American wine consumers are exhibiting odd behavior—trading up to pricier wines.
Before the economic bubble burst in 2008, plunging the U.S. into the Great Recession, the ultra-premium wine segment—defined as bottles costing between $15 and $20—had been gaining traction. But ultra-premium was a dead zone during the dark and gloomy days following the crash, and solace-seeking consumers reached for wines under $10 to salve the wounds of their damaged 401(k)s.
Now it’s a new day for the wine business, and it’s as if consumers are celebrating.
According to Nielsen, growth in the premium and ultra-premium wine segments grew double-digits in 2014, and signs indicate that growth isn’t slowing. In off-premise sales, wines in the $12 to $14 range grew 10.6 percent, wines $15 to $19.99 are up 8.6 percent, and the $20+ segment grew 15.7 percent. Red blends lead the pack, along with varietal Pinot Noir.
And customers aren’t just widening their range, they’re actually abandoning cheaper wines. Bottles $9 and under are currently taking a major hit with negative growth, and Silicon Valley Bank anticipates this trend will continue through 2015.
At the recent Nomacorc Exchange Forum, Chris Fehrnstrom, outgoing CMO at Constellation Brands, reported on a 2012 update of their company’s Wine Genome Project, which partitions wine consumers into six psychographic profiles. Constellation’s latest findings indicate that 75 percent of polled consumers now consider wine an integral part of their lives. And even freshmen enthusiasts now seem to know more about wine, are more confident navigating a wine list, and are drinking more wine, too.
Wine consumption in the U.S. has indeed grown every year since 2000. But is a better economy the main reason for the double-digit growth in wine over $12? That’s one school of thought, but in the U.S., wine consumers run the gamut from nervous neophytes and occasional purchasers to devoted wine connoisseurs, so crediting a strong economy might be too simplistic.
Another theory is that consumers became tired of economizing during the recession and ached to spend some serious money—finally!—on decadence.
But signs point to a blend of other, less obvious reasons: The desire to experiment, coupled with a drive to drink higher quality wine.
Rob Macmillan, EVP and Founder of Silicon Valley Bank’s Wine Division, suggests the recent trading up phenomenon is a “reflection of an improving economy and the consumer’s desire for more and better.” During the recession, desperation discounting of wine allowed consumers to explore formerly higher-priced options. Offers at big retailer chains like Bevmo—for example their buy-one-get-one-for-five-cents program—enabled wine lovers to discover wines they normally wouldn’t buy, at an easy, entry-level cost. This offered buyers a taste of the good stuff, which some may now be unwilling to give up.
Robert Conard, Director of Retail Sales and Hospitality at Dry Creek Vineyards in Sonoma County, California, supports that theory. “Coming out of the recession, everyone is lot more quality-to-price sensitive… We see a very healthy spread with people buying wines from $12 to $70 with no problem,” he says. “I also think that even very savvy wine buyers are starting to see that quality can be had at all kinds of price points.”
Ben Carson, General Manager of Olé Imports, based in New York, also agrees. “I think the diminishing returns scale is currently inverted in the wine biz from about $8 to $15,” he says. “People have discovered that spending an additional 20 to 30 percent for quality, and buying less but buying better, pays off.” He offers this analogy: “How much better tasting is something as simple as eggs from healthy, happy chickens?”
Of course, it’s also possible that wineries are releasing fewer wines under $10, but the cynic in me says some of the new ultra-premium trend could be attributable to the psychology of pricing and perceived value. People sometimes assume that more costly wines taste better. If that’s the case, kudos to the wine marketer who can rake in more profits simply by bumping up the price.
Even more promising than the ultra-premium bump is that Silicon Valley Bank predicts 2015 will be a breakout year in the broader fine wine category, too, with growth between 14 and 18 percent.
The future does look shiny and bright.