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Coming Home to Roost

The premium wine industry, made up largely of small case load producers, 5000 cases or below, are not just facing challenges with soft sales, “trading down,” inventory reduction in the supply chain, and securing distribution problems, they are facing a far graver challenge:  in sheer numbers, there are not enough customers to go around.

I had a recent conversation with a gentleman in his 60’s; he was trying to secure funding for a business venture.  He said to me: 

“What’s happening now is people are getting very smart about business.  They want to see how, what, why, when and where for their investment dollars.  It’s good, practical business 101, but we haven’t seen that in the last 15 years.”

Call it the age of reason coming out of other unreasonable times.

Mark Twain said, “There are three kinds of lies: lies, damned lies and statistics.”  There is some truth in that quote, but some recent wine sales statistics are worth heeding.

Consider recent research from Pointer Media Network, as reported by Wine and Spirits Daily (excerpted):

… 7.5 million consumers, drive 80% of overall wine volume …

Research from Wine Market Council, also reported by Wine and Spirits Daily indicates:

People who drink wine daily (or) several times a week, “super core” wine drinkers, account for only 10.5% of the U.S. adult population and consume 82% of all table wine.

I did some back of napkin/swag math on this.  Based on reports indicating there are about 303M people in the US, of those, about 218M are over the age of 21.  Using the 10.5% from Wine Market Council for percentage of adult population, that means that about 23M are “super core” drinkers. 

That figure is more optimistic than Pointer Network Media, yes, but still not great against the total population if just 1 in 10 people drink wine daily or a couple of times a week.

In fact, given the rising momentum in popular media coverage coupled with the dozens of health benefits for wine, that’s a darn paltry figure.

It doesn’t matter which figure for “core” drinkers you believe.  Both research companies acknowledge that a small, very small sub-set of wine drinkers drive the majority of the purchase activity.

If you also consider that the Top 30 wine companies, by some reports, drive 90% of the wine volume load in the U.S., then you begin to see a very real problem.

It’s not a wild extrapolation to say that non “super core” drinkers buy largely nationally distributed brands that are in front of them in traditional retail – a grocer or wholesale club.

It’s the “super core” consumer that drives a more discerning palate and higher price-point purchase point decision, generally $15 and above in wine shops, via wine clubs, online, etc.  Did I mention that it’s at $15 and above that smaller producers generally sell their wine for?

And, even these “super core” folks, me included, are buying less wine and buy less expensive wine.

Yet, there are over 5000 wineries in the US.  There is the worst kind of 80/20 rule governing wine sales volume. 

You have a very small amount of consumers supporting a very large amount of wineries.

Kim Wallace Stare, owner of Dry Creek Vineyard, wrote the following at her blog:

The results were conclusive. No matter how authentic our story or how good our wines, selling wine today has very little to do with quality, consistency or even scores. It (has) become a minefield of brands all doing battle for the same elusive sale. A war of wines, if you will.  Personally, I’m bracing myself for a long tough road ahead.

You know what?  Dry Creek Vineyard is well-distributed, with a national footprint.  If she’s feeling that way, how are smaller wineries feeling who haven’t even gotten a seat at the table, an opportunity to get in front of a customer at the wall of wine?

The biggest problem facing small to medium size wineries today is not the swirling business issues du jour – trading down, distribution, brand development, etc.

It is very simple:  The biggest issue facing the wine industry today is that there aren’t enough “super core” customers to go around. The rising tide isn’t raising all ships.

The answer to how to remedy this is more convoluted, however.  Changing purchase intent and creating mind share for an industry takes a long time and a lot of money.

But, that’s what is necessary right now, not for this period of economic distress, but for the long-term betterment of the wine industry. 

Every winery needs to go on an aggressive customer acquisition plan aimed at marginal consumers in order to turn them into their own “super core” customer.

Secondarily, the wine industry—associations, distributors, and wineries need to band together and create an industry-wide campaign akin to the food boards that advertise for Wisconsin cheese, Milk, Almonds, etc.

Sure there are other remedies available, but only until a winery aggressively takes accounting for their own customer base, and contributes to creating more ardent wine drinkers coupled with an umbrella campaign by the industry will we be able to move the needle to turn that very small “super core” consumer into a bigger figure that is healthy and sustainable.

The go-go era over the last 10 years have created a golden age for wine and wine consumption, but it’s not a lark to suggest that this was the wine industry equivalent of the mortgage industry collapse. 

The chickens are coming home to roost, now is the time to do something about it.



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Posted in, Wine: A Business Doing Pleasure. Permalink | Comments (3) |


Comments

On 04/17, Arthur wrote:

Jeff,

We will unfortunately see a “thinning of the herd” of these smaller volume production you mention.

It’s sad. I know many people in this category.

On 04/19, Dylan wrote:

I believe this is where personal relationship building between the winery and super-core is going to become more important than ever before. There is a competitive field of high quality, low-yield wines, and I believe it will come down to the personal, high-involvement touch that the winery holds with its customer-base.

On 04/21, 1WineDude wrote:

Probably a biased viewpoint, but this seems to dovetail with the increased focus on blogs and alternative media for wine press, samples, junkets, etc.

Hitting up a blogger is one way to potentially get a focus on a small number of buyers, but collectively hitting multiple bloggers gets you a nice amount of potential publicity for a fraction of what it costs to hit up the wine mags.


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