Growth in premium wine price category is grounded by new consumer sensibility
The blogosphere has been glowing garnet with empirical proof that the US wine industry haphazardly exposed their flanks to foreign importers with business plans to dominate the value segments of the domestic US fine wine market (recent WineZag post). The industry continued to plant, expand, and gear up for the $50-$125 dead zone in today’s market. Not all the competitive imported value wines were sweet, but the spots they picked certainly were.
It has been a long time coming. The fallacy behind premium price as a leading indicator of heightened drinking pleasure has deep roots and serves to undermine long term price stability. Consumers will eventually vote with their pocketbooks to obliterate the mirage of “perceived” quality wine in the market and flee to “real” quality as they hunt for value during challenging economic periods. While this is part commentary on the American wine drinker’s unknowing vulnerability to unchecked seller liberties in marking price to quality, a recent Dr. Vino blogpost shared a quote from the Economist demonstrating the deep historic reaches of this systemic problem in one short vignette:
ERNEST GALLO, the 91-year-old patriarch of the eponymous American wine company, tells a story about his early days of selling wine, just after Prohibition had been lifted. On visiting a buyer in New York, he offered him two samples of the same red wine. The man tasted the first glass, asked its price, and was told it was five cents a bottle. He tried the second sample, asked the price, and was told it was ten cents a bottle. “I’ll take the ten-cent one,” said the buyer.
Write it off to common sense and a reliaby wicked greed inspired reflex, but quality and price travel in opposite directions only until combustion from better mousetraps and economic upheaval brings the house down. The Silicon Valley Bank’s State of the Wine Industry 2009/10 report lays out the current and near term condition as unique and profound:
Unlike the last recession, in which fine wine held its own on market share with higher volume producers, in the present recession we see the volume in wine consumption still growing slightly, but the more modest price segments experiencing better resiliency in their rate growth. Also, unlike the past recession in which consumers quickly resumed purchasing wines at high price points, the destruction of consumer wealth along with what are predicted to be muted business conditions and business spending after the recession is over, will likely keep price pressure on wines over $35
Since 1998 the number of bonded wineries in the US tripled from 2,000 to 6,000. And it was not just due to geographic expansion into new wine growing territories. In California alone the number went from 1,000 to 3,000, following the total industry growth curve. There is something unsettling about growth that was most assuredly mixed up in the froth created during a period of unnaturally fueled economic expansion. In the end, the consumer has the final vote which should spell permanent changes that will feel painful in the early days , but will probably serve the industry well over the longer term.