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The premiumization backlash

premiumization

“Why am I spending more money and getting less wine?”

Is the U.S. wine business finally noticing that premiumization may be good for producers, but not so good for consumers or the industry?

Consider these three items, all of which sound like something the Wine Curmudgeon would say during one of his premiumization rants:

• Wineries should try to democratize wine instead of focusing on premium brands from California’s higher-priced North Coast.

• The wine industry is dominated by elitists who dismiss sweet wines and insist that real wine drinkers should like drier, more correct wines. Isn’t it time the rest of us put a stop to that kind of arrogance?

• The upward spiral in wine prices, as well as the continued growth in producers, may be unsustainable and could inflict long-term damage on wine’s popularity.

In fact, I didn’t say any of those things. They were made by industry leaders, the kind of people who speak at trade shows, are ranked on most influential lists, and get paid lots of money for their wisdom. Stephanie Gallo, the vice president of marketing for E&J Gallo, the largest producer in the world, said the first. Tim Hanni, one of the first two Americans to become a Master of Wine, said the second. And the third was part of this year’s much-respected Silicon Valley Bank state of the wine industry report.

How can that be? Why are wine insiders saying things usually associated with cranks like me – the kind of people who don’t show up on lists, aren’t asked to speak, and who are noticed, if at all, as voices in the wilderness?

Because the U.S. wine business is somewhere it hasn’t been in 40 years – flat growth, higher prices, skyrocketing land values, and Neo-Prohibitionism. And the smart people, who aren’t quite sure what’s going to happen next, are worried.

This is much different than the all too common wine industry approach, described to me by one Napa wine marketer as “My wine is special, and you should buy it because it’s special.” Which, of course, is about as practical as jumping out of an airplane without a parachute. You’re OK until the bottom, and then you wish you had approached the problem differently.

And I’m convinced the key to this soul searching is premiumization. Again, it’s not that higher-priced wine is a bad thing and that all high-priced wine is a scam. Even I buy expensive wine, but that doesn’t mean I throw out all considerations of value and quality when I do.

But those considerations don’t seem to matter to too many producers. They’re happy to sell less wine as long as it costs more, regardless of whether it’s worth the extra price. As in: “Wine at $15 is trending now. What can we make to sell at $15 that will be popular but doesn’t cost us as much to make as the other company’s $15 wine? And make sure it has a cute label.”

The other concern, which Gallo noted in her speech to a major industry trade show: Higher prices are limiting the number of frequent wine drinkers, those of us who drink more than the national average of one bottle a month. We matter because we drive industry growth, and without us, wine wouldn’t be as profitable.

How do higher prices do that? It’s math – if I buy 6 or 7 bottles a month (one way to define a frequent wine drinker), I’m going to buy less wine if I buy more expensive wine. Which, in the long run for the wine business, is like jumping out of the plane without a parachute.

And no one who cares about wine, including the cranks in the wilderness, want that.

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3 thoughts on “The premiumization backlash

  • By Airwine - Reply

    Crunch time is coming for the industry. Outside of some elite brands, some Napa Cabs and most top quality Pinot Noir, there is not much upward pricing power. But there are upwardly spiraling costs. On the other hand, if you have cash when the big boys start dumping assets and the panic starts a stampede, there could be opportunities. Maybe.

  • By Bob Henry - Reply

    Excerpt from Wine Spectator Online
    (November 12, 2013):

    “West Coast Wineries Are Up for Sale — Quietly”
    (A wave of recent deals show investors see opportunities in wine, while owners see an exit strategy.)

    Link: http://www.winespectator.com/webfeature/show/id/49221#.UoI_yAMMzG8

    “… While small wineries can succeed by selling most of their inventory direct to consumers and large producers have muscle with wholesalers, those in the middle — annual production of 5,000 to 15,000 cases, for example — can’t get much attention from distributors unless the brand is hot.”

    AND:

    “… ‘I’ve never seen more wineries for sale in California than there are today,’ [said Charles Banks, who through investment groups such as Terroir Selections purchased Santa Barbara Syrah specialist Qupé and Napa veteran Mayacamas Vineyards.] … Banks … estimates that between 30 to 50 percent of California wineries are either in financial difficulty or aren’t as profitable as they could be.”

  • By Bob Henry - Reply

    Excerpt from MediaPost
    (December 8, 2016):

    “40% Of Alcohol Beverage Buyers Make Their Decisions In-Store”

    Link: http://www.mediapost.com/publications/article/290633/40-of-alcohol-beverage-buyers-make-their-decision.html?edition=98740

    Fully 40% of U.S. consumers who buy alcoholic beverages haven’t decided what they’re going to purchase when they walk into the store, according to a new study from IRI.

    Of the 60% who do have a planned beverage purchase, 21% end up changing their minds in store, and 50% of those who change their minds ultimately buy a different brand than they originally intended.

    . . .

    All of which points to “immense” opportunities for alcohol manufacturers to find new pockets of growth by engaging and influencing consumers while they’re in the store, point out IRI’s analysts.

    Beer, wine and spirits manufacturers are increasingly aware of the importance of working with retailers to win over consumers, according to Robert I. Tomei, president of consumer and shopper marketing for IRI. “When you consider how often most shoppers are going to the store, and that 21% of them change their minds during the shopping trip, you realize the impact that in-store signage, creative labeling and other marketing could have on your portfolio,” he stresses.

    . . .

    (Bob’s comment: But more importantly, you realize the impact that in-store salespersons play in guiding purchases as an “opinion leader” and “taste maker.”)

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