WINE: The Recession and Pricing

Self explanatory.
JA

• 

• BUSINESS
• JANUARY 20, 2011

Snooty? Not Today's Wine Drinkers

By DAVID KESMODEL

Bloomberg News

After trading down in the recession, many consumers are staying with lower-priced wines. The fastest-growing segment is $9-$12 a bottle. U.S. wineries are toasting improved health. But a rebound in the number of bottles sold is being undercut by the lower prices many consumers are paying.

Wine makers big and small have faced challenges since the 2008 financial crisis. Distributors and restaurants slashed inventories as business slowed and credit seized up. Many wine enthusiasts curbed spending as unemployment rose and home values and retirement accounts shrank.

The economic downturn was toughest for the U.S. wineries that sell wines for $20 a bottle and up. After switching to less-expensive wines in the downturn, many consumers are staying at those lower prices because they liked what they found, industry executives and analysts say.

Mid-priced bottles are the life of the party. Last year, unit sales of wines priced at $9 to $12 a bottle rose 12% in food, drug, convenience and other stores, a faster growth rate than in other price segments, according to market-research firm Nielsen Co.

"The market is looking for fairly priced wines," said Chris Howell, general manager at Cain Vineyard & Winery in St. Helena, Calif. Consumers "have woken up to the fact that there are a lot of choices out there." He said he doesn't expect consumers to pay the kinds of prices they paid before the economic downturn. "It's not ever going to be what it was," he said.

Nodding to the new mentality, the winery recently reduced the retail price of its Cain Five brand, a Cabernet blend, to $100 from $125 a bottle.  By volume, wine sales rose roughly 3% last year, improving on a 2% increase in 2009, according to preliminary estimates by industry consultant Jon Fredrikson of Gomberg, Fredrikson & Associates. Still, many small and mid-sized wineries in the fragmented market continue to sell labels at lower prices to woo consumers, squeezing revenue and profits.

"Things are picking up, but they are against terrible numbers," Mr. Fredrikson said.
Industry giant Constellation Brands Inc., whose stable includes the Robert Mondavi and Estancia labels, noted that the level of sales promotions in the industry was a bit higher in its third quarter ended Nov. 30 than it originally anticipated. Constellation disappointed investors earlier this month when it reported that its third-quarter U.S. sales volumes to retailers rose only 2%. In the second quarter, volumes were up 4%.
Constellation Chief Executive Rob Sands said in an interview that volume growth slowed because the company shifted holiday promotions to higher-priced brands like Mondavi from lower-priced brands. The core higher-priced brands have better profit margins, he said.

Mr. Sands said consumer demand for wine is "pretty robust," especially in supermarkets and club stores. But "you are seeing more discounting as you go up the price scale," especially in wines priced above $20 a bottle. "The consumer is seeing a lot of bargains."

Some wine shops say demand over the holidays was healthy. "Corporate gift-giving came back in a big way to us versus the last two years," said Daniel Posner, owner of Grapes the Wine Co. in White Plains, N.Y., which carries about 2,000 wines. Mr. Posner said his store's revenue increased about 25% last year, but the boost came against 2009 figures that were "way down."

Several industry executives said they're encouraged by a modest uptick in sales in restaurants. Restaurant-consulting firm Technomic Inc. projects wine sales in restaurants, bars and casinos to rise 1.4% this year, accelerating from growth of 0.8% in 2010.

Jordan Vineyard & Winery, whose wines are often found at high-end steakhouses, enjoyed a 5.5% increase in overall sales last year, and projects an increase of 6% to 7% this year, according to Chief Executive John Jordan. The Healdsburg, Calif., vintner's wines retail for between $28 and $55, and run anywhere from $65 to $125 per bottle in restaurants.

Mr. Jordan said he was so pleased by his company's performance last year that he bought each of his 100 employees an iPad tablet computer.  Industry-wide, though, restaurants are selling more wines by the glass and have cut some bottle prices on their wine lists.

The new year "will be a better year, but we are still going to stay lean," said Rick Small, owner of Woodward Canyon Winery, in Lowden, Wash., which sells most of its wine for about $50 a bottle.
Revenue at the 30-year-old winery, which employs about a dozen people, rose 10% last year after two straight years of declines.

But, Mr. Small said, "Until I see more people wanting to buy my wines, I'm not going to hire anybody."