The truth behind the state of the wine market

posted by philip in Snooth

I was in Napa last week and there sure were some glum faces around. Wine club membership lengths (aka churn) are down, foot traffic in the tasting rooms has dropped, and wineries that primarily sell to restaurants are in trouble. At the same time many retailers are preferring to sell down current inventory, and so, although they are selling a lot, they are placing less orders - in short there’s less “slack” in the system.

But is it that bad, really? Really?  OK, so churn is up from 20% to 60% (ie. most people are only joining wine clubs for 1-2 years instead of 5), and the restaurant decline is very real. But in real terms, market wide, there’s zero decline - in fact the wine industry is growing this year (just like every year for the past 15+).

And every week I read a report telling me how robust the market is. The Harris Poll last month showed that 58% of Americans buy wine, and that they were buying it with greater frequency than 5 years ago. And with 90% drinking American wines, there’s not a lot better you can hope to do.  The article then goes on to say that “Even in hard economic times (and maybe more so because of them) Americans are still buying and drinking wine, both from the U.S. and from other countries.”

Just a week later there was another excellent article that charted alcohol sales (for off premise / in home consumption) against the quarterly changes in GDP. And they found that “there has generally not been much of a relationship between alcohol purchases and changes in GDP — the correlation is essentially zero. Nor have alcohol purchases historically been any kind of lagging or leading indicator.” [Interestingly, they do note that beer sales slipped 9% last quarter].

Finally, this article shows how there’s a 28% increase in the rate of growth of spending on food for home - people ‘nest’ in bad times.

So, if the industry’s continuing to grow, why the long faces? I’m waiting for some verifiable data, but my sense is that the average consumer is moving towards more value oriented wines (wines under $20, or under $12), which Napa or restaurants are not known for.

I’ve heard that stores like Trader Joe’s and other value oriented wine retailers are seeing excellent sales. But, consumers are still buying more expensive wines, maybe just less frequently.

If ever there was a time for a winery to double down and focus on its direct relationships with its prospects and customers now is it. Because, whether they buy a lot or a little, these are the people who will carry you through the next 12-18 months.