Mixed messages in new Wine Institute report
There was good news and not-so-good news in yesterday’s press release from the Wine Institute. “2008 CALIFORNIA WINE SHIPMENTS HOLD STEADY AMID ECONOMIC DOWNTURN” was based on findings reported by the respected wine business analysts, Gomberg-Frerikson & Associates, as well as Nielsen numbers.
The good news was that California wine sales in the U.S. were up 2% by volume in 2008. Add foreign markets, and those volume sales increased 3%.
The problem, as I see it, is that the report was inclusive of all of 2008. I bet if we had numbers reflecting only the fourth quarter, they would be down. Maybe volume would have held steady, but I bet the dollar sales value would have plummetted. As it was, retail sales in 2008 weren’t all that impressive. The Gomberg-Fredrikson report says “the retail value of approximately $30 billion after distributor and/or retailer/restaurateur mark ups was slightly down” from 2007. The retail value of all wine sold (California, U.S. and foreign) in America was $30.4 billion in 2007, meaning that $400 million less wine was sold last year. I’m certain the majority of that loss occurred during the disastrous fourth quarter of 2007, when the U.S. economy fell off the cliff and the world plunged into the Great Recession of 2008-2009. (And 2010?)
In fact, 2008 marked the first time since at least 1991 when the total retail value of all wine sold in the US. declined from the previous year. The Wine Institute doesn’t provide us with data going back further than 1991, but it wouldn’t be surprising if this unsettling decline went back even further than that. And that’s despite the fact that total wine volume sales hit a new record: 753 million gallons. You know what that means: more wine sold for less money. In other words, people are trading down.
Who benefits? Let’s dig deeper down into the statistics. Red wine continued to dig into white and rosé for percentage of market share. In fact, the volume of red wine sold in 2008 increased its lead over white wine by 2%, to 44%. White wine leveled out, remaining at 42% for the second year in a row, while rosé continued its slide, despite all the media coverage that “blush is back” and that sort of thing.
So who’s selling affordable red wines? And by “affordable” I mean $10 and under. We can all make some eduated guesses. My own is that big wine companies with trusted names are doing fine in the under $10 category. Also doing well are newer wine companies with good marketing, distribution and cost-savings strategies. I would not want to be selling expensive rosé into this market. And I definitely wouldn’t want to be a brand-new cult wannabe producer, charging $100 or more for a wine that’s completely unknown, even to wealthy collectors.
But it’s important to remember that recessions eventually end. Somebody asked me today if wineries in the $20-$50 price range are suffering. I said, probably they are, but what are they supposed to do? If they’ve been selling in that price range all of their lives (with modest adjustments for inflation), they can’t change their business model overnight. They have to hold on and wait out the down times. If this is a normal recession, then it will peak at some point (might already have done so), then begin the process of recovery. People will start spending again, stocks will recover, and a $25 bottle won’t seem so out of reach.
That’s assuming this is a normal recession. If it’s abnormal — if it’s more along the lines of the Depression — then we have many years of continued contraction. I don’t know what those $20-$50 wineries are going to do if worse comes to worst. In the 20-plus years I’ve been reporting on wine, I’ve seen doom-and-gloom scenarios come and go, and they never were as bad as the press (of which I was part) predicted. Of course, that’s because, in the media, if it bleeds, it leads. So I’m not making any predictions. I’ll just say that there are any number of things that could derail a recovery, and any one of them, or more, could happen at any time.