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Big Vintners Face Challenges as Market Growth Slows

by Peter Mitham
March 15, 2019
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CA shipments in thousands of 9L cases.

San Rafael, Calif. – Shifting market conditions mean the wine industry needs to meet consumers where they’re at, according to the latest data from market research firm Gomberg, Fredrikson & Associates.

The top three California vintners – E. & J. Gallo, Wine Group and Constellation Brands – saw shipments into markets across the U.S. drop 5% in 2018, GFA editor Jon Moramarco told industry members during a March 14 webinar. The data is from the Gomberg Fredrikson Report’s overview of industry data from 2018, set for release next week.

“Below $9 you’re seeing slow declines,” Moramarco said, with the exception being 3-liter box wines. “The big three really drive a lot of that market and control a lot of that market.”

The challenges aren’t limited to California.

Altria Group Inc., owner of Ste. Michelle Wine Estates in Washington, recently declared its Columbia Crest brand fully impaired to the tune of $54 million on account of a sharp decline in the $7-$10 price segment. All told, shipped approximately 8.2 million cases in 2018, down 3.3% from 2017.

By contrast, wines selling for $9 a bottle and up are seeing good growth.

“Over $9, you’re seeing growth in a number of categories,” Moramarco said, noting that producers outside California’s top three have benefitted. “The rest of the producers in the state were up almost 9%. … They’re actually seeing the growth.”

However, the overall growth of sales is slower. While actual volumes of wine sold have increased at a relatively steady rate over the past 15 years of between 3% and 4%, per capita consumption has grown more slowly.

Consumption that increased at approximately 4% a year in 2004 has halved to between 1.5% and 2%.
“It’s a softer market than we’ve been used to,” he said. “It’s partly a slowing market, it’s partly a bigger market growing at the same rate.”

Moramarco stopped short of blaming millennials for the shift, however. While they’re the favorite bête noir of marketers, Moramarco said we may be expecting too much of them given that the average millennial is just over 30 years old.

“The boomers at that point were drinking wine coolers and lambrusco. They hadn’t gotten to table wine yet,” he said. “It may be possible that we’re expecting too much of the millennials at this point in time.”

Baby boomers didn’t start to embrace wine till the cohort averaged 38 years old, and when they did start gravitating to wine it was via white zinfandel and the fighting varietals.

“Those type of wines were the introductory wines that fuelled our very vibrant wine business today at fairly good prices,” he said.

Based on data analyzed for the Gomberg Fredrikson Report, Moramarco wants to know what’s going to draw Gen X and millennials to wine. Prosecco, a wine reminiscent of the light, effervescent and freshing coolers or yore remains a potent force among packaged imports, but the shift to premiumization could pose a stumbling block for domestic wineries looking to connect with new consumers.

“Younger consumers want premium products, but there’s a balance there,” he says.

A decent glass of wine in restaurants now costs $12 to $14, well above the cost of an $8 cocktail and double the price of a $6 beer. The old adage that champagne tastes don’t mesh with a beer budget has never been truer.

“We’ve done very well at premiumizing, but we may actually have a challenge, sometimes, with younger drinkers who are still in their formative years … in terms of producing products that approach a price level that is what they’re willing to spend,” Moramarco said. “Premiumization’s been great for the business, it’s been helping drive the profitability of the business, but it may actually be a little bit of a hindrance in terms of attracting as broad a swath of younger consumers who may not have as much disposable income.”

The challenge for industry is finding out how to connect with and draw in younger consumers, either through new products or new initiatives.

Moramarco suggested that hard seltzers could be the wine cooler of the moment, if only vintners could find a way to get consumers to make the leap to wine (Precept Wines of Seattle has expressed interest in this), but addressing the social concerns of new consumers may also help.

Various observers have remarked that consumers want to make a positive difference by ethical purchasing, and products that align with their concerns may have purchase with them.

“Consumers are changing,” he said. “It may be the time for the industry to look at one big bold thing it can do to make wine much more relevant to the social perspective of consumers.”

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