Here Comes Premiumization!

 

The wine industry has faced its imminent doom many times since I started paying attention.  Like most prophesies, these have largely turned out to be false, but business could be a lot better.  The crux of the current issue facing the wine industry is twofold.  One is the old reliable problem of oversupply.  There is way too much wine being made across the planet for the amount of demand.  For example, after Chinese foreign policy shut the door on Australian wine, the Aussies found themselves awash in 2.8 Billion unsold bottles of wine.  Someone did the math and found that would fill 859 giant swimming pools, which didn't give me a better grasp on what 2.8 billion bottles of unsold wine looks like before those computations.  I guess it's what I would call "a lot".

It's not just Australia.  France spent 200M euros this year to distill unsold French wine into industrial alcohol, and every time you turn around French farmers with pitchforks are turning over trucks filled with even cheaper Spanish wine that is being trucked in to sell instead of their own absurdly inexpensive bulk wine.  Current California red wine blend bulk pricing is $4 a gallon at the bottom end.  To put that in perspective, the actual wine in that end bottle on the shelf would cost 80 cents.  You want cheap wine?  The average price of a bottle sold at a grocery store in France is now 3 euros.  This is not good business.

The problem is also falling demand.  Wine consumption crested in 2007.  Ah, those were the days. People without jobs got mortgages to move into $750,000 houses, international banking didn't look into any of those pesky details, money flowed like water, and it seemed like Arcade Fire would be the biggest band ever.  What an age!  Then the "correction" happened, expense accounts got clipped, people ate out less, and wine consumption eroded.  The Trump Era saw a large decrease in world wine consumption, which is sort of surprising as that presidency was best endured while buzzed up, especially if you were one of the United State's Allies.  Post pandemic there was a little bump up, but the decrease in demand appears to be cultural change.

"Dry January" and "Sober October", are two concepts that have been floated out by probably the same people that use terms like "sober curious" and refer to working out as "their fitness journey".  This new soft prohibition is being chalked up to Gen Z embracing a health conscious lifestyle as 18-30 year olds are less likely to drink alcohol than previous generations.  However, before we start talking about how healthy Gen Z is let's remember that there are three walls of energy drinks in every convenience store, they think vaping is healthy, are 66% more likely to get "grab and go" food (aka snack food), don't eat out as often because of "menu anxiety" and are afraid to talk to waiters.  Oh yeah, they smoke a lot of weed.  69% of American 18-24 year olds prefer cannabis to alcohol.  Perhaps let's curtail the talk about how healthy people are in their twenties and maybe focus instead on their differing consumer choices?  I have a theory about Gen Z being damaged due to social media and a life spent texting instead of real time interaction, but that's an entire other blogpost.  Still, they ain't drinking much wine.

The wine industry has decided the answer to shrinking sales of entry level wine is to increase focus on "premiumization".  This sounds like a great idea.  Let's make better quality wine and sell it to the market that is interested.  What this would look like in theory would be increased attention to vineyards, strict harvesting dates and selection, market focused winemaking (like more/less new oak, edgy decisions on yeasts, stricter blending selections, longer aging, better closures, etc), and communication with the consumer about the product.  As far as I can see, what "premiumization" means in most cases is charging more for the same shit you were making with maybe a label tweak from a marketing consultant.  "Yeah, let's put more gold in the font and make that eagle bigger.  We'll invoice ya."  That $18 corporate cabernet is now a $24 cabernet with the same underwhelming juice in the bottle.   

The great thing about the term "premiumization" is that it can mean whatever you want it to mean.  The accounting dept is excited because cost of sale will go up.  The winery website can spin some tall tale about "Draconian vineyard selection" and "commitment to quality", and that sounds really great.  It could be a sweet opportunity to launch a whole new brand.  However, can anyone justify that price increase in the face of waning demand?  Look, I know you wineries need to make more money, but if we weren't that interested in what you were selling us before, why do we want it at $5-$10 more a bottle?  If I'm stuck at an Appplee's at the Dallas Airport, do I want a $10 Sierra Nevada or a $15 Yellow Tail Chardonnay?

What "premiumiztion" is for the most part is just trying to gobble up available share dollars from a shrinking customer base.  What I would suggest to be a more long term solution would be to increase quality (and price) while at the same time creating entry level wines that seek to engage with new consumers on specific unique selling propositions that appeal to potential long term profitable consumers like organic production, low SO2, easy drinking blends with edgy labels, and brand mass communication with precision.  Bud Seltzer spent more in US mass media in 2023 than all wine brands combined.  Why would a 22 year old drink your wine when you're not inviting them to do so?

I think there's some merit to the idea that people age into wine.  For example, if I'm in my twenties, I'm probably not at the club asking the chick at the ice tub that is opening Mango Birthday Cake Seltzers at $15 a pop if they have any 2021 Donnoff Felsenberg Felsentürmchen Grosses Gewächs by the glass.  You have a different agenda when you're in that setting.  There's a time for birthday cake mango seltzer...  I guess...  But also, it's not like some alarm bell goes off when you turn 35 that says, "Holy shit, I need to find a Louis Jadot CHASSAGNE-MONTRACHET LES GRANDES RUCHOTTES!".  The wine industry needs to be aware that as they embrace "premiumization" they better make sure to create options for new customers that stay competitive in that space for 18-34 year olds.  It's amazing that an industry that creates a drink from a 100% agricultural product with strict oversight that prevents additives has trouble engaging with a customer base seeking to find something organic, environmentally sound, natural, and has a cultural relevance.  Guys in castles in Bordeaux that have been making wine for 600 years can't figure out how to sell their product to a new generation.  "These kids want something natural that has a story.  How can we compete with THC infused gummi bears being sold at a place called The House of Dank?"  For fuck's sake.  

The bottom line is we are all going to be paying more for wine until the industry figures out en masse how to fill the lower end of the pipeline.  We can all pretend what we drink is more "premium", but really increased bottle prices is just going to be a tax to pay due to the loss of the $5 wine consumer.  Someone call Bartles and Jaymes.  We need those old fellas back to remind the industry how to sell cheap wine to young consumers and refill that funnel.