FEATURE: The current economic climate has forced the majority of wine consumers to look to less expensive options when grabbing wine off the shelf or sorting through restaurant wine lists. The recession hit the wine industry at a time when businesses were booming and shamelessly increasing markups. Grape growers subsequently followed by increasing the cost of buying fruit by the ton for top vineyards. Pricing was getting out of control, as consumers displayed their willingness to spend excessive amounts on their go-to bottle of Chardonnay. Still, even as consumers are forced to pinch their pocketbooks and save their pennies, overall consumption has remained level. However, the average price point is dipping at an alarming rate for wineries who built their business models around $50 bottles of Pinot Noir and Syrah.
This shift in consumer spending in the wine industry marks a new era for wineries and grape growers. As with other luxury commodities, the wine bubble popped and there is significant trading down occurring in the market in both off and on premise accounts (retail and restaurants). Wineries and distribution companies have been faced with a challenging predicament this past year in particular, as they witnessed warehouse spaces fill up, prompting an urgency to move through vintages and create space for the next. New fruit must be harvested, fermented and bottled every year in the fall, and the cycle can’t stop just because the previous vintage’s sales have halted.
Since wine’s value is really dictated by the market’s perception of its quality and availability, discounting is a very touchy subject. “Blowing out” 2007 Sauvignon Blanc to make space and bring in some cash flow has the potential to severely damage a brand once that vintage is cleared out. What happens when the 2008 is released at the undiscounted price? Not only is there the risk that accounts will drop the wine and make space for a Sauvignon Blanc that is available at the lower price, but customers will mentally knock down the “value” of the wine. A $20 bottle of wine suddenly is perceived as a $13 dollar bottle of wine, and it is difficult to get the consumer back in the mindset to spend $20 when they have previously bought the wine for $13, particularly if they were focused on price and not brand loyalty.
The fact is that there is an endless sea of inspired wines that fill voids left by expensive Napa Cabernets and Burgundies. New areas are being highlighted as wine hot spots, most notably places such as Argentina, Spain, and Chile. As people begin to move into this domain of value-driven wines and explore a greater diversity of geography and varietals, what is the incentive to shift back to the more expensive choices in established segments, many of which were dramatically affected by the boom and bust?
Wine will always be sold, and consumption is on the rise if anything, but the market has shifted and price point has become and will continue to be much more important as competition floods in. Greater focus on efficiency, packaging, branding, and down-and-dirty hand selling is becoming an industry standard that will surely lead the way to a new era in the wine industry.
