An insider’s peek at the wine industry’s “new normal.” The economy has shifted consumer’s consumption patterns.
Santa Rosa, Calif. — Say goodbye to a year of economic freefall and hello to what analysts describe as “the new normal.” Its key feature: Fragile consumers who are less interested in spending their money than in repairing their balance sheets.
For the wine industry, that translates into slow growth, lower prices and younger fans who are drinking more at home than at fancy restaurants.
Industry analysts gathered here Friday to presents results of new consumer studies conducted by the Wine Market Council and The Nielsen Company. They’ll repeat the presentations in New York on Tuesday and Dallas on Friday.
“The economy has been a bear to deal with, but the worst is over,” said Danny Brager, who leads the Nielsen’s Beverage Alcohol Client Service team. “Now we’re on the slow road to recovery.”
What’s next along the road is still anybody’s guess. Navigating these tricky times will require careful study of consumer behavior and individual market segments.
“Growth opportunities exist, but you have to have a specific strategy,” Brager told Wines & Vines after the presentation. “You have to figure out which channels are working, what’s the new pulse.”
In 2009, Americans went out less frequently, causing restaurant wine sales to fall, but developed a heightened interest in cooking—and drinking— at home.
Retail wine sales increased, as did the range of stores interested in selling liquor, and for good reason: Adding wine to the mix at shopping clubs, discount stores, drug and convenience stores adds $30 to the average shopping basket.
The increase in retail outlets may have boosted wine sales volumes, but it may also have added pressure to already falling prices. Discounters and drug stores rely on price competition to lure shoppers, and aren’t shy about starting price wars. A growing number are also introducing store brands, which cost less than namebrand labels, while also delivering higher profit margins.
“Some of the chains are moving toward stocking just the No. 1 and No. 2 national brands,” replacing all the rest with their own brands, Brager said. Trader Joe’s “Two Buck Chuck” led the way, paving the way for 7-11’s $3.99 Yosemite Road wines and Costco’s impressive Kirkland portfolio, which includes Cabernets from Rutherford in Napa Valley and Sonoma’s Alexander Valley, as well as Sonoma County Chardonnays.
Global wine surpluses, combined with scaled back consumption, have contributed to discounting at all levels, said Chris Fehrnstrom of Constellation Wines U.S.
“A lot of wine needs to move through the marketplace,” he said. Bottles that once sold for $12.99 have been discounted to $9.99, while $24.99 bottles dipped to $19.99.
Bill Cascio of Glazer’s Family of Companies has seen $60 bottles on sale for $49.99, and $100 bottles that have dipped to $80. He expects the discounting to continue.
“It won’t stop the brand building process, but it will be hard to build new brands,” he said. “When times get tough, people turn to the tried and true…”
The topic of global warming has some people scratching their heads, some naysayers denying its existence, and some grape growers concerned for the future. Global warming is occurring, and the consequences could be enormous for all walks of life. Climate is one of the most influential factors in determining a) the quality of grapes grown in the vineyard and b) what grapes to plant in certain climates. For example, in the Sta. Rita Hills where Lafond Vineyard is planted, Pinot Noir and Chardonnay flourish in the cool climate, benefitting from coastal breezes. Up in Napa Valley, where days get hotter, Cabernet Sauvignon is king. So what happens when temperatures start to slowly creep up? Everything is thrown off balance, and perhaps valleys or hillsides that were once deemed inappropriate for planting grapes will become the new hot spots. There is no way to get around the impact of climate change for grape growers. 
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