Issue link: http://read.dmtmag.com/i/764739
1 4 V I N E YA R D & W I N E RY M A N A G E M E N T | J a n - F e b 2 017 w w w. v w m m e d i a . c o m a s p r e m i u m i z a t i o n b e c o m e so powerful that the average price of a wine made in California is approaching $18? That's one of the most intriguing findings from an international price survey that tracked wine prices in 65 coun- tries, taking into account both retail and restaurant sales and their markups. Because of this, it gives a different, perhaps more real-world view than the Nielsen statistics for the 52 weeks ending in September 2016, which peg the average cost of a bottle of wine sold in the United States at less than half of that. T h e i n t e r n a t i o n a l s u r- vey, called the 2016 SHA- REaCAMPER Wine Price Index (from a European company that rents RVs) c o m p a r e s l o c a l a n d imported wine prices from 65 countries to give an idea of what the same wine would cost depending where you are when you travel. The goal, says study spokesman Pablo Mar- tinez, was to compare apples to apples — the price of the wine you buy at home versus the price for the same wine in another country. The study found that the aver- age price of a bottle of wine sold in the United States was $15.02, ranking 35th out of the 65 coun- tries in the survey. Paraguay, at about $8, was the least expensive, while the United Arab Emirates, which is mostly dry and doesn't have a local wine industry, was last at $39.02 per bottle. In the United States, the study found that imported wine costs almost one-third less than California wine: $12.85 versus $17.61. Those price findings aren't surprising to Rob McMillan of Napa's Silicon Valley Bank, perhaps the world's leading authority on premiumization. His take: Premiumization is a natural development in the evolution of the wine busi- ness, and it's going on not just here, but everywhere people drink wine. It's a fundamental shift in the w a y c o n s u m e r s b u y wine, something that seems to happen every generation. The first post-World War II wine drinkers opted for the cheapest jug wines; their chil- dren, the baby boom- ers, moved up to what was called the fighting varietals and, today, the shift upward continues. An increasing number of wine drinkers, as the Nielsen numbers show, are buying wine that costs more than $15 per bottle, fewer are buy- ing wine that costs less than $7 per bottle, and overall wine sales are The Power of Premiumization flat. Given those three things, the average price of a bottle of wine has gone up, which is different than prices going up overall. "I don't see prices going up," says McMillan. "It's very hard to raise prices these days." Instead, big wine is introducing new products at higher prices to appeal to people who want to buy more expensive wine. This is the key that unlocks premiumization, says McMillan: Big wine's ability to produce $15 and $20 wine to meet consumer demand in a way smaller wine producers couldn't — and didn't think about doing — a decade ago. He says big wine's marketing ability and clout with retailers is almost unprecedented in wine history, and it's even more powerful when taken in conjunc- tion with retail and distributor con- solidation. The change is apparent in the international study, with its high- er prices, especially for domestic wine. Plus, it tracks per capita U.S. wine consumption at about one bot- tle more than the generally accept- ed figure of 12 bottles per year. Perhaps this is because its method- ology takes into account more fre- quent wine drinkers, the ones who will pay premiumization prices? I n a d d i t i o n , t h e S e p t e m b e r N i e l s e n s a l e s n u m b e r s s h o w growth in wine costing more than $12 to be up double digits from the same period one year ago, while sales in wine costing less than $9 was flat. in traditional package stores in wet parts of the state, buy wine almost anywhere and from almost anyone, whether grocery stores, warehouse stores, specialty food retailers or even World Market. In this, Total Wine is just part of the changes fol- lowing so many wet votes. This is much different than just a decade ago, when family-controlled companies like Spec's were still the dominant retailers (and often built stores on wet-dry boundary lines to take advantage of local laws). Not coincidentally, many of those family- owned companies — like Majestic, Centennial and Sigel's — are either gone or have filed for bankruptcy. They couldn't compete in the new, less-regulated marketplace. Also important, says McGinnis: Spec's and Total Wine, each with deep pockets, can last longer in this new, more cutthroat environment than smaller independents. What's going to happen to the latter? "I almost think this is going to hurt the small guys more than it will hurt Spec's," he says. "Consumers may forgo their neighborhood retail- er in favor of shopping somewhere that seems to have acres and acres of wine." BY JEFF SIEGEL