Anyone in the wine industry knows that the industry is suffering from a serious decline in sales, which started in 2018, albeit with a brief respite during the pandemic. But over the last two years the decline has become increasingly serious. To quickly recap, all alcoholic beverages are witnessing a decline in sales due to a decline in consumption among younger generations, an aggressive neo-prohibition movement pushing negatively distorted health news, industry consolidation, and a crowded beverages market heavy with competition.
There have been attempts to find good news amid the flood of bad. The “good news” is that consumers are buying less but, when they do buy, are buying more expensive wines. Even though sales quantities and dollars are down across the board, what sales there are happen to be of the more pricey bottles. This glimmer of hope is mostly negated by the recent wave of inflation and costs pushing prices up regardless of consumer purchasing trends. Especially in California, where recently enacted minimum wage laws are in effect, costs are increasing dramatically – a hard burden to bear in a bear wine market. Higher prices don’t always translate into higher margins or profits. Jeff Bitter of Allied Grape Growers said it succinctly:
“The amount of overhead created by the costs involved with increasing inputs and labor over the years” is substantial, Bitter said. “We have not seen commensurate price increases in commodity prices or grape value,” he said, adding that “for most areas of the state, average winegrape prices are no better than they were 20 years ago.”
That latter point about winegrape prices not going up is somewhat misleading; both wine-growing and winemaking costs have increased. Prices on wines have gone up, but not prices for wine grapes; winegrowers more often than not are asked to sacrifice their profitability for the rest of the production and sales channels.
Initially, the industry just tried to ignore the bad news. Unfortunately, a permanent change in the market is slowly eroding that denial. Younger generations are drinking less. Inordinate health concerns and market competition from non-alcoholic adult beverages are suppressing wine sales. Consumer buying patterns are changing due to the influence of ecommerce retail giants. The antiquated regulatory mess regarding alcoholic beverage sales between states continues to frustrate both consumers and wineries. The drunken spree of mergers and acquisitions among big wine producers, multi-state wholesale distributors, and big box chain retail stores has constricted or closed traditional routes to market for most small and mid-size wineries, creating a homogeneity of mass-market brands across the U.S.
The wine industry is slowly moving past the denial phase, skipping anger, and just getting on to bargaining, depression, and acceptance. It has resigned itself to bankruptcies and a much smaller market. When the going gets tough, the wine industry is responding by:
- Reducing vineyard acreage
- Preying harder upon those producing the grapes and wines
- Marketing more heavily to existing consumers
- Denigrating innovative wine products and brands that consumers enjoy
- Diversifying into other products and non-alcoholic adult beverages
Reducing vineyard acreage may seem like a logical solution to address the oversupply of wine, but it is unlikely to be an effective long-term strategy. This approach fails to address the underlying issues that are driving the decline in demand, and it could have unintended consequences that further exacerbate the problem. Furthermore, it inflicts the pain mostly on those with the worst financial stability, increasing the proportion of vineyard ownership to the biggest wineries and conglomerates even more.
One of the primary drawbacks of reducing vineyard acreage is that it does not address the changing consumer preferences and behaviors that are contributing to the slump in demand. As consumer tastes and preferences evolve, the wine industry needs to adapt and find new ways to appeal to these changing demographics and preferences. Reducing vineyard acreage will simply lead to a smaller overall market, without addressing the fundamental shifts in consumer demand.
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