The death of high-end wine?
Ever since last Fall, every wine writer has written about how hard high-end wines have been hit by the recession. I have, for sure. The latest is the Santa Rosa Press-Democrat’s Kevin McCallum, who wrote this piece entitled “Makers of high-end wines caught in ‘dead zone’.” It does a good, and scary, job of describing “the demise” of Flanagan Family Winery, whose owner sank his heart into the project, only to see the recession come along and kill the ultrapremium tier he hoped to conquer.
Kevin gets to the point when he writes “Some think the reversal will be short-lived; others say something has fundamentally changed in the wine business.” This is, of course, the 64 dollar question, and I won’t attempt to answer it because I don’t have a crystal ball. But it is worth speculating about the second premise of Kevin’s statement, namely that “something has fundamentally changed in the wine business.”
Has it? Or are we all just prone to making cataclysmic prognostications of gloom and doom, when, actually, things don’t ever change that suddenly or radically? Well, to begin with, some things do change that suddenly. Sept. 11 changed almost everything in America. I think historians will refer to pre- and post-Sept. 11 for a long time (and possibly to pre- and post-fourth quarter of 2008 as another epoch-shattering event). And it is, of course, to the fourth quarter of 2008 and the massive recession that the question has to be addressed concerning the wine industry: Has the deck been fundamentally reshuffled, or just temporarily? How long will expensive wine suffer?
One obvious place to look for the answer is personal income. Americans have lost literally trillions of dollars over the past year or so. That’s spending money, folks. And that loss means that tons and tons of stuff is not going to be bought by consumers, including wine. We know this, so the followup question is, will Americans recover the money they lost? If they do, then sales of expensive wine will recover. If they don’t, then it won’t. It’s that simple.
Even if you assume that the recovery is upon us, and employment goes back up, and salaries stabilize if not actually rise, there’s still a big problem: peoples’ retirement incomes — their 401Ks and IRAs — have been demolished. Let’s say someone was making $75,000 a year before the recession and had $750,000 in a retirement account. That person didn’t mind spending $15 or $20 for a bottle of wine, because while she didn’t exactly feel rich, the retirement account was reassuring.
But assume now that the value of her IRA has fallen to $350,000. Assume she still has her $75,000 a year job and is reasonably secure in keeping it. Will she still spring for a $20 bottle? I don’t think so. If she’s like many folks I know, her reasoning is, “Gosh, I’ve really lost a lot of money. I have to rebuild my nest egg. And my employer has been talking about us contributing more toward healthcare premiums, as well as higher co-pays and prescription drug costs. So, while I’m not ready to give up wine, instead of spending $20, I’m going to start looking in the under-$10 category.” She does, and you know what? She finds that there are lots inexpensive wines that are as good and satisfying as what she used to buy. She becomes a permanent under-$10 buyer. (Along these lines, I recently gave a high score to an $11 wine. The winemaker called to tell me that it was really a $40 bottle from a winery that couldn’t sell it at that price, so he bought it, retailed it for $11, and still made a tidy profit. There are innumerable instances of this happening every day.)
Multiply our hypothetical consumer by millions of people and you have a permanent shift in American wine-buying habits. The only thing that could change this would be psychology: people are conditioned to think that if something costs more, it’s better, and nowhere is this more true than with wine. It’s a fundamental part of human nature to associate price with quality, however mistaken this is. Here’s where the Millennials and Gen Y come in. In ten years, when they’re at the peak of their purchasing power, will they revert to the old “if it costs more, it’s better” way of thinking, or will they — the smartest generation of wine consumers in history — recognize that cost and quality aren’t always related? Again, I don’t know, but I suspect they may be bamboozle-proof. If so, then we really, truly are witnessing the death of high-end wine.