This week’s wine news: Coronavirus wine sales trends, more Pennsylvania legal foolishness, and virtual wine tasting samples
• What comes next? Noted wine business analyst Christian Miller, a long-time friend of the blog, tells Forbes’ Liza Zimmerman that the coronavirus pandemic could finally slow wine sales later this spring, and the slowdown could last through 2021. The good news, he says, is that “Demand for wine is not going to dry up, or even diminish much, once the initial shocks are ridden out.” He also sees significant changes in the three-tier system as it struggles to cope with the pandemic. The former is pretty much what SVB’s Rob McMillan told the blog a couple of weeks ago, and the latter is something I wrote about last week.
• More fun in Pennsylvania: Remember Pennsylvania closing its state-owned liquor stores? Remember state residents being asked to leave neighboring New Jersey and Delaware when they came in search of booze? Well, now the state is being sued by two wholesalers, who say the state is violating its own laws by refusing to let the wholesalers sell directly to retailers and restaurants. The details, not surprisingly since it’s Pennsylvania, are quite confusing. But it’s enough to know that the state’s liquor control board says it doesn’t have to obey that particular law because it is still studying it.
• Bring on the samples! The Wine Curmudgeon knows that many of you in the cyber-ether have been worried that I would not be able to receive wine samples for virtual tastings during the duration. But have no fear. The federal agency that oversees that sort of thing said last week that not only wine writers, but consumers would be able to receive “small containers of wine” for virtual tasting. There’s lots of fine print, depending on which state you live in, but this is one more example of the pandemic pushing the three-tier system to the side.
Rob McMillan: There are going be better quality grapes in cheap wine, even as wine prices decline.
“What’s going to happen to demand? People are still going to drink”
The good news? Rob McMillan of Silicon Valley Bank, perhaps the foremost financial analyst in the wine business, says wine can survive the coronavirus pandemic. The bad news? It’s not going to be a lot of fun during the duration.
The highlights of our conversation:
• Expect to see weaker wineries fail, as well as some grape growers who don’t have producers to buy their grapes. In this, there probably won’t be bankruptcies or foreclosures as much as there will distress sales. There are always people wiling to buy wineries, says McMillan, even in a recession, and prime vineyard prices probably won’t decline all that much.
• Wine prices were expected to fall before the pandemic hit the U.S., and the stay at home orders and layoffs will only hasten the process. In this, though, since there are too many grapes, expect to see better quality grapes going into cheap wine. One rumor? That a major $3 producer snapped up Napa Valley cabernet sauvignon at bargain prices.
• Look for more producers to try to sell their wines at mass retailers and supermarkets. The loss of tasting room business needs to be made up somehow, and retail wine sales haven’t slumped as much as some thought.
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?
“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.
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.
• 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.
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.
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.
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.
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!!!!!
We read the same stuff when Tetrapaks 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.
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