“Waiting for a fictive cohort to age sufficiently to discover wine or believing that our strategies ‘have always worked before’ is toxic to adaptation when the context driving demand changes.” —Rob McMillan
Sales channels As direct sales from premium wineries have grown over the recent years, sales to wholesalers and restaurants have declined, says the report. In the past 10 years alone, the percentage of an average winery’s sales to restaurants has dropped from 31% of total sales to 11%—and the cause is largely down to the restaurant industry. McMillan chalks it up to restaurants’ shift from book-like wine lists to one- page beverage lists where wine selection shares space with spirits, cocktails, beer and other beverages. Plus, restaurant owners are more cautious about carrying large inventories of pricey wines and may be hesitant to buy any wine that doesn’t yield a quicker return. Restaurant markups continue
Big Wine McMillan observes that larger wine companies—E&J Gallo, the Wine Group, Constellation Brands, Trinchero Family Estates, among others—are taking action to bolster revenues. Some by investing in or acquiring new brands; others by shifting focus to more promising products, such as spirits, Mexican beer or cannabis. Some in the wine business decry the latter move as demonstrating a lack of leadership in the industry; McMillan, however, sees it as merely adapting to a changing consumer. For those hoping Big Wine will focus on providing new wine products and launching national advertising to promote wine, he says: Don’t hold your breath. “Hope is not a strategy—we need a path,” McMillan says. Bad mood rising The report also addresses “wine industry sentiment” using the Michigan Consumer Sentiment Index methodology to gather insights into the “mood” of those in the wine business. “Sentiment is low this year, the weakest it’s been during the past five years,” says the report. The biggest mood-lowering concerns are the economy, labor and consumers shifting to substitute beverages such as spirits, sports drinks and soda. Of particular concern is that younger consumers are switching to cannabis, which among that demographic is considered healthier than wine. Bottle pricing To put a bandage on declining consumer demand and rising costs, some wine companies raised prices in 2023—a move easier for premium wines, whose purchasers were less concerned over a few dollars here, a few dollars there for their brand of choice. Overall, and especially for non- premium brands, raising prices proved difficult when consumers were already facing rising costs of living and increasing alternative beverage options. A $1 difference on a previously $8 bottle equates to a 12.5% price change—which would likely not go unnoticed to consumers in that range. In the direct-to-consumer (DTC) channel, however, bottle prices are actually rising. This is due partly to the fact that during the pandemic, when on-site tastings and purchases were interrupted, wineries offered major discounts to encourage purchases through DTC. Post-COVID, wine lovers flocked to wineries and tasting rooms, and DTC pricing dropped the discounts, and prices have risen to pre- pandemic norms.
March 2024
NorthBaybiz 23
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