There appears to be no slowdown in wine sales growth, as more wine was sold in the United States in 2006 than ever before, and at much higher prices than ever before. Several factors contribute to the strength of wine sales: a strong U.S. economy, the heightened interest in wine from Millennials and Baby Boomers, retailer consolidation and attention to the wine category, and the consumer willingness to spend more for higher quality wines.
More than just raw sales, wine is becoming more ingrained into the American culture. Further, wine education is more popular and accessible than was possible in the past. As consumers are learning more about wine, they are seeking higher qualityor at least higher pricedbottles of wine.
"There is an explosion of wine knowledge. The real revolution in wine may be in wine education," said George Rose, vice president for public relations at Kendall-Jackson. "It's now ubiquitous: it's on television sitcom plotlines, wine is included in television commercials for financial institutions and shoe supports, and we're minting dozens of new Master Sommeliers every month. The wine blogging across the Internet has exploded. Wine seems to be everywhere. The education and appreciation of wine has bled into a number of facets of life where it had simply hit a brick wall 10 years ago. It is now a much more accepted beverage in America."
Barbara Insel, marketing director of industry research and consulting firm MKF Research, feels that the changing role of wine in America will lead to greater demand for consumer-direct sales. "I don't think it's all because of legal changes. It is because wine is becoming part of the regular part of our lives," said Insel. "It's showing up in magazines and television. It's something that was fairly exotic and is now turning up everywhere, to the point where people are looking out for it and asking for it."
In the last year, wine sales have grown by 9 percent in the ACNielsen*-tracked food store channel. Over the same timeframe, case sales have risen by 5 percent. Over the longer term, from January 2005 to January 2007, wine sales have grown 22 percent while case sales have grown by 9 percent. This trend of dollar sales far outpacing case sales has been developing over the last several years and has thus far shown no signs of slowing down.
"That trend of trading up has been going on for five or six years, and we don't see it stopping now. The late 1990s is the last time we saw this cycle, but now we have the healthy growth without the discounting that we saw then," said Jose Fernandez, CEO and president of Constellation Wines USA.
"Above $10, people have more spendable income and they are feeling more confident about spending it on wine. The strength of the U.S. economy is allowing that," said Rose. "I think the most important story in 2006 was that the over-$10 price point continues its strong growth. We're seeing those potential Millennial wine consumers, combined with the baby boomers at the peak of spending, pumping dollars into this category. That's where the action is."
The strongest case volume growth has been in the categories above $10, which have risen 17 percent in the last year and 39 percent in the last two years. However, it is important to point out that a dominant majority87 percentof the case volume of wine sold in food stores is priced below $10.
Fully 53 percent of wine sold in supermarkets is priced below $6, a segment that has grown by 5 percent in the last year. Over the last two years, the segment has grown 3 percent. However, this is the only price category that has lost market share in the last two years. In January 2005, wines below $6 accounted for 58 percent of the market, meaning they have lost 5 percent.
Of that percentage lost by the lowest-priced segment, wines in the $6 to $9.99 range have claimed 3 percent (with wines above $10 claiming the other 2 percent to move to 13 percent of the overall market). The $6 to $9.99 category, which currently makes up 34 percent of the market, has risen 8 percent in the last year and 24 percent in the last two years.
"The main story is the continued health in the overall wine market," said Fernandez. "The fundamental environment for wine is continuing growth. It's a very healthy market. There's been good strong growth overall in terms of the quantity of wine consumption, but the move to higher quality is also very positive."
The Ever-Increasing Role of Imports
In the last year, imported wine sales have been gaining on domestic wine sales. For the first time in history, imports account for 30 percent of all sales in the food store channela marked increase from the 26 percent market share imports held in January 2006.
Imports are also gaining market share in terms of case volume, though not as dramatically. Imports rose 4 percent in the last year, going from 21 percent of the market in January 2006 to 25 percent in January 2007.
Insel believes that while every wine-producing region in the world is aiming at the U.S. market, nobody has yet been able to fully capture the American consumer's attention. "I think the imports are trying really hard; and how successful they are depends on how well the big companies do on maybe launching the next [huge brand like] Yellow Tail," said Insel.
"It's hard for a relatively small producer to make an impact on this market. If a big conglomerate is focusing on re-investing, they can and will understand what the market wants and they will, in turn, be able to get distribution," she continued. "A 5,000- to 10,000-case brand won't be enough. A million case brand needs to come in and really change what we think of as possible."
The once-blistering hot Australian wine category is slowing down, allowing other imports to catch up. Australian wine sales grew by 3 percent in the 52 weeks ending January 13, 2007, and by case volume, sales rose by 5 percent. It appears Australian wine prices are not keeping pace with volume increases. Australian wines account for 10 percent of all sales and 9 percent of case volume.
Sales of Italian wines, the second-largest imported wine sold in the U.S., grew 7 percent in the 52 weeks ending in January 2007, good for a market share of 10 percent, identical to Australia. In terms of case volume, Italian wines increased by 5 percent, accounting for 8 percent of the overall wine market.
Australian and Italian wines make up almost all imported wine sales in the U.S., as no other country approaches even 5 percent of the overall wine market. France is the third-largest imported wine category with a 3 percent market share in sales and 2 percent market share of volume.
"There is more and more of an indication that the French are trying to get their heads together," said Insel. "I think the French, if they improve their viticultural practices and winemaking efforts in the middle market, that they will be great competitors. We are going to see stronger competition from overseas."
Fernandez, however, believes the worldwide supply-and-demand cycle is shifting. "For the last five to seven years we've lived in an environment where there was a lot of over-supply in California and Australia and even the rest of the world," he said. "As there was so much over-supply, there has also been a slowdown in the number of new plantings going in. So, without a lot of new vineyards coming in coupled with the sustained growth in the market, we are going to see those surpluses disappear and we will be much more in balance. The combined issue of both California and Australia moving to balance is going to be a big factor going forward."
One major factor is how quickly the Australian market, which has been awash in a wine glut, will come into balance, said Fernandez. Because Australia is in the midst of a severe drought, the 2007 vintage is down significantly. Some growers are reporting a drop of up to 80 percent, though the Australian Wine and Brandy Corporation estimates the overall harvest is down by 33 percent
Alternative Varietals Dominate Growth Rates
In terms of varietal choices being made by consumers, virtually all categories other than White Zinfandel are growing. The "big three" of Chardonnay, Merlot and Cabernet Sauvignon continued to add case sales in the last year, growing by 4 percent, 8 percent and 16 percent respectively. In terms of dollar sales, Chardonnay grew by 5 percent, Merlot by 7 percent and Cabernet Sauvignon by 17 percent.
Over the last two years, Chardonnay has grown by 8 percent by case volume and 14 percent in dollar sales. Merlot has grown 6 percent in case volume since January 2005, and rose 7 percent in dollar sales. Cabernet Sauvignon has the strongest growth of the "big three" over the last two years, rising 25 percent in volume and 36 percent in sales.
"Clearly, consumers are drinking more red wine, but not at the expense of Chardonnay, which is good news for Kendall-Jackson," said Rose. "I think Cabernet Sauvignon and Merlot will strengthen. Merlot is not going away anytime soon. Despite all of the things that have been said, it's a very, very popular wine."
White Zinfandel continues to fall, dropping 2 percent in volume over the last year and 11 percent over the last two years. Dollar sales have dropped 1 percent in the last year and 3 percent since January 2005.
The strongest growth rates, albeit off a much smaller base, are in the "alternative" varietals, or those outside the dominant big three varietals. The hottest varietals are Pinot Noir, Riesling and Pinot Grigio/Gris, while Syrah/Shiraz, Sauvignon Blanc and Zinfandel are showing respectably healthy growth rates.
Pinot Noir, which accounts for 2.8 percent of the food store wine market, is continuing its meteoric rise. The varietal has grown by 26 percent in volume over the last year and 111 percent since 2005. Dollar sales have risen 24 percent between 2006 and 2007 and 117 percent since 2005.
It does not seem at this point that consumers are reaching a saturation point with Pinot Noir, but some worry about the future for the varietal. "Anyone with Pinot Noir will have no trouble selling it today," said Fernandez. "But because it's so hot today, people are investing in it and putting in new plantings and grafting over vineyards to Pinot Noir. So, in four or five years there's going to be an onslaught of Pinot Noir coming upstream. While demand is high for it now, we don't know what it will look like at that point. Over the medium term there's a lot more demand than supply for Pinot Noir. Five years from now it could be different. The wine industry is always moving in cycles."
Rose worries not about a change in the demand for the wine, but that some sub-par Pinot Noir might turn consumers off. "Given the recent numbers of acres that have been planted to Pinot Noir, we will certainly see a number of new brands on the horizon, and we will be able to sustain the growth with very high-quality fruit from the coastal areas of California," said Rose. "Though we may see some over-planting right now, perhaps in places it shouldn't be planted. If its not grown in a handful of specific places along the coast in California, that's a variety that won't have the flavors the consumers expect."
Riesling is also in the midst of an upturn in the market, growing 27 percent in volume between January 2006 and January 2007. Over the last two years, Riesling has grown 55 percent in volume. Riesling, however, accounts for just 1.6 percent of the market, meaning achieving dramatic double-digit growth is far easier than for, say, Chardonnay, which holds a market share of about 20 percent. In terms of dollar sales, Riesling has grown 28 percent in the last year and 61 percent in the last two years.
Another aromatic white, Pinot Grigio/Gris, is also showing phenomenal growth rates. Pinot Grigio/Gris has a market share of just under 6 percent, and has grown by 21 percent in the last year and 59 percent in the last two years. Dollar sales have risen 19 percent during 2006 and 56 percent between January 2005 and January 2007.
Rounding out the top 10 varietals are Syrah/Shiraz, Sauvignon Blanc and Zinfandel. In the last year, Syrah/Shiraz has grown 5 percent in volume and 3 percent in dollar sales. In the same timeframe, Sauvignon Blanc has grown 2 percent by volume and 7 percent by dollar sales. Zinfandel has risen 9 percent in volume and 16 percent in sales.
Overall Wine Sales Up 7 Percent in January
As the holiday sales period concluded, wine sales continued their rise in the ACNielsen-tracked supermarket channel. In the 13 weeks ending January 13, 2007, overall wine sales rose by 7 percent, and case volume sales again gained 3 percent. These numbers are identical to the figures from December, though they are down by about 1 percent from November.
Year-on-year, sales have risen 8 percent in the 52 weeks ending January 13, while case volume has grown by 3 percent. Dollar sales are continuing to outpace case sales, currently by almost a three-to-one margin, meaning consumers are still buying more wine at higher prices than before. This is a trend that has sustained itself for well over a year.
As always, the "big three" varietals still dominate the retail arena. Chardonnay sales rose 4 percent in the 13 weeks ending January 13. By case volume, Chardonnay was up 3 percent in the January data. Chardonnay is the top-selling varietal in the ACNielsen-tracked marketplace.
As the weather turns colder, consumers are turning more to red wines. Cabernet Sauvignon increased sales by 12 percent in the 13 weeks ending in mid-January. By case volume, Cabernet Sauvignon gained 13 percent in the 13 weeks ending January 13, 2007 over the same period in 2006.
Merlot sales are also continuing to rise, which is welcome news after months of speculation about the fall in popularity of the varietal. Merlot sales rose again, by 4 percent, in the 13 weeks ending January 13, 2007. In terms of case volume, the varietal grew 5 percent in the January data. Both figures are identical to the growth seen last month, welcome news for Merlot purveyors.
Domestic wine sales gained 7 percent in the 13 weeks ending January 13, 2007 over the same period in 2006, while imports rose 6 percent in the same time period. In terms of case volume, domestic wines grew 3 percent, while imports rose by 4 percent. wbm
Mary-Colleen Tinney is the associate editor for Wine Business Monthly.
