It’s no news flash to tell you the economy, both American and global, is a pretty big shambles right now. It’s affected everything from gas to groceries and housing to hog futures. So it should come as no surprise that the wine world has also been drastically affected by the economy. Wineries, importers, distributors, retailers and restaurants are all looking long and hard at their business plans, and their decisions will directly affect wine enthusiasts in Nashville. It’s the simple principle of supply and demand. We all know how this works, so there’s no need to break out the widget examples … right?
In order to better understand what’s happening, it’s important to know how demand is different today than before the downturn. Wine sales in this country have consistently grown over much of the last decade. The U.S.’s love affair with all things vino means the entire wine world has prospered wildly. Demand led to profit-grabbing price increases on the trending varietals like Pinot Noir. Increased demand filled the coffers of giants like Gallo, which allowed them to buy up popular brands—only to jack the price up to make even more money.
There’s also been a slew of new boutique brands entering the market with products that, while good, are often over-priced. This boom in sales also allowed many wineries to get financing for major additions to increase production or to go organic (see last month’s article about the cost of going green).
Everyone was happy—wineries, importers, distributors, retailers and restaurants all made money, and consumers happily paid the price to get what they wanted. That was then. This is now.
Please understand our love affair with wine hasn’t changed. No economic downturn can stop that, but it can change our buying habits in the same way it affects how we purchase any other consumable product. In leaner times, you don’t stop eating beef. You just buy a cheaper cut of meat and cook it at home. The same is true with wine. Data shows we’re still purchasing the same amount of wine in retail stores, but we’re buying far less priced more than $20 a bottle. That group of consumers is now buying wine in the $10 to $20 price range, so that price range has had the most growth since the crisis began. Likewise, it’s not so bad for the retailers, but restaurant wine sales have fallen off a cliff. People eat out less, and when they do go to restaurants, they’re far less likely to order a bottle of wine with dinner....