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Wine prices in 2014

Wine prices in 2014You don’t need to be an expert — or to consult an expert — to figure out what wine prices will do in 2014. Just spend a couple of extra minutes at the grocery or liquor store the next time you’re there. If you see a fair number of previous vintage wines, and you almost certainly will, then you’ll know that wine prices in 2014 aren’t going anywhere.

More, after the jump:

Which is mostly what the experts are saying, though their methodology is a little more sophisticated. The man who probably knows more about this than anyone else, Rob McMillan at Silicon Valley Bank, wrote in the bank’s 2014 wine business report: “There are broad expectations in the wine business that bottle price increases can be taken in 2014. Due to the higher volume of wine available for sale in a slow economy, we don’t believe the opportunity is there to take broad increases with the exception of selective increases in the higher priced luxury segment.”

But he’s not the only one who sees 2014 as more of the same — which is terrific news for consumers. One key survey’s finding: “Domestic sales in the $10–$20 retail price category are booming, primarily for leading varietals such as cabernet sauvignon and pinot noir. However, the under $10 segment still commands roughly 80 percent of total sales among major varietals.”

The reasons for stable prices are many, including increased supply, not just in California but — and regardless of the harbingers of doom — around the world. Some of it is the U.S economy, which continues to take one step forward, one step sideways, one step backward, and then sit down for a bit, all of which tempers demand  (as all those previous vintages on the shelf demonstrate). But there are a host of other reasons, each of which should continue to hold down prices — not just this year, but for the foreseeable future:

• Increased competition among producers, which always keeps price in check. Or, as Vintank’s Paul Mabry said during last week’s webinar to discuss the 2014 report: “This is the most competitive wine market in human history.” Never have U.S. consumers had so many choices; if one wine is too expensive, then there is almost certainly another wine of similar quality from somewhere else in the world for that costs less.

• Long-term declining demand in Europe. There are many reasons for this — the euro crisis, which shows no sign of ending and has dampened demand, as well as changing lifestyles. Yes, the French and Italians still drink more wine per capita than anyone in the world, but they drink less than they used to. The catch is that their wine industries are still more or less set up to supply enough wine for the old days, which means they have more wine than they need.

Better supply chains, which means it’s cheaper, easier, and more efficient to get all that extra wine from other parts of the world, whether Europe or Australia, to U.S. retailers.That’s one reason why a bottle of Yellow Tail shiraz is about the same price in Australia as in the U.S.

• Improved grape growing technology, which means producers worry not about how many acres of vines are planted, but about how many tons they can get per acre. In addition, the old rule that too many tons per acre meant poor quality grapes is becoming less true. This is revolutionary, something never  seen before in the 500-year history of the modern wine business. I touched on this in the cheap wine book, but its ramifications are only now becoming clear — we’re getting more grapes of higher quality without planting more vines.

More about wine prices:
Retailers and wine prices
Does cheap wine cost too much money?
Is cheap wine bad for the wine business?

2 Responses to Wine prices in 2014

  1. steve@winethropology.com' steve says:

    Everything you say makes sense. And I would agree that wine prices in aggregate will remain mostly flat in 2014. But if quality could be objectively measured in standard units, I’d wager that a dollar will buy you less in 2014 than it did in 2013 – at least in the $10-15/bottle segment. This is evidenced by the proliferation of new second labels sourcing from broader AVAs while keeping prices at the more narrow AVA level.

    At the end of the day, it’s the simple economics of demand and supply (in that order) that will ultimately drive pricing, though it will take some time for true competition to lower the axe on the hubris of post-recession marketing. I realize this is counterintuitive and contrarian given increasing supply-side competition, but there are few factors that inform this perspective:

    - The top players in the industry have consolidated an enormous amount of pricing power and they intend to exercise it. With only a handful of wineries accounting for 80+% of domestic production, that kind of market share lends an almost tidal force to a few. While the disjointed producers of the remaining 20% certainly can compete on price, you can’t deny the power of a rising tide.

    - Since producers are not in the business for the romance of it, I’m a believer of the “if they can, they will” theory. Products which enjoy even moderate loyalty/demand are going to test incremental price increases this year. They won’t all result in hikes, but producers leveraging market share inertia will see if they can’t harvest some additional profits by playing around with small ($1.00) increases. It happened in 2013 and it’ll happen this year, too.

    - There is a prevailing provincial myopia relative to competition: Napa winemakers believe other Napa winemakers are their competition, just as the “Big 3″ wine producers believe they are one anothers’ competition. This stubborn thinking is not only outdated, but fundamentally flawed. Napa’s biggest competitors are in Washington, Chile, Spain, and France, not Napa. And the Big 3′s biggest competitors aren’t even wineries… Heck, most of the growth in the alcoholic beverage business in 2013 skewed heavily towards craft beer at the expense of growth in wine demand. You would think they would be doing everything they can to woo twenty-somethings to their products, but this blind side means that it’s going to take a loss of market share before we see any humility in pricing practices.

    My two and a half cents…

    • Well reasoned, as always, Steve, and especially the bit about less value for your dollar. I will keep an eye on that. We tended to see that at the beginning of the recession.

      I would argue, though, that the one thing you leave out when you talk about Big 3 pricing power is their need for shelf space. Wine, as a consumer good, is quickly becoming like any other grocery store commodity, in which Tide wants to keep its shelf space and so does what it has to — mostly to increase sales volume to make Kroger and Safeway happy by discounting and paying for space — to keep its competitors from getting shelf space. My impression, from talking to distributors and big producers, is that they’re willing to do both to keep someone else from getting a foothold.

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