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Big Wine growth 2016

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Big Wine growthThree sets of numbers — two public, one passed to me by my source in Big Wine — show just how dominant Big Wine continues to be, and how Big Wine growth will affect everything we drink.

The first public chart, reproduced here, was compiled by Lew Perdue at Wine Industry Insight, and shows that the three biggest companies — E&J Gallo, Constellation, and The Wine Group — control almost half of the U.S. wine market. In this, the eight biggest companies sell 60 percent of the wine in this country, which leaves more than 7,500 wineries to fight over the other 40 percent.

Those are almost the same numbers in the second public study, the annual Wine Business Monthly top 30 producers list, which are similar to the finding in the magazine’s 2014 report, when Gallo, Constellation, and The Wine Group controlled half the U.S. market. Meanwhile, the top 30 companies in the 2016 report accounted for 74 percent of all the wine sold in the U.S. Interestingly, that’s less than they reported in 2014, when the top 30 sold 90 percent of the wine; chalk that up to bigger companies, like Diageo, selling their brands to smaller companies.

The three biggest companies (again, Gallo, Constellation, and The Wine Group) controlled about half the U.S. market in the landmark 2011 Big Wine study conducted by Phil Howard at Michigan State.  

It’s important to understand how big big is. First, the Wine Business Monthly top 30 total just .04 percent of all U.S. wineries, which makes the infamous One Percent look like an all-inclusive kumbaya sing-along. Second, Jackson Family, which makes Kendall Jackson and is about as close to a national brand as wine has, isn’t one of the half-dozen biggest producers in the U.S. It’s eighth in the Wine Industry Insight chart and ninth in Wine Business Monthly’s rankings with almost six million cases. That’s still big, but the biggest companies are so gigantic that even some of their brands, like Gallo’s Barefoot, sell more than all of the Jackson Family portfolio.

In other words, every time we buy wine, the odds are better than not that we’re buying a Big Wine product even if we don’t want to. My colleagues in the Winestream Media pooh pooh this whenever I write it, arguing that wine drinkers have more choice than that. What about those other 7,500 wineries? The catch, and what they don’t understand, is that most of us don’t shop in places that sell wine from the other 7,500. We shop at Costco and Walmart and grocery stores, and those retailers account for almost half the wine sold in the U.S.

Case in point: Sales statistics for 2015 that my source in Big Wine passed to me for 10 U.S. states (none of which are California), and where Big Wine (defined as a company that appears in either the Howard study or the Wine Business Monthly top 30) dominates at all prices:

• 9 of the 15 best-selling wines between $15 and $20 are from Big Wine, including La Crema (Jackson Family), Louis Martini (Gallo), and Meomi (Constellation).

• 12 of the 20 best-selling wines between $12 and $15 are from Big Wine, including Wild Horse (Constellation), Kendall Jackson (Jackson Family), and Chateau Ste. Michelle (Altria). And I didn’t include Hess and Rodney Strong, both on the Wine Business Monthly Top 30 list but family run.

• All of the 20 best-selling wines between $9 and $12 are from Big Wine, including Menage a Trois (Trinchero), Cupcake (The Wine Group), and Apothic (Gallo).

 

Is the U.S. wine boom over?

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U.S. wine boomThat’s the question that the annual Silicon Valley Bank state of the wine business report addressed last week, and the answer? It does look like the U.S. wine boom is over — for now, anyway. And though Rob McMillan, who writes the report, was optimistic that the slump may be short-lived, the fact that he cut through the usual pom poms and short skirts that pass for wine business analysis speaks volumes about how serious the situation is for anyone who loves wine.

The report predicts a decline in U.S. per capita wine consumption after more than 20 consecutive years of growth, and while overall sales in dollar terms will increase slightly, sales measured by the amount of wine sold will remain flat for the fifth year in a row. That is also the end of a two-decades-old trend; after sales bottomed out in the early 1990s, they increased annually, even through the recent recession.

McMillan points to three reasons for the change:

• The collapse in sales for wine that costs less than $6 a bottle, the boxes and jugs of Almaden and Carlo Rossi that have been some of the biggest cash cows in wine retail history. “That market is gone,” he said during the report’s webcast last week, “and it’s not coming back.” Yes, consumers are buying more expensive wine, but not as many of them are buying wine overall, and premiumization seems to stop at $15. There is little evidence that anyone is trading up higher than that.

• Competition from craft beer and spirits, which are more appealing to younger consumers. The report didn’t go into detail about why they’re more appealing, but as a 20-something woman told me the other day (and she worked in a wine shop): “Wine is such an anachronism.”

• Generational change, and McMillan said what few others in wine want to admit publicly. The Baby Boomers who powered the 20-year wine boom don’t drink as much as we used to, and we’re going to drink even less as we age. Meanwhile, the Gen Xers and Millennials aren’t making up the difference, whether because they’re drinking craft beer or can’t afford to. I talked to McMillan after the report came out, and he was blunt: “The Millennials are not going to spend the money on wine that the Baby Boomers did.”

In fact, most news reports of the study downplay that bit about the Millennials, who are supposed to be the wine business’ savior. But anyone who is clear-eyed about the economy understands that that may not be possible. First, this isn’t the 1990s, when the gross domestic product grew three to four percent a year. Second, the Millennials, for all the talk about peak earning years, don’t have access to the same high-wage jobs the Boomers did 20 years ago. And third, without those high-wage jobs, they will have even more difficulty paying off an unprecedented $1.3 trillion in college loan debt. All of which means it’s more likely they’ll buy a $5 craft beer instead of a $15 bottle of wine.

Wine trends in 2016

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winetrendsWine trends in 2016? Expect to see consolidation continue, producers continue to aim at the consumer smooth tooth, and retailers focus even more on private label. And, not surprising given all of this, more of us move away from wine in favor of craft beer:

Distributor and importer consolidation: Big Wine will get bigger in 2016, which won’t be anything nothing new. The real news will take place among distributors and importers, as the biggest among those two groups buy smaller companies. We’ve already seen some of this, and there will be more for two reasons. First, historically low borrowing costs, which will make it possible for the biggest companies to buy more smaller companies than usual and even to overpay. Second, the graying of the family distributors and importers who started their businesses in the 1980s and 1990s and who brought us so much interesting wine. If you run a family business and you’re nearing retirement, and someone throws a ridiculous amount of money at you, wouldn’t you sell, too?

Keeping it smooth: The number of red blends and pinot noirs, which have grown like crazy over the past couple of years, will keep growing. This includes (most importantly) sweet red wine, as well as any red blend tasting of massive amounts of fruit and without much in the way of tannins. It includes pinot nor, because pinot made for less than $20 is usually blended. It also includes Prosecco, which has jumped in sales the past couple of years and is increasingly being made to fit the smooth flavor profile even if that doesn’t necessarily taste like Prosecco.

Bring on the private labels. One of the most important statistics about wine was buried in a Nielsen marketing report last year — 4,200 new wines were introduced in 2014, about 12 1/2 percent of the market. Those weren’t necessarily wines from new producers or new wines from old producers, but wines made for specific retailers, whether grocers or chain wine stores and called private label wines. They can be sold for a little less than national brands, or even the same (right, Kroger?) but reap more profit. 

Flat wine sales. Since the recession ended, annual wine sales have hardly grown at all. As wine market analyst John Gillespie has written, that could be because we’re switching to craft beer, where sales have surpassed almost everyone’s expectations. The most telling number: The craft beer market is worth $24 billion, which is two-thirds of the entire U.S. wine market. And it’s not like craft beer has been around for very long.

Call me cranky, but the first three things on this list explain the fourth. If wine is becoming boring — the same kinds of wine made by the half-dozen producers who dominate the U.S. market, why wouldn’t we look for something else to drink? Throw in that these are increasingly ordinary products, which so much private label is but  are sold for higher prices, and wine’s sales slump seems obvious.

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