turned to in an attempt to make money at something where there is little money to be made.

These days, it’s about making sense of a business that is divorced from reality. Which, frankly, makes me feel like I’m using a croquet mallet to comb my hair.

Consider just these two items: A group of Washington state wine producers, faced with declining sales, say they aren’t worried since the wine they are selling is more expensive. Meanwhile, Italian pinot grigio producers, also faced with declining sales, want to know how to sell more expensive wine to make up the difference.

Making money the hard way

Am I missing something here? Aren’t declining sales a bad thing? Shouldn’t an industry do something to reverse the decline, instead of furthering it by raising prices?

But not, apparently, if it’s the wine business in the second decade of the 21st century. Because, of course, premiumization. I’ve probably written entirely too much about the subject, but mostly because I can’t believe anyone in wine still takes it seriously. Though, and this is welcome news, there are others who are beginning to question its validity. Damien Wilson, PhD, who chairs the wine business program at Sonoma State University, is blunt: Premiumization can be a path to ruin, since sales decline and higher prices scare off new wine drinkers.

The less said about the tariff the better. It’s as counterproductive as premiumization, and its adherents are blinded by politics to economic reality. That the tariff could forever wreak havoc on U.S. wine consumption is beyond their comprehension.

So let me shepherd my ammunition, keep my head low, and hope against hope that the relief column gets through. And keep a very stiff upper lip.

More Birthday Week perspective on the wine business:
Have we reached the end of wine criticism?
• 10 years writing about cheap wine on the Internet
• Premiumization, crappy wine, and what we drink

Putting canned wine in perspective

canned wine

Somebody bring the rose. The socca is ready.

No, canned wine is not the end of the universe. So why do we keep hearing that it is?

A recent trade magazine story asked the question, “How seriously should we be taking the rise of wines in a can?” To which my answer was, “Who cares?’

The story was mostly the same winebiz-speak we’ve been seeing for the past couple of years as cans have become more popular. To wit: The wine business is shocked to discover that consumers will drink wine out of something other than a 750-ml bottle with a cork-style closure, so it’s obvious that cans are going to take over the wine business. So we need to do something!!!!!

Is it any wonder I worry about the future of the wine business?

We read the same stuff when Tetrapks were au courant and boxed wine was supposed to be the next big thing. And nothing changed – 75 percent of the world’s wine still comes in a 750-ml bottle with a cork-style closure.

So why the panic now? Yes, the quality of much canned wine is suspect. But why should that bother an industry that turns out vast quantities of plonk in bottles?

Because the wine business, and especially the wine business in the U.S., has so much time and money invested in keeping wine exactly the same way it has been since the end of World War II. So anything that threatens the ancien regime is to be feared. And it’s to be especially feared given the current wine climate of flat sales and increased sobriety. Even if, in the end, canned wine won’t make that much of a difference to flat sales and increased sobriety.

So why can’t we just drink wine – canned or otherwise – and enjoy it instead of rending garments and gnashing teeth about the future of the wine business? I recommend this blog post from food writer David Lebovitz. He is discussing socca, the chickpea flour pancake and or crepe thing famous in southern France, and his point is most welcome (as is his socca, one of my favorite Saturday night appetizers):

And for any wine snobs out there that think it’s folly to serve wine in cups instead of glasses haven’t had the pleasure of standing near a wood-burning oven, eating a blistering-hot wedge of socca with a non-recyclable tumbler of wine. Preferably served over ice, Marseille-style.

Photo: “FR’Nice 11’0925 – 13” by karendelucas is licensed under CC BY-NC 2.0

Winebits 609: Winery values, rose, Indiana wine

winery valuesThis week’s wine news: Have winery values, once seemingly exempt from the laws economics, started to decline? Plus, rose as a lifestyle and Indiana’s Oliver winery.

Declining values? Have California winery values, which seemed to be exempt from the laws of economics, started to decline? Silicon Valley Bank’s Rob McMillan thinks so, citing the changing economics around the wine business. “The short answer to the headline question for today is there are still plenty of buyers but overall they are being a little more selective, and your winery and vineyard are probably not worth more than they were last year,” he writes. “Without going into details on a long topic, we are presently oversupplied on grapes and bulk wine from most regions, and the upside to higher sales is for today more limited than the past. …” If McMillan is correct, and he usually is, then the situation is markedly different from almost anything in the past three decades. Napa Valley land prices, for example, didn’t lose value during the recession, even though the rest of the country saw land prices drop by double digits. There’s a lot of math and financial-speak in the post, but the sense is that we’re in a world no one expected to see.

Rose as a way of life: Who knew that rose instilled a wine culture in the U.S.? That’s the gist of this Forbes blog post, which otherwise seems like a plug for rose from the French region of Provence. Which is not surprising, since the Provence rose trade group has one of wine world’s best marketing programs. It’s a also a plug for high-end rose, including one that costs $190 a bottle. Its producer describes it as “gastronomic rose” — no doubt to differentiate it from the $10 plonk the rest of us drink.

Only in Indiana: Regional wine scores another victory with the Mainstream Media in this feature about Indiana’s Oliver Winery, “the largest winery in the Midwest, it’s perhaps the largest winery east of the Mississippi – or, at least one of the largest – and it’s the 44th largest winery in the United States.” The Wine Curmudgeon is always happy to see regional wine in the news, showing once again how far ahead of the curve we were with Drink Local Wine.

Photo: “vineyards” by mal.entropy is licensed under CC BY-NC-SA 2.0 

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