The end of the wine business as we know it?

wine businessThe one consistency about the wine business, as we celebrate the blog’s eighth birthday, is that the big get bigger, and that there isn’t any room for the small. Or, as a distributor friend of mine put it the other day, “It’s all about consolidating or dying in this world of global megacorps.”

Gone are dozens of companies that made wine that I enjoyed — producers that were bought or folded or absorbed by other companies, many of which are also gone. Remember Hogue, which made a quality $10 sauvignon blanc in the 1990s? It was purchased by the Canadian Vincor, which was soon gobbled up by Constellation. That entire process, three complicated financial transactions worth tens of millions of dollars, took place in just five years.

The difference these days is that the big are bigger than ever, and today’s small companies used to be considered big. The 10 biggest wineries in the U.S. account for about 71 percent of all the wine sold, based on figures from 2014 from Wine Business Monthly, and this amalgamation is happening on the distributor side, too, with the 10 biggest wholesalers controlling two-thirds of the market.

Throw in consolidation among retailers, and Big Wine will soon be selling to Big Retail through Big Distributor, and a handful of companies will control what we drink — the prices, the quality, even what it’s supposed to taste like. It will be the end of the wine business as we know it.

In this, there will be two markets for wine, what economists call bifurcation (and which is happening elsewhere in the U.S. economy). In the first, called the mass market, Big Wine will make as many as four out of every five bottles sold in the U.S — competent though often overpriced grocery store plonk with little varietal character and designed to appeal to specific demographics, the way laundry detergent and yogurt are. In other words, “smooth” wine.

In the second, called the luxury market, what’s left of the traditional wine business, both producer and distributor, will sell wine costing more than $20 to people who can afford to buy it, and whose spending will keep the dwindling number of traditional retailers and small distributors in business.

The idea that wine quality has anything to do with price will be as quaint as getting a letter in the mail. Instead, we’ll buy wine because the name speaks to our lifestyle or the label pops or any of the hundreds of other marketing techniques that Big Wine uses. And why not, since merlot will taste like zinfandel which will taste like pinot noir. For $15 at the grocery store, we’ll get fruity red wine with soft tannins and chocolately oak, and the Winestream Media will give these wines 88 points and gush at the value. The wine on the luxury side may remain varietally driven; what’s the point of paying $300 for white Burgundy that tastes like vanilla extract? But since it will be too expensive for all but a few of us, we’ll never know.

Sound too depressing to be true? Just another Wine Curmudgeon rant? Maybe, but there’s evidence it’s already happening in Great Britain: “A two-class wine market is emerging in the UK as some wine drinkers splash out and others are increasingly drawn to hard discounters,” and where the amount of wine sold is decreasing, but its value is increasing. Which, not coincidentally, almost happened in the U.S. this year.

I’ve spent a lot of time over the past year trying to decide whether to keep writing the blog, given the way things are going. I’ve always been an anachronism, a wine writer who writes about wine for people who don’t know much about it, but these changes threaten to make me as useless as a typewriter. What’s the point of writing about quality cheap wine when there may not be any?

But I’m also stubborn. If all this happens, someone has to remind the wine business that they’re turning what we love into an alcoholic version of soft drinks, and that some of us want more than Mr. Pibb and Dr Pepper. So I’ll hold on for as long as I can, keyboard in hand, rants at the ready, my Gascon whites and my Sicilian reds and my crisp roses nearby, and I’ll keep repeating: “Do not go gentle into that good night. … Rage, rage against the dying of the light.”

34 thoughts on “The end of the wine business as we know it?

  • By Adam - Reply

    Do you think there’s any way this can change? I’d say not… these are global forces, not ones based on the industry itself.

    Same thing is starting to happen this year with craft beer???look at Constellation buying Ballast Point this week???and there’s no way it can be good in the long run. It’s depressing.

    • By Wine Curmudgeon - Reply

      It is depressing, and that Constellation paid almost 10 times sales for Ballast Point speaks to how powerful the forces are. But many, many companies, big and small, have gone broke underestimating their customers, so there is that.

    • By Tony - Reply

      It’s a scary outlook that our family is trying to come to terms with. The front line is a tough place these days but we fight on believing that consumers want real wines that are created by hard work in the vineyards not creative work in the Lab. It used to be Joel Peterson saying “no wimpy wines” let’s move forward with supporting “only real wines”! It’s corny but true if we want to save family wineries we have to support them with our purchases. Here’s to saving the little guys.

      • By Jonny - Reply

        It’s a shame that the mom & pop retailers in my market bow down to the big distributors and their give a ways etc. Once a big national retail chain arrives, these stores will suffer and eventually close because they’re no longer the big dog in the market.

  • By Jack - Reply

    It’s became apparent to me just this past Summer. We opened a second tasting room in Kenwood to help increase DTC sales. During that year long proces, B.R. Cohen,imagery Estate, Benziger, Siduri wineries got gobbled up, in fact, all of the larger wineries in the Valley of the Moon are no longer independently owned….just a handful of us little guys. Where do we go from here I often wonder.

  • By Scotchy - Reply

    I’d argue that there has been such divisions for centuries. Maybe its changing within the US itself, but in Europe in the 18th century, there was wines in jugs for the masses and wines in bottles for the aristocracy.
    At least in the US, the opportunity still exists for someone with enough guts to borrow the $$ and take enough risks to make it, whether in traditional winemaking or in the more economical sense. And, shoot, he/she might be able to sell his/her wine brand or winery within a few short years to a conglomerate and make a killing.
    The thing that is changing so much in the US is the number of wine brands under conglomerates that we don’t even know are made by them.
    For decades in the US, the largest still made the most wine…we just knew that they were the ones making it.
    I don’t know if its the end of wine industry as we know it, just a ever changing landscape.

    • By Wine Curmudgeon - Reply

      Yes, but: 80 percent? Almost that for distributors if the Glazer’s/Southern and Wirtz deals go through? And Kroger, Total Wine, and Costco as dominating national chains? That’s what is unprecedented.

      • By Dan - Reply

        The second tier suppliers are going to have to go somewhere. With all the performance contracts that the larger suppliers have these days, the smaller guys are being challenged to get any attention. The smaller, and I mean smaller distributors are now starting to pick up more and more brands in the state I live in. Retailers are giving these guys a chance because they can service them better in many cases. Playing the “locally” owned card has worked for them on more than one occasion!

        The price that Richard and Rob Sands payed for their latest acquisition was crazy. Historically they do not overpay for anything. I agree with who ever said, you make good wine with a story to tell, the consumer will find it. The challenge for the smaller wineries will be to get that message out their. Maybe they should all take notice on how the craft beers have focused their messaging, through social media.

  • By Charles - Reply

    All the above projections are probably correct. But as the owner of a small winery, along with all the other small wineries in America, we have the ability to offer the wine customer something that none of the above retail establishment can offer; a wine experience. Visiting a winery is far more than just sipping a glass of wine; it’s the total package lubricated and enhanced by liquid pleasure from a bottle. It’s the music, the atmosphere, the tranquility, and the socializing that is missing when you grab a bottle of booze off the shelf in a supermarket.

  • By Jon S - Reply

    An estimated 370 million cases of wine were sold in the US last year by volume about 30% was imported and 2/3 of that 30% came as bulk and went into BIB and 1.5 liter. By size of package the volume of wine in gallons is about 22% bib (20% 5 liter and 2% 3 liter which is the fastest growing size),1/3 is 1.5 liter. Of the remaining most is 750 ml which has about 18% by volume sold on premise but it is half of the retail dollars. 97% of wine sells for less than $15, 92% for less than $10 and 98% of that is consumed within about 48 hours of purchase. Less than 5% of americans spend more than $25 on a bottle of wine in any given year. The larges wine brand by volume is Franzia with about 14.5 % of the category in gallons (.145 of 370 million times 2.2 is alot of wine). The category is very weakly branded. Just ask a tasting room visitor if they can remember an ad for a wine brand vs for beer or spirits. Retailers take an 8-10% margin for beer, an 18-22% margin on Spirits and a 35% margin on wine because wine has far more brand risk. The biggest selling varietal in terms of gallons is still Chardonnay. Muscato is passing Pinot Gris in volume at about 6.5% of gallons. The economy will drive more boomers, tweeners and millennials to the volume brands because other than a few who inherited wealth,work in tech or finance few can afford the artisan, hand made wines. 99% of tasting room employees can’t afford to buy the wines they pour. 1% is one percent after all.

  • By Ralph Leitzgen - Reply

    I come from the Mosel Valley and there are still small operations – in all fairness, not all of that is good and not everything the big guys put out is bad. As for myself, I am making Reds in the Santa Monica Mountains and recent government regulations are preventing anybody but the well financed established wineries from opening up a new winery. I hope to establish a coop which would represent a number of small growers but I can actually only achieve that through cooperation between the government and small scale growers. I do believe that there is a place for that and that ultimately a sense of fairness will prevail…

  • By Ryan O'Connell - Reply

    Hang in there, buddy! Fight the good fight. We’ll do the best we can!

    If it helps, there are thousands of people in the smallest 10% of wineries – so even if we’re losing the lion’s share of the market, we’re helping thousands of producers thrive.

    And you know me… I think there’s hope in this crazy world 🙂

  • By DT389 - Reply

    Interesting article. To be honest, I’m less concerned about ‘who owns what’ and if they are publicly held, family owned or management owned. As someone who’s ‘in the industry’ I can tell you that just because a company’s family owned vs. being publicly traded doesn’t really mean that they are any more/less kind or passionate about quality, especially in the $15 or less retail landscape.

    What IS a concern in my view is the SAMENESS in so many bottles. Your brand’s ‘lifestyle positioning’ begins to trump what’s inside, and everybody’s benchmarking against each other vs. trying to innovate inside the bottle and chart their own style. The result, everything starts to taste the same. Winemakers are told to emulate, rather than innovate. “Make this wine taste like the Prisoner!” “Make that wine taste like Meomi!” It’s more about manipulating the blend than anything.

    There are some exceptions, but they are indeed exceptions. Bogle 100% barrel ferments their Chardonnay in REAL barrels (not chips and staves) and sells for <$10. But these quality distinctions at this price are really the exception, not the rule.

    The Red Blend category is the worst. Everyone now is going hog-wild on adding residual sugar- because that's what most consumers seem to be looking for. For those that seek out wines that are different/unique/a conversation piece, I steer clear of that part of the aisle.

    Honestly, at the $15 and under retail price, imports are far more interesting. Maybe because I don't have a choice of 50 different Nero d'Avola offerings to choose from. Maybe because the mysterious nature of where the wine comes from, or because I'm blissfully unaware that this wine comes from a large Euro conglomerate. But, that's where I now spend the majority of my wine dollars.

    Chin up, there's still plenty of wine to help us to discover, you may just have to work a bit harder (or drink just a tad more: -).

  • By Kathy - Reply

    What is the impact on imports? Whether France, Italy, Spain, EU and outside or Australia/NZ and South America? And how will Chinese wine/importers/distributors cloud the picture in a few years? Is that why these US mergers are happening? To control/contain or to package to sell? Thx dear curmudgeon for a great post.

    • By Wine Curmudgeon - Reply

      Imports, as one of the other comments notes, are a different beast (and thanks for the kind words) What is changing is that the biggest producers now have their own imports, whether owned directly or in some sort of partnership. That way, they can get space on the store shelf just like they do for California.

  • By Javier H - Reply

    Same situation in South America specially in Argentina where until recently (no more than 7 years ago) a lot of new wineries (small ones) “sprouted like mushrooms after the rain” Nowadays they are being absorbed by the big players (Pe??aflor, Nieto, etc.) and this is a fact of this times in a global world. Anyway you know Diageo the big big player in the alcohol business sold the wine area and kept only the spirits. This situation could be the simple explanation to an hipothesis which estate that unlike beer, Wine is art and it is no so simple not only make wine in larger companies but keep the quality. Sooner or later the earnings begin to prevail over the quality philosophy because the company is commanded by the accountants and they think only in “blue numbers” all the time. We??ll see.

  • By Jeff Swanson - Reply

    An interesting time we are in eh? But that is the environment we thrive in and live for. What a banquet of fine and obscure wines are available to us if we just go on the hunt for them. Most are not staring at us from the grocery store shelves, but they can be found for the intrepid and the curious.

    Many winemakers and vineyard owners are looking to create wines of distinction and character. Seek them out and enjoy the fruits of their and your labors!

  • By Local wine gal - Reply

    Not one top 10 distributor currently present in the state of Georgia?

    • By Wine Curmudgeon - Reply

      Smaller market. Not worth their time or effort to be there.

  • By Rad Grapes - Reply

    There are a few, small, valiant companies like mine that have been countering this trend for years. I started Rad Grapes in 2005 to promote, import and distribute great artisanal wines to New York’s best wine shops and restaurants. We have in business for almost 11 years now and continue to make strides in the NY market with some great small brands.

    If you offer consumer really good quality at the same price as all the other crap, they will buy it with gusto. It takes constant work, many follow ups, lots of in-store tastings and love to keep doing what I do in a massively consolidated market like NY. Hard, but it is doable…

    I quit my long time job in 2005, when the ditributor I had been working for years was bought out by Southern. I wanted nothing to do with ‘The Dark Side”, so I went out on my own. Cheers!

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  • By BWD - Reply

    Funny you complain about the homogenization of the wine world, yet in a recent post you wax poetic about the Beronia Rioja Crianza 2011. Which is a fine Rioja, but is also owned by Gonazales Byass one of Spanish wine producers. A common stereotype in the wine industry is big=poor quality. While there is a ton of plonk out there are some very big wine companies that get how to make world class wines (hillside vineyards, low yields, tempered use of oak, indigenous yeast etc…)

    • By Wine Curmudgeon - Reply

      The issue, as I have written for 20 years, is not necessarily size or ownership. Big Wine did many things to bring the wine business into the 20th century, including hiring women and minorities and setting standards for wine quality. What has changed is concentration of ownership, so that a 2 million case winery like Bogle — which does a hell of a job — isn’t among the 10 biggest in the U.S. That’s unprecedented. Oligopolies rarely benefit consumers, and don’t do much good for their category in the long run, as Detroit will attest.

      By the way, Gonzaleaz Bypass does about 2 million cases a year, and sells about 300,000 of those in the U.S. So, by terms of this discussion, it’s not all that big.

  • By Boo Walker - Reply

    Terribly terribly sad.

  • By Rob - Reply

    Other smaller wineries in Sonoma Valley also have sold — Robert Hunter and Flanagan among them. Charles Krug Winery, oldest in Napa Valley, may be next. Seems as if they are opening the doors and setting the stage for a sale with the recent management reorganization. We’ll see.

  • By Jim Lapsley - Reply

    Sorry to be jumping in late, but I think some historical perspective is required. The top 10 wine producers’ 71% market share (which includes their imported wines as well)in 2014 has actually DECLINED in the past decade. WBM’s listing of the top ten producers in 2004 came to 231.15 million case sales in the U.S. and Wine Institute indicates that total U.S. wine consumption that year was in the neighborhood of 280 million cases all wine. That works out to an 82% market share in 2004 for the top 10. Wholesale distribution is, of course, a totally different matter

    • By Wine Curmudgeon - Reply

      Thanks for adding this, which I think speaks to some large companies shedding brands (the creation of Treasury) over the last decade. I’ll have to check, which I should have done before.

  • By Steve McIntosh - Reply

    The economist in me wants so badly to believe that free market forces will see through the drop quality across that 80% and divert demand to the other 20%. But the pragmatist says probably not anytime soon. As generations in the past have done for centuries, I’ll cite this is another example of the end of civilized society as we know it. Boo!

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  • By Matt - Reply

    The WSET Diploma paper assignment for April 2016 is on “Branding,” and this entire discussion is pertinent to that topic. The bifurcation into mass market and luxury has been evolving globally, and can be found on our shores in supermarkets (Aldi and Trader Joes) and large discounters (eg. Costco). Not only is it sales at discounted prices, but it is the evolution of “sellers own brands.” In a way this mass market side is disrupting the three tiered system of the US, “sellers own brands” blur the traditional lines between producer and wholesaler and retailer. How does a smaller brand compete- adoption of a luxury position, direct to consumer shipping? But this also speaks to the consumer’s perceptions of a need for a brand, and this perception varies relative to their economic condition, their wine knowledge, and the purpose for consuming a given wine at a given time. Market research suggests that US consumers are slowing “buying up” to more expensive wines- the $15.00 category. But, the successful large brands are increasing market share, most notably Barefoot. An interesting “case study” would be Barefoot vs Chevel Blanc (knowing its ownership structure). Don’t stop writing this blog, I think one can always find an excellent wine for under $25.00 that is not a mass market product.

    • By Wine Curmudgeon - Reply

      Wow. Who knew I was going to part of a WSET discussion?

      Which, joking aside, demonstrates how this matters to the wine business.

  • By Erika Szymanski - Reply

    I’m no MW, WC, but for what it’s worth this topic ties into an academic paper I’m currently writing. Agreed with folks who’ve pointed out that wine bifurcation is nothing new (the peasants used to drink piquet, and now the peasants drink Franzia; same difference). What surprised me about how you’ve approached The Great Wine Divide is connecting the bifurcation in wine quality with the lack of relationship between price and quality. I hadn’t thought of the two as the same issue, but as two different issues laid on top of each other. Most people drink plonk, and a relatively few wineries turn out relatively little high-quality stuff for people who can afford to care and choose to do so. Most wine is priced and sold on brand image rather than on wine quality. Disposable income and educated palates don’t reliably walk in tandem, and so some overpriced wine is plonk and some inexpensive wine is really worthwhile stuff. This isn’t really a problem, save insofar as the market glut makes it difficult to distinguish the good and the bad (i.e. since price isn’t a reliable indicator) and insofar as we educated folk might want the plebes to disown the Franzia and drink good wine. But you spend lots of time searching out good-value wine and I don’t. And so I wonder (at the risk of divulging that I’ve missed something obvious), WC: what make you connect the tale of two markets with the detachment of market price from wine quality?

    • By Wine Curmudgeon - Reply

      My thoughts, Erika:

      1. I’d argue, based on the demographics from my site and other wine sites and magazines, that the bifurcation we’re seeing now did not exist over the past couple of decades. High-income consumers buy cheap wines for everyday drinking. Plus, I’ve seen the Range Rovers in Santa Fe with cases of Two-buck Chuck in the tailgate.

      2. Pricing has never been this bifurcated. A decade ago, you could buy a bottle of quality red Bordeaux or pinot noir (even red Burgundy) for less than $20, and that’s almost impossible now. It’s certainly not inflation, since most $10 wine still costs $10. My favorite Champagne (when I drank it), Ruinart, went from $60 to $80 or so for no particular reason, and white Burgundy from Montrachet went from $40 to $60.

      3. Globalization/consolidation. Chinese, Russian, and Japanese demand moved prices up on the high end, while the growth of Big Wine meant a change in approach to pricing and product development. Post-modern Big Wine companies don’t just make cheap wine or expensive wine, but a tier of wines to be sold across all price points, just like cars. That has never happened before in wine.

      4. Price/quality. I started writing about wine because I wanted to find the best quality cheap wine. This never seemed odd to me; isn’t it how we approach every other consumer good? Isn’t that how Honda and Toyota took over the world’s car markets? The catch was that cheap wine wasn’t supposed to be good. Only expensive wine was. But during the 20-some years I’ve done this, cheap wine quality has improved dramatically.

      5. All of this is why price and quality are so detached. The technology exists to make even the cheapest wine drinkable, and Big Wine has the marketing skill to sell wine regardless of quality, just like Procter & Gamble can sell Tide for more money when it’s not all that different from Arm & Hammer. Plus, since Big Wine needs to have more wine to sell across more price points, it’s easier to market a $12 wine for $16 than to make a $16 wine. Finally, since the best wine has been priced out of the reach of most consumers (95 percent of Americans will never buy wine costing more than $20, says the Wine Marketing Council), we’re stuck with $15 plonk. I see it the same way as clothing — if i want a quality pair of pants that won’t shrink and will last, I need to spend $50 or more. The only alternative is to pay half that for a crappy pair of pants at Target or Kohl’s that will fall apart after a couple of washings and was overpriced to begin with.

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