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.