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Another study agrees: We buy wine on price

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wine genome studyThe biggest surprise in the Wine Genome study from Constellation Brands, one of the biggest wine companies in the world? That one-fifth of us buy wine on price.

“We knew they were out there, but the widening span of the study showed how deeply the recession cut,” said Dale Stratton, the Constellation official who oversaw this version, the third, of the company’s Project Genome, designed to identify the most common types of of wine drinkers based on purchase behavior, motivation, and preferences. “The recession had a big impact and significantly changed consumer spending habits.”

Stratton laughed when I asked him about this. No, he said, it’s not that Constellation (whose brands include Rex Goliath, Mark West, and Robert Mondavi) didn’t expect price to be important. Rather, it’s that price-driven wine drinkers were the biggest category of the six, doubling the number of  Enthusiasts — those who “love everything about the wine experience,” including researching purchases, reading reviews, and sharing wine with others. In other words, the Winestream Media’s audience. The other thing to note here? The Enthusiasts account for 15 percent of profit, compared to 14 percent for the Price-Driven group. Harrumph.

The study, which updated a 2004 effort, is full of surprises — unless, of course, you visit here regularly (and you can see a nifty infographic describing each group here):

• The third-biggest group, at 19 percent, are Overwhelmed, which means pretty much what it says: “I don’t enjoy shopping for wine, and find it complex and overwhelming. This, says Stratton, reinforces the need for wine education, not only for consumers but for those who sell wine — distributors, retailers, and restaurateurs. Hearing this was surprising enough, but I almost dropped the phone when Stratton said that winespeak is one of the reasons the overwhelmed are overwhelmed. Maybe, he said, retailers and wine writers should find simpler terms to use.

• Women, who have traditionally skewed higher for wine purchases at the lower end, are becoming more important at the higher end. The Enthusiasts, who were about 65 percent male in 2004, were close to 50-50 this time. “This means more women see wine as a hobby,” says Stratton, and that means more women attend tastings and shop at wine-specific retailers.

• Wine snobs, called Image Seekers, are still with us, and in a big way. They account for 18 percent of wine drinkers, but contribute 26 percent of profits, more than any other group. Given the wine they drink, that’s probably not surprising.

• Welcome the Millennials to wine, in the form of the Engaged Newcomer at 12 percent. This group is young, wants to learn more, and recognizes that wine is intimidating. They also spend more on a bottle than the other groups, about $13.

One other point worth noting: This kind of study is common for consumer packaged goods like laundry detergent and ketchup. That Constellation can do for wine what Proctor & Gamble does for its products speaks volumes about how much the wine business has changed, and that it is becoming more mainstream.

“Wine is increasing household penetration at a good clip, and the audience has broadened,” said Stratton. “And it’s going to continue to change, as the American population changes.”

Wine sales, price, and what doesn’t get enough attention

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wine sales priceRegular visitors here know that cheap wine outsells expensive wine in the U.S., and that the Winestream Media spends most of its time genuflecting about wine that most of us don’t buy. And when I say most of us, I really, really mean most of us, thanks to these two charts totaling U.S. retail wine sales — expensive and overall — from wine industry trade magazine Wines & Vines. Here are the charts — overall and and expensive.

Several caveats: The charts don’t match on dates; expensive wine covers the 52 weeks ending June 2014, while the other chart is June 2012 to June 2013. This probably helps pricey wine, since its business picked up substantially over the last year. Also, since these are retail-only numbers, expensive wines that focus on restaurants are almost certainly under-counted. Finally, since the number of cases sold for the less expensive wines isn’t on the chart, I used third-party sources in the discussion below where necessary.

Still, the numbers are stunning:

 • The best-selling expensive wine (more than $20 a bottle) was Santa Margherita, with 147,925 cases and $36.5 million in sales. The best-selling wine overall was Barefoot, with $323 million and some 11 million cases. How big is that disparity? In grocery stores, it’s the difference between Kroger, a national chain, and Save Mart, a company only people in certain parts of California have heard of.

• The 15th- through 20th-ranked expensive producers all had $4 million or less in annual retail sales. It’s not so much that those totals are two-thirds of what Barefoot sells each week, but that I have a friend who owns a Dallas magazine company whose annual sales are $2 million. You’d think high-end, well-known pricey brands would be doing exponentially better than someone with a one-city media company.

• Menage a Trois, 16th on the overall list, doubled the dollar sales for Santa Margherita, and every producer on the overall list sold at least one-third more than Santa Margherita.

• Only two brands on the overall list, which tracks retail wine sales, cost more than $10 a bottle, and one of them, Kendall-Jackson, was at $12.

Hence anyone who doesn’t believe that only five percent of U.S. wine drinkers buy wine that costs $20 or more hasn’t been paying attention.

Are we facing a cheap wine crisis?

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cheap wine crisis

“What happened to all that great $10 wine I used to drink?”

What if most cheap wine tasted mostly the same — the reds with sweet fruit and almost no tannins, and the whites a jumble of fruit and sugar, and maybe (or maybe not) a little crispness?

That prospect — terrifying as it is to those of us who care about quality wine we can afford to buy — is not as impossible as it sounds. The quality of too many of the cheap wines I’ve tasted this year, combined with a number of interviews with wine business executives, suggests the possibility of a $10 wine world dominated by just that kind of wine.

In 2013, reports Nielsen, wine priced $10 to $15 more than doubled the sales growth of wine from $6 to $10, and the average price of a bottle increased to $8. Contrast that with sales during the recession, when just the opposite happened. As Rob McMillan of Silicon Valley Bank told me, “I see this as reflective of the economy. There are improving sales conditions compared to last year… [Wineries see] improved opportunity in future years as consumers trade up again. I know the last part won’t make you happy, but the worst segment today is right below $10.”

We’re not there yet, but here are three reasons why we could eventually face a cheap wine crisis:

• Cheap wine production is dominated by the handful of biggest wine companies, whose reason for being all but guarantees that kind of technically correct but simple wine. Just three brands — Barefoot, Two-buck Chuck, and Yellow Tail — account for 8 1/2 percent of all the wine sold in the U.S. each year. Trinchero Family Estates, whose labels include Menage a’ Trois and Sutter Home, has five percent of the U.S market, according to the 2014 Wine Business Monthly top 30 wine companies ranking. How many of us have even heard of Trinchero?

• The biggest companies, thanks to economies of scale and sales volume, can be profitable selling an $8 bottle where smaller companies can’t. Constellation Brands, after all, is a $4.9 billion company. So the smaller producers, who often make the most interesting cheap wine, have to find a more profitable price niche. Increasingly, as McMillan noted, that’s $15 and up.

Increasing consolidation among distributors. This means fewer and bigger distributors, who prefer to work with the biggest producers. So even if a smaller company can make money with cheap wine, it may not be able to find a distributor to sell its wines to retailers. And, if it can’t find a distributor, it can’t sell its wines through retailers and restaurants because of the restrictions imposed by the three-tier system that governs U.S. wine sales.

Not encouraging news, certainly. But many people were predicting the end of quality $10 wine in 2007, and we know what happened then — the beginning of the golden age of cheap wine.

Image courtesy of The Economist’s More Intelligent Life blog, using a Creative Commons license

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