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More about wine prices 2018

wine prices 2018

In what reality is $30 wine affordable?

Wine prices 2018: Are too high prices unsustainable? Is a bubble forming?

Twice in the last week, completely unbidden, a retailer and an importer complained to me about too high wine prices. No one was more surprised than I was.

After all, the Wine Curmudgeon is supposed to care about this, not people who make their living selling wine at what I consider too high prices. But the wine world is so upside down in the second decade of the 21st century that even this is possible.

So yes, a small sample size. But I’ve been doing this a long time, and those things just don’t happen. It’s a man biting a dog story – it happens so infrequently that it’s news when it does, even with a small sample size.

Specifically, the two men were complaining about too high red Bordeaux prices, the wine from France, and how they have screwed up the marketplace. Their point: When the most prestigious are priced too high – $800 for a bottle of Cheval Blanc, anyone? – that raises the price for every other red Bordeaux, regardless of quality (the economic theory of substitutes). Plus, it also props up the prices of prestigious red wines elsewhere in the world, as well as less prestigious wines.

You and I see this every day when we buy an ordinary bottle of red French wine. Or, rather, when we don’t buy one because the prices are too high. I paid $18 for a delightful red blend from the Languedoc, Chateau La Roque, which should not have cost $18. It’s from a minor region and made with grenache, not cabernet sauvigon. But the substitute theory prices it at $18 because “better” wines cost $25 and $30. It’s the same reason all those syrupy, over-ripe California reds cost $18. It’s not the land cost or the quality of the grapes, but the substitute theory.

So what does it mean that the importer and the retailer complained to me about this? Is it an indication that a bubble may be forming and this kind of pricing is unsustainable? There seems to be evidence for this. A highly respected economist who studies the wine business has told me twice this summer that U.S. sales are flat and he is not optimistic about the future. And then there is the Wine Curmudgeon sample index – not very scientific but which seems to make more sense every year. This spring, for example, a PR flack pitched me “affordable” $40 wine – a Twilight Zone version of reality that only someone in the wine business could believe.

So we wait and see. And hope for the best.

More about wine prices 2018
• July update: Wine prices in 2018
• Restaurant wine prices 2018
• Expensive wine prices in the real world

July update: Wine prices in 2018

Wine prices in 2018Wine prices in 2018 aren’t necessarily going up, while premiumization may be taking a huge hit

Is premiumization – the idea that we’ll buy expensive wine just because it’s more expensive – wearing out its welcome? That may be the case after looking at what’s going on with wine prices in 2018.

In fact, higher wine prices in 2018 (as well as next year) don’t seem nearly as certain as they did six months ago. That’s when I wrote: “Look for wine prices 2018 to head upward, and not just because of premiumization.” No one is happier than I am that I might be wrong.

What has happened to change all of this?

• Continuing flat wine sales. Every time I see the numbers, I’m reminded of the Wine.com study that says everything that needs to be said: “With little to no organic industry growth, it’s all about battling competitors for market share. Brands swap from one wholesaler to another, and wineries and wholesalers have been consolidating through [mergers]. But these moves are largely just shuffling the deck, rather than growing the total pie, and do very little for the long-term health of our industry.”

• Trouble for Big Wine. How about this bombshell from Constellation Brands, the second-biggest wine company in the world? Its growth in volume for the previous 52 weeks through July was higher than its growth in dollars – the exact opposite of premiumization. Is this a sign consumers are cutting back? Note, too, that neither of the increases was impressive, and the dollar increase was a whopping 0.6 percent.

• Surprising consumer reluctance to spend money on more expensive wine. I see this every time I shop for wine, whether grocery store, wine shop or liquor store. Consider this the other day, from a Dallas Aldi. A man was buying six bottles of the chain’s knockoff, $8 Prosecco, and not the $12 La Marca you can get at the Walmart down the street. Meanwhile, the woman in line in front of me had organic chicken, a couple of organic dairy products, and three bottles of $3 Winking Owl. What does it say that she was spending a substantial premium for food but doing the opposite for wine? Yes, a small sample size, but I see it over and over.

Something is going on, and despite other pressures – inflation, the weak euro – consumers are holding the line on their wine purchases. Will the industry recognize this and adjust accordingly with lower prices?

Restaurant wine prices 2018

restaurant wine pricesSome restaurants are moving away from traditional wine pricing, and selling wine at prices we can afford to pay

There’s actually some good news surrounding restaurant wine prices 2018 – which is especially welcome after 2017’s higher prices and, not surprisingly, flat consumption.

I’ve talked to a number of restaurant officials in different parts of the country over the past two or three months who are being more aggressive with pricing. That includes extended half-price wine nights, half-price wine happy hour promotions, and even – as difficult as it is to believe – lower markups than the traditional 3 ½ to 4 times wholesale.

Yes, this is a small sample size, and there remain too many restaurants that consider charging $30 for an $8 retail bottle of wine their inalienable right, just like freedom of speech and assembly. But good news is good news.

Perhaps even more important: The restaurants that are cutting wine prices are seeing impressive results. An Italian restaurant owner in New Jersey told me his second biggest wine night of the week is half-price Monday, second only to Saturday night. Ordinarily, Monday is one of his worst days for wine sales.

In New Orleans, meanwhile, the general manager at a popular French Quarter restaurant said half-price wine happy hour has done the impossible – keep his restaurant busy between lunch and dinner, usually a dead spot. In this, he said, given the choice between a packed dining room and traditional wine pricing, he’ll take the packed dining room every time.

A few other notes from my reporting and research on restaurant wine prices 2018. Unfortunately, in these cases, the more things change, the more they stay the same:

• A Dallas seafood restaurant that caters to the city’s social and political elite has about one-third more red wines on its list than whites. And the markups remain mostly 4-1.

• The restaurant business’ leading trade magazine recently ran a very basic story about how to put together a restaurant wine list, the kind of thing I might write for the blog. One would like to think that anyone reading that magazine would already know how to do that. That the story still ran speaks to the need for basic wine list information – which, actually, shouldn’t be surprising. Also not surprising: the story didn’t mention pricing at all.

• Where are the young people? No matter where I eat (and not just in Dallas, where wine is still seen as exotic by many diners), I don’t see enough Millennials and Gen Xers drinking wine. I’ve been coast to coast this spring, and most of the wine was being consumed by older white couples – even in restaurants where where there were lots of younger people. One more reason why I fear for the future of the wine business.

More about restaurant wine prices:
• The John Cleese Fawlty Towers guide to restaurant wine service
• Restaurant wine prices explained: Follow the money
• Winecast 28: Bret Thorn, Nation’s Restaurant News

Disconnected from reality: How the wine world thrives on hyperbole, assumption, and exaggeration

Napa Valley wine

If it’s expensive, then it must make me a better person.

Most of us will never drink pricey Napa Valley wine, but that doesn’t stop us from assuming that expensive wine is the only kind that matters

Two recent postings in the cyber-ether show how disconnected the wine world is from reality: First, a comment on the blog last week asking how California could have a record grape harvest this year given the Napa Valley wine fires in 2017. Second, an article on Wine-Searcher.com declaring: “The simple truth is that if you don’t have Napa on your label people just aren’t that into you, and winemakers would be forgiven for throwing their hand in and becoming whiskey makers instead.”

The fact everyone is overlooking here? Napa Valley wine accounts for less than five percent of California’s production.

This is not to denigrate Napa’s product, which is some of the best in the world. Rather, it’s to note how hyperbole, assumption, and exaggeration continue to power the U.S. wine business. Most wine drinkers in this country will probably never taste a Napa Valley wine. First, Napa prices are two and three times the national average, so cost eliminates all but the most devoted. Second, the majority of the grocery store Great Wall of Wine, where as much as three-quarters of wine is sold in some states, is not from Napa. So we couldn’t buy it even if we wanted to.

But there are wine drinkers, and then there are wine drinkers.

That’s because, as the two Napa items demonstrate, only expensive wine matters. This has always been a problem, and explains how I got started doing this. But it has become more prevalent given premiumization. I did a tasting several years ago where a 40-something man refused to drink anything that didn’t cost at least $20 because he knew it was awful. And how did he know that? Because the Winestream Media told him anything cheaper than $20 was awful, saving him the trouble of tasting it himself.

Second is the idea that people who drink expensive wine are somehow better than the rest of us. You can see this in the comments on the blog’s Barefoot posts. This attitude baffles me. I vote, I pay my taxes, I’m nice to my dog. Why does my choice of wine speak to my quality as a human being? What difference can it possibly make to someone else that I don’t drink the same wine they drink?

Those are also two reasons why cheap wine quality has fallen so far since the end of the recession. What’s the point of making decent wine for someone who doesn’t deserve it? After all, as the Wine-Searcher article said, none of the wines we drink matter. Hence, the increasing difficulty in finding quality and value for less than $15.

Making more expensive wine doesn’t necessarily mean higher profits

expensive wine

Stefano Castriota: “The key is not whether higher quality implies higher prices, but rather whether it boosts profitability, and it does not.”

Italian study finds that cheap wine producers are more likely to do better than those investing in premiumization

No one was more surprised than the Wine Curmudgeon after my email chat with Stefano Castriota, whose working paper about price and quality (“Does Excellence Pay Off? Quality, Reputation and Vertical Integration in the Wine Market”) was recently published on the American Association of Wine Economists website.

“How can you say if price and quality match?” he wrote me. “You can only see whether they are correlated. And they are, in my research and in the previous literature. The key is not whether higher quality implies higher prices, but rather whether it boosts profitability, and it does not.”

In other words, premiumization – the biggest wine trend in the past decade – may be leading the U.S. wine business in the wrong direction. U.S.  producers have been spending hundreds and hundreds of millions of dollars to make more expensive wine in anticipation of higher profits, because U.S. wine drinkers are supposed to be abandoning cheap wine for something they perceive as better.

Castriota, who teaches at Italy’s University of Bolzana, did find that improved wine quality leads to higher prices. But he also discovered that higher quality is irrelevant when it comes to profitability.

“I was expecting these results,” Castriota wrote me. “The outcome of this research did not surprise me, but surprised many others. Most people – both in the academic and in the business sectors – look only at the advantages of excellence, but do not consider the costs/disadvantages. Many entrepreneurs end up over-investing in quality and reputation.”

Producers spend so much money to achieve higher quality – more expensive land, higher-priced grapes, better technology, increased marketing, top-notch winemakers – that they don’t necessarily make the same return on their investment as cheap wine producers, who don’t do any of those things.

The latter just sell more wine: “Being able to sell the wine is more important than producing good wine,” Castriota said in an email. “This is why in my analysis the firm size is the most important driver of profitability.”

The bigger, the better

That’s because the “issue is business scalability, the possibility to increase production once you achieve excellence,” Castriota wrote. “If you spend a lot of money and invest huge capitals to become famous, but cannot increase the supply, firm profitability can be low or even negative. In the restaurant sector is the same: hiring the most famous chef and interior designer and buying the best raw materials is expensive. You have surely higher revenues, but also higher costs and capital invested. In the end, with respect to the capital invested, are you more or less profitable than a whatever medium-level restaurant?”

The caveats now: First, the study measured wine quality using ratings from Italy’s Veronelli, a leading wine guide. We’ve noted here the tenuous link between critical ratings and wine quality. Second, the Italian wine industry is not exactly like ours, and U.S. and other New World producers may not be as constrained as those in Italy. Having said that, Castriota emailed that it would be reasonable to expect the same results “or something similar. We don’t know until we see some study with other data.”

Finally, the study doesn’t specifically address premiumization; that’s my interpretation. But that approach makes sense, given the rationale to premiumization – that producers will make more money selling more expensive wine. Which Castriota says isn’t necessarily true.

“If you succeed in selling bottles at $50 or $100, you make a lot of money, but for every very profitable firm there is another one which is losing money,” he emailed. “On average, looking at the data, I did not find any significant return of excellence, which is very expensive. [A]chieving quality and reputation is not a necessary condition to become profitable because the costs and the required capitals increase a lot.”

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

“Reasonably priced at $40:” Wine premiumization is out of control

wine premiumizationWine premiumization may be working for producers, but the loser remains the wine drinker

The following arrived in a news release the other day: These “wines are reasonably priced between $15-$40 — ensuring excellent price-quality ratio.”

Where do I begin to parse the failure of the post-modern wine business, as demonstrated in that sentence? Am I the only one who sees that most wine drinkers don’t consider wine costing more than $15 as either reasonably priced or having an excellent price-quality ratio?

The wine business has fallen all over itself in the past 18 months throwing as much crappy $20 wine on the market as possible, because one very smart man noticed some of us were willing to pay more for wine. He called the trend premiumization, and his point made sense: If you have more money, you’re willing to spend more money.

Which is what happened in the U.S. when the recession ended. Sales of higher priced wines increased significantly, and the average price of a bottle of wine in the U.S. rose to almost $10, the highest in history.

Welcome to the promised land

The wine business, particularly in California, saw premiumization as the promised land – a way to raise prices without necessarily increasing quality. Hence higher profits, which had been squeezed during the recession, as well as the need to sell less wine to make the same amount of money. If I make $10 wine, I need to sell 10 bottles to make $100; if I make $25 wine, I only need to sell four. And if I sell five, I’m better off than selling 10 bottles of $10 wine. Who wouldn’t want that?

The result, according to a study from Internet retailer Wine.com, has been flat U.S. wine consumption. “This means for every headline about a brand growing 10-20%, another one is shrinking by a similar amount,” says the report. “With little to no organic industry growth, it’s all about battling competitors for market share.”

In other words, the pie isn’t any bigger, but there are more producers charging more for us to eat it. So we’re the losers, as the quote at the beginning of the post shows.

Forgotten facts

Here’s what the wine business overlooked in its haste to embrace premiumization:

• 95 percent of the entire U.S. population – not just wine drinkers – will never buy a $20 bottle of wine. That’s from the Wine Market Council, which studies these things for the wine business. So premiumization excludes 9 ½ out of 10 U.S. adults – hardly a way to make wine more popular.

• Let’s say I buy two $40 bottles of wine a week, which the Wine Market Council says “a high frequency wine drinker” might do. That’s $320 a month – or about as much as it costs to lease an Audi A3 Cabriolet. I love wine, but I know what I would do with that money.

• The rise in sales of more expensive wine, given that overall wine sales are flat, means people are buying less cheap wine. The assumption has been that consumers are trading up from their $4 and $5 bottles to $20 bottles, which only a winery could believe. What’s more likely is that older wine drinkers, who bought much of the very cheap wine, aren’t drinking as much. They’re either dead or have cut back as they got older. The same thing has happened in beer and Big Beer is in a panic. This would raise the average price of wine without actually increasing the number of people who drink it.

So we’re stuck with reasonably priced $40 bottles of wine. Whatever that means. Hopefully, we won’t be stuck much longer — since I don’t need any more reasons to worry about the future of the wine business.

More on premiumization:
• The premiumization backlash
• Premiumization, crappy wine, and we drink
• Premiumization: Prices in the real world

walmart liquor store

Wine sales in Texas after the Walmart lawsuit

Walmart lawsuit

Oh no! These shelves will be empty! Poor, poor pitiful us.

We’ll still be able to buy quality wine in Texas after the Walmart lawsuit, no matter what the panic mongers are telling us

Yes, it’s doom and gloom here in Texas after last month’s ruling that ended the unconstitutional monopoly that the state’s liquor store owners have enjoyed for more than 40 years. How will we ever be able to buy something besides Barefoot ever again?

“So while these new rulings, if enacted in Texas, might free up the market and lower prices they could ultimately harm the overall quality of the Texas wine market by lessening the overall total wine selection.”

Which, of course, we will. The naysayers, prominently quoted in the Wine-searcher.com piece quoted above, make it sound like allowing Walmart to open liquor stores is the beginning of the end: “Some of the most-legislated markets – such as New York and Texas – also have the most vibrant wine markets because these laws have forced owners to specialise and have steered fine-wine buyers to wine-focused independents and chains.”

Excuse me while I reach for my hyperbole eraser.

Nothing will change in Texas if and when Walmart, Kroger, and any other national chain opens standalone liquor stores. Yes, I’ll be able to buy a fifth of bourbon when I go to the grocery store, but that’s about it. I’m not even sure prices will go down; has anyone noticed the foolishness behind supermarket wine pricing?

Some independent retailers, shorn of the monopoly that has protected them since the state’s retail lobby “convinced” the Legislature to pass unconstitutional legislation in the early 1970s, might go out of business. But it’s difficult to feel sorry for any business that stays afloat because a law was designed to stop it from failing.

Know three things about Texas wine sales after the Walmart lawsuit:

• Supermarkets sell spirits in Florida and California; I haven’t heard anyone complain they can’t buy a quality bottle of wine in either state. Right, Kermit Lynch?

• Some small Texas retailers don’t need the monopoly – they have thrived selling quality wine and offering quality service, knowing those are more effective weapons than an unconstitutional law. Pogo’s in Dallas, the not-related Wine Merchants in Austin and Houston, and Put a Cork in It in Fort Worth don’t need the Legislature to protect them.

• The independent pet store was supposed to go out of business in the early 2000s, thanks to national chain retailers like Walmart and PetsMart and more pet products in grocery stores. Sound familiar? But there may be more independent pet stores in the U.S. today than there were then.

So no, I’m not worried about Walmart or Kroger or Target or whatever opening a liquor store and destroying my chance to buy quality wine. And anyone who reads the blog knows that if there was a reason to worry, I’d be the first one to write about it.

The other thing to know? If and when three-tier reform hits your state, you’ll read and hear the same dire warnings. And there won’t be any reason to believe them, either.