Ignore the headlines — wine prices 2020 probably aren’t going anywhere
How can we have have excess supply and declining demand, and yet still see steady wine prices? Because this is the post-modern wine business.
Somehow, we’re at a point where the laws of economics don’t matter. Too many grapes and less consumer demand, as well as an uncertain economy thanks to trade wars, the U.S. election, and the coronavirus, should mean lower wine prices. We should see $15 wines cut to $12, $12 wines cut to $10, and so forth.
But not in this version of the wine business, no matter what the headlines say.
“Most people in the business haven’t a clue about very basic economic principles, such as supply and demand,” one mid-size California producer emailed me recently. “The $15 to $20 ‘sweet spot’ is not so sweet anymore.”
So what is going on here? Why is the wine business defying supply and demand?
First, thanks to consolidation, we have oligopoly pricing. That is, the producers, retailers, and wholesalers control such a large part of the market that they can afford to hold the line on prices. Prices may change, but they never change all that much or for all that long. One wine may be discounted, but then it’s replaced by another one, which is then replaced by another one. Case in point was a Dallas Kroger this week, when almost nothing was priced differently than normal — even previous vintage roses.
Second, we’re seeing the after-effect of premiumization combined with untenable cost structures. So many producers spent so much money establishing their brands at $15 or $20 or $25 that they can’t “afford” to lower prices. If they do, they will “ruin” their brands. In addition, production costs are so high for so many of these producers that lowering prices means they will sell at a loss, and then their bank won’t be happy.
So what will we see instead of consistently lower prices?
Lots of dumping and heavy discounting. Some of this has been going on for months, and it was one reason why Treasury Wine Estate’s stock tanked at the beginning of February. The company either threw the wine out or sold it at deep discounts, often through non-wine outlets. One Dallas dollar store was selling $8 and $10 Beringer supermarket wines for $2.99 and $3.99 at the beginning of the year. That’s the picture at the top of the post.
Also, new, less expensive one-off wines. This happened quite a bit during the recession, and it’s one way for a producer to protect a $25 brand. They’ll sell their wine to someone else, who bottles it under a different name for $10 or $12 or $15. I’ve seen this already, too. My local Aldi is selling a “reserve” pinot noir for $10. It’s almost certainly more expensive wine that has been relabeled.
So, in the end, don’t expect your local retailer to lower prices. That would make too much sense in a business that is not much connected to reality any more.
This edition of Ask the WC: Has the wine tariff pushed up wine prices? Plus, why isn’t rose sweet and whether South African wine is worth buying
Because the customers always have questions, and the Wine Curmudgeon has answers in this irregular feature. You can Ask the Wine Curmudgeon a wine-related question by clicking here.
Have wine prices gone up because of the tariff? I can’t tell, but I buy the same wine over and over, so I’m not a good person to ask.
Watching my pennies
The biggest surprise with the tariff — to me, anyway — has been retailer reluctance to raise prices, and especially for the wines we write about on the blog. There have been exceptions, of course; I was in the country’s premier “natural food” grocer the other day, and it looked like every French and Spanish wine had gone up exactly 25 percent, the amount of the tariff. But many of the other retailers I have visited or talked to are making an honest effort to hold the line. I’m especially seeing many retailers bring in similarly-priced labels to replace the tariff wines. Which, all things considered, makes me a lot less cranky about the tariff. Still, as one Dallas retailer told me, all bets are off when the new rose vintages arrive in the next month or so.
Dear Wine Curmudgeon:
Is rose supposed to be sweet or not? Some taste like white zinfandel, and others don’t. When did this start?
Rose is dry. White zinfandel is sweet. This used to be cut and dried. But in the wine business’ ill-conceived attempt to woo younger consumers, they’re sneaking residual sugar into “dry rose.” Typically, most European pinks are still dry, so you’re safe with French, Spanish and Italian wines. One way to tell: If the dreaded word smooth appears on the back label, I wouldn’t be surprised if the wine was sweet. Rose is supposed to be fruity, not smooth.
Hello, Wine Curmudgeon:
Am I starting to see more South African wine in the U.S.? Is it worth buying?
The answer to the first part of your question is yes and no — yes, because sales have increased substantially, and no because sales are starting from such a small base. South African wines, save for a burst of popularity in the late 1990s, have been few and far between in the U.S. But quality has improved markedly since then, and it’s possible to find Rhone-style red blends, whites like chenin blanc and sauvignon blanc, and even dry rose at a fair price.
This week’s wine news: Supermarket wine prices vary significantly from state to state, plus a study says liquor stores and high crime are related and the FTC is going after social media influencers
• Supermarket wine prices: A home product review and renovation site says U.S. supermarket wine prices vary significantly by state, with Mississippi and Georgia selling the most expensive bottles. I mention this not because it’s news to anyone who spends any time on the blog, but because it’s always fascinating to see how non-booze sites deal with wine. To its credit, House Method, which did the survey, doesn’t draw any conclusions about why there is such disparity. (Or explain how it bought wine in supermarkets in states without supermarket wine sales.) The results, at the link, are interesting, if nothing else. Who knew red wine was less expensive in Hawaii than in California?
• Less booze, less crime? That’s the approach one study is urging on Baltimore officials as city leaders rewrite its zoning laws, with an eye toward reducing the number of liquor stores and bars in the city. North Carolina researchers used a computer model that took into account homicide rates in Baltimore, as well as previous research that showed one-half of violent crime can be attributed to alcohol access. The result? The study found that cutting the number of alcohol outlets might reduce homicides by as many as 50 a year, as well as generate savings of as much as $60 million annually.
• Watch out, influencers: The Federal Trade Commission, which regulates advertising, will apparently clamp down on all those Instagram and social media influencers. The agency wants to know if consumers understand how influencers work; that is, that they are paid to endorse products and that they must disclose paid endorsements. This will matter in wine, given the increasing role influencers play in pushing products like rose.