It shouldn't be too much of a surprise or stretch of the imagination to realize that sales of luxury, cult and high end wines have suffered as a result of the economic mess we are in. Even the most wealthy of Americans seem to be buying less high end wines and instead seeking out value for their money.
Underlying this news is the fact that American wine consumption continues to rise on the back of wines priced under $25 a bottle and growing interest in wine amongst the Gen X, Gen Y and Millenial crowd. Though I am not sure I would call all wines priced above $25 "luxury" wines I certainly understand why that seems to be a reasonable place to set the bar. Afterall it has to be set somewhere right?
A recent Wall Street Journal piece titled Luxury Wine Market Reels From Downturn does a nice job of summarizing the challenges, the shifting tide in wine sales and consumption among American wine consumers. You can read the article yourself but here are a few major points along with my thoughts on this important discussion.
The change in consumers' buying habits, which became pronounced last fall as the recession deepened, has prompted many retailers and distributors to cut orders of luxury wines. And when they do order the higher-end wines, they are often asking for steep discounts, which are being passed to consumers.
I have seen pretty significant discounts of luxury and cult wines at online wine retailers and local retailers alike. These cuts are great if you have some discretionary income and wish to invest and gain access to wines that maybe were once priced out of your spending range. Private cellar thinning sales are everywhere on many wine forums such as those at Wine Spectator and Cellartracker. For example, I recently saw someone trying to unload the 1998 Penfolds Grange, widely considered one of the finest vintages for the iconic Shiraz maker (and it is amazing, I have tasted it), at 45-50% below current auction prices.
Read more after the jump.
These cuts in prices will make it difficult for the wineries who are lowering prices to once again raise them when the economy turns back to the positive. Once you drop the price by 35-50% it is difficult to ask your consumers to start paying the premium prices again.
Some of the newer operations are using new marketing techniques to cope. Alpha Omega, a boutique winery in Rutherford, Calif., has begun using online services Facebook and Twitter to reach out to its customers. The winery three years ago began targeting consumers directly, and the strategy is now paying off; revenue is up 40% so far this year, compared with a year ago, in part because it doesn't have to share many revenues with a distributor, says co-owner Robin Baggett.
I am shocked that more wineries and wine makers have not embraced and engaged new wine consumers via social media. The evidence is everywhere that 20 and 30 somethings trust their friends and every day wine tasters more then marketing, ad campaigns and the well known wine critics. A few of the wineries have made some attempts to utilize blogs, Twitter, Facebook and other forms of social media but their execution is flawed. Most are simply applying old school marketing and ad tactics to social media by sending out tweets with the latest wine list/price reduction, newest wine or creating a Facebook Fan page or Group just to pound followers with what amount to advertising.
That is not how to use social media effectively and it will not drive short term business or the valuable long term loyal consumer business to your winery. Get engaged with your followers and potential consumers, contribute to the wine discussion, contribute to their wine education and above all be authentic.
Total U.S. wine sales rose about 5% in terms of volume in the first quarter from a year earlier, but wines priced at $25 a bottle and up fell about 12%, estimates Jon Fredrikson, an industry consultant with Gomberg, Frederikson & Associates in Woodside, Calif.
I believe this shift would have occured with or without the economic mess we are in though the tough financial times have made it more glaring and dramatic. The Gen X, Gen Y and Millenial effect on wine consumption is significant and should not be overlooked. All three of these groups, especially the Y's and Millenial's, are discovering that many wines below $25 can offer amazing quality for the price. As their palates mature they will seek out the luxury wines but they won't do it because of ad campaigns and marketing. They will do it because their friends referred them or they engaged with the luxury wine maker through the strategies and tactics mentioned above. Luxury wine makers would be wise to make a wine in the under $25 a bottle range to introduce these consumers to the brand and the label. Robert Mondavi has done this with amazing success for years and it was the 1987 Mondavi Reserve Cabernet Sauvignon that first opened my palate and mind to higher end wine. Eventually these consumers, drawn to the brand and the wine via an entry level wine product, will move up the wine "food chain" to try out and enjoy the luxury wines in the wineries portfolio.
One final point. There is a rising tide of great wine at amazing prices coming from places like Chile, Argentina, Spain, Portugal, New Zealand and Australia. Americans, especially the Gen X, Y and Millenials mentioned above, are discovering these wines and spending money to acquire and drink them. This is not just a sign of the times but a reflection of the ever flattening world of wine. Thanks to the internet, blogs and social media it is much easier to learn about, gain access to and taste these wines at very reasonable prices. Often prices much lower than similar quality wines made in California, Oregon and Washington. To many they offer better value for the money and the wines are really as good or better than some higher priced wines in America.
Curious to hear your thoughts. What are you buying these days that offers great quality for the price?