According to the ACNielsen-tracked retail channel, premium three-liter boxed wine sales are the fastest-growing premium wine packaging segment, with 204 percent growth since September 2003. In terms of volume, premium three-liter boxed wines have grown 107 percent over the same timeframe.

While the growth has been phenomenal, it is still a very small category in terms of market share-three-liter boxed wine sales account for less than 1 percent of overall dollar sales and just 1.5 percent of total volume. Then again, in September 2003, three-liter wine market share was about half what it is now.

"I think in the U.S. market, we were ready for this moment," said Sally Osborne, marketing director at Pacific Wine Partners, the division of Constellation Brands that includes three-liter box brands Banrock Station, Hardy's and the upscale Black Box. "What the three-liter box offers in convenience and value is what the U.S. consumer is looking for in packaging, no matter if it's in juice boxes or soda or anything else. It's a need that consumers have had in the wine industry."

There are myriad factors for the rapidly increasing sales of the three-liter category, but one of the main reasons has been the increased acceptance by the trade. "The retailers are driving that growth. They are getting behind [the category] and putting it into their stores," said Andrew Browne of Precept Brands, which includes the Washington Hills, El Paseo and Avery Lane boxed wine brands.

"It's the added distribution that gets the ball rolling," said Browne. "And the bigger retailers are getting behind wine stewardship, actual in-store wine stewards; so, you are getting people in the stores educating consumers about the new [packaging] concepts."

Retailers benefit from three-liter box wine sales because consumers are spending more per unit, though the actual profit margin depends on how the unit is priced and if there are discounts and promotions. The three-liter box, which has an average price of $12.65 per unit, simply costs more than the average bottle of wine, priced at $5.46. Additionally, consumers are buying boxed wines with an even higher price than ever before.

While the greatest volume of three-liter boxed wines is seen in the under-$12 category, those priced above $12 are showing the greatest growth rates. Wines in the under-$12 have grown 72 percent since September 2003 while those priced between $12 and $15.99 have grown 126 percent in the same time period. In terms of market share, the lowest-priced three-liter boxes account for fully half of all three-liter box sales while the mid-tier, priced between $12 and $15.99, claims under 10 percent of the three-liter market.

One of the earliest leaders of the three-liter boxed wine category, the high-volume, under-$10 Corbett Canyon, may account for the strength of the under-$12 category. "I think the biggest brand in the three-liter category is Corbett Canyon," said Osborne. "They've been around a lot longer and have the biggest share, so it would make sense that there is a lot of volume [in that segment]. However, Black Box is our biggest seller and has the highest price [$19 to $24], so consumers aren't nervous about paying more."

As the three-liter category grows, the strength of the lowest-priced category looks to be challenged. "Early on, almost everyone, including us, was around the same [$16 to $17] price point, with Corbett Canyon at their [under-$10] price point," said John Garaventa, portfolio brand manager at Delicato Family Vineyards, which includes the Bota Box and King Fish three-liter boxed wine brands. "There really wasn't an in-between, so the numbers are skewed toward [the lower-priced segment]. We are seeing that gap fill in with more brands, and those brands are up in the $20 price range."

By far the most growth is in the over-$16 category, which has grown 122 percent between March 2005 and March 2006. The category was virtually non-existent in September 2003, so calculating growth from that point in time results in a ridiculously high percentage gain (well into the hundreds of thousands), thus making it statistically invalid. In terms of market share, the price segment accounts for over 40 percent of the three-liter boxed wine market.

While the category is expected to grow in the future, Garaventa has his doubts about how much a consumer will be willing to pay, even for the equivalent of four bottles. He feels that anything much beyond $20 will be a tough sell. "You are talking about a sizable investment at that price," he said. "If you don't like it, you've just shelled out a lot of money. I am not sure how much higher it will go. I think there will be a limit."

Browne, however, feels that with the right mix of marketing, retailer acceptance and the entry of brand leaders into the category, consumers will be willing to spend even more for a premium three-liter box of wine. Thus far, the three-liter boxed wine category has succeeded without the assistance of a flagship brand leader, one that already has a high degree of mindshare among consumers. Browne feels strongly that once that happens, the category will truly have taken off.

"We have to make the assumption that the three-liter box consumer, unless it's purchased for entertainment, is an everyday drinker," said Browne. "There's a lot of everyday drinkers that buy a $10 bottle of wine, so they could conceivably buy a $30 box of wine that is the equivalent of four bottles. Some of it's going to come down to the branding of the category and the brands, and the larger companies have mastered that.

"It goes back to the question of sustainability," continued Browne. "We will know the category is championed when brands like Woodbridge, Kendall-Jackson and others of that caliber decide to enter the market. The consumers can make the assumption it's the same wine in the box as in the bottle. It would be a huge win for the boxed category-and there are a lot of brands that could do that for the market. That will be a really interesting thing that will evolve over the next 5-10 years, if the mainstream brands enter the category."

Browne further believes that three-liter boxed wines are a natural extension for brands that are already successful in the 1.5 liter glass bottle category. "It's really the 1.5 glass consumer that needs to understand the category because it's the same consumer," he said. "The challenge now is that for a long time the consumer understood boxed wines to be Franzia and Almaden, and now they are beginning to understand that quality, premium, varietal wine is available in three-liter boxes."

Osborne pointed out that research has revealed that consumers of five-liter boxed wines have little crossover with those attracted to the three-liter boxes. This was an unanticipated development as many industry analysts believed the consumers who were already drinking wine from a box would be the earliest adopters of the new format. "It was a little bit of a surprise. We didn't necessarily want to cannibalize our own [five-liter] brands, so it's really been pleasing."

Gaining Acceptance-From Both Consumers and the Trade

The three-liter premium boxed wine category is a fairly new format for the U.S. As such, getting consumers and retailers to accept the category has not always been easy.

"It was an unproven category," said Garaventa. "It was just a few brands that had this idea to promote something that was big all over the world. There were retailers that said, that [format] really makes sense. You had others who were a little skeptical about the whole thing and just put their toe in the water and didn't really get behind it. Now that there are more competitors in the category, there's more success."

Even when the retailer was willing to display the three-liter boxes, the placement could be less than ideal. "Early on, a lot of retailers would automatically put it with the five-liter boxed wine, and that was pretty obvious that that wasn't going to work," said Garaventa.

Osborne indicated that retailers reacted the same way to Pacific Wine Partners' three-liter brands. As the Australian brands in the portfolio (Hardy's and Banrock Station) were also available in 750ml glass, the company recommended that the boxes be placed nearer to that format than the five-liter boxes. Whether or not retailers did so, of course, is another matter.

When getting any shelf space failed, the company tried a different approach. "We also really invested in racks, so if we got a pushback from the retailer who said that they don't have the room for the boxes, we could offer them the racks. And that was very successful for us," Osborne said. "Now retailers are making more room for the boxes, and that has really helped the category grow."

Browne agrees that getting the gatekeepers, such as the top retail chains and even personnel within the stores, to embrace the brand is key to the continued success of the format. "The data's helping drive more retailers to the category," he said. "You'll know it's arrived when it's got a four-foot section in Wal-Mart. When Kroger really decides to put the category on the map, it's going to grow. They have to be holding the faith that it's a good category. It hasn't been all rosy. There are a lot of gatekeepers that haven't embraced it yet, but it's growing. Every month and every quarter we are seeing more of [them] embracing the category."

Clearly, consumers are also embracing the category. All three agreed that while some consumers are still a bit uncomfortable with the three-liter boxed format, the message is getting out. Continuing education, including by the media, has helped the transformation. "We've had some incredible reviews of the wines, and the media has really grabbed onto the concept of alternative packaging," said Osborne. "With consumers that have had some nervousness about buying wine in a box, that really helps."

Even better for those in the three-liter boxed category, the consumers are very attractive demographically. "We have two groups: younger consumers who are really open to new things, and they really like the box because they can take it camping or boating; then there is also the older group of Baby Boomers who have been drinking Delicato for years and like the package," said Garaventa. He said that research has discovered that typical three-liter consumers have a household income of over $70,000, are college educated, and are either empty nesters or haven't started families yet.

Growth will persist as long as retailers, winemakers and, most of all, consumers continue to believe in the segment and flock to it. It seems that the wine industry is just in the early stages of developing this category, and retailers and consumers still seem to be wary of the segment. However, as the earliest boxed brands are carving out successes in the form of triple-digit growth, more and more people are beginning to pay attention.

Overall Wine Sales Up 11 Percent in June

Wine sales are still continuing to rise in the ACNielsen-tracked supermarket channel. In the 13 weeks ending June 3 2006, overall wine sales rose by 11 percent and case volume sales again gained 5 percent.

Year-on-year, sales have risen 11 percent in the 52 weeks ending June 3, while case volume has also grown by 4 percent. Dollar sales are clearly outpacing case sales yet again, currently by an almost four-to-one margin. Consumers are continuing to buy more wine at higher prices than in 2005.

As always, the "big three" varietals still dominate the retail arena. Chardonnay sales rose 9 percent in the 13 weeks ending June 3. By case volume, Chardonnay was up 6 percent in the June data. Chardonnay is the top-selling varietal in the ACNielsen-tracked marketplace, claiming 25 percent of the market in terms of dollars and 22 percent in terms of case sales.

Cabernet Sauvignon increased sales by 16 percent in the 13 weeks ending in June. By case volume, Cabernet Sauvignon gained 12 percent in the 13 weeks ending June 3, 2006 over 2005. Cabernet Sauvignon has a 13 percent share in dollar sales and a 10 percent share in case volume.

Merlot sales are bouncing back after several months of declining sales going back to April 2005. Merlot sales rose again, by 5 percent, in the 13 weeks ending June 3, 2006. In terms of case volume, the varietal grew 4 percent in June data. Merlot is the second-largest-selling varietal, with 13 percent of market share in dollars (identical to Cabernet Sauvignon) and 12 percent in case sales.

The fourth-largest-selling varietal, White Zinfandel, is experiencing some warm-weather growth. The varietal rose 2 percent in dollar sales for the 13 weeks ending in June. However, the varietal dropped 3 percent in case volume in the 13 weeks ending June 3, 2006. White Zinfandel still holds a market share of 6 percent in dollar sales and 10 percent in case volume.

Domestic wine sales gained 11 percent in the 13 weeks ending June 3, 2006 over the same period in 2005 while imports rose 9 percent in the same time period. In terms of case volume, imports gained 7 percent in June while domestic wine rose 4 percent in June. wbm