Wine Glass Half Full

FILED FEBRUARY 1, 2010

Dear Client:

Is the wine glass half empty or half full? Danny Brager, vp group client director, beverage alcohol at Nielsen, encouraged listeners to be optimistic and focus on the wine industry’s growth opportunities rather than its roadblocks during his presentation at the Wine Market Council’s 5th Annual US Wine Consumer Trends conference in Dallas. [Ed note: to view our coverage of John Gillespie’s presentation, click here].

WINE OUT-GROWS BEER AND SPIRITS. Although the wine industry has had it tough this past year, they posted more growth than beer or spirits. In the 52 weeks to December 12, dollar sales of wine grew 2.6%, beer grew 2% and spirits grew 1.4%. In terms of volume, beer declined -0.6%, while wine and spirits gained 1.2%. The rate of growth slowed for all three categories. Danny noted that consumers trading down and taking advantage of promotions has resulted in the rate of dollar and volume growth being closer together. Unlike beer, wine and spirits pricing is moving down.

The wine industry should be wary of craft beers, which have grown dollar sales 13% in the past 6 months. There is an opportunity for wine and craft beers to battle for certain occasions, particularly among millennilas who don’t reserve wine for just “special” occasions. “Crafts are good marketers....we need to make sure we’re as intense about telling our story to compete effectively,” said Danny. Crafts are also popular among millennial consumers and have a lot of opportunity to grow among that generation.

When it comes to off-premise channels, online, c-stores, drug stores and club stores are seeing the most growth for wine. The fastest growing price groups are 750ml bottles that cost $3-6 and $9-15. Wines priced above $20 are still weak but declines are lessening partly due to increased promotions. Many retailers are putting sharper emphasis in their advertising on wines priced less than $20. Meanwhile, 54% of wine volume was sold on promotion in the four weeks to December 12. When it comes to packaging, boxed wines are growing along with 187ml 4-packs and tetra paks.

Domestic growth is exceeding imports by a relatively wide margin, especially wines coming from California and Washington. Wines from other small states, including Indiana, Missouri, Michigan and Wisconsin, are growing double digits, which Danny thinks “supports a general trend towards localization.” Over 50% of consumers say they try to buy locally made products to support their community and/or their state. Danny encouraged “local wineries to take advantage of this.”

The top 3 importers (Italy, France and Australia) are not performing well. The clear growth leaders remain Argentina and New Zealand, which are now ranked #5 and #6 and growing at double digits.

Varietal growth is led by rielsing, pinot noir and sauvignon blanc. They also have the highest level of positive buzz online. Malbecs, moscato, petite sirah and tempranillo are also gaining share, particularly malbec and moscato, which both gained 1 share point through December 12.

ON-PREMISE OUTLOOK REMAINS UNCERTAIN. When consumers lack confidence, they tend to shy away from out-of-home entertainment. Increased ratings for the Food Network, higher cookbook sales (+9%) and increased traffic at food sites (+11%) show that consumers are cooking more at home with friends and family. “All this has created a ‘new normal’ focused at home,” said Danny.

This certainly took a big toll on restaurants, bars and nightclubs, and was one of the most talked about trends in 2009. Danny said that consumer confidence is up slightly although they still have a long way to go. Unemployment is around 10% and current projections say unemployment will likely remain “stubbornly high” through 2010 and 2011. A lot of people don’t have spare cash, but if they do they’re most likely putting it in savings or paying down debt instead of spending.

Thirty-four of 35 popular chain restaurants posted losses in the 52-weeks to December 21, according to NRN, although results were improving in Q4. Meanwhile, Technomic predicts that wine will declined -6.7% at the on-premise in 2010. The industry shouldn’t count on location growth to help it at the on-premise because the same numbers of restaurants are closing as they are opening, said Danny. As a result, accounts are competing aggressively by offering a variety of deals and discounts. “This could be problematic because people might become accustomed to that,” said Danny.

However, increased competition on-premise is a good thing for the industry. A survey by GuestMetrics found that the average check with no beverage alcohol was $60, while the average check with beverage alcohol was $100. This profitable difference “speaks to power of our industry to help the on premise with their predicaments,” said Danny.

OFF-PREMISE OFFERS GREATER OPPORTUNITY. Retailers have also become more aggressive and are even going after the restaurant business. Consumers, meanwhile, are experimenting less, using more coupons and promotional shopping. They’re also making few shower trips and reducing the value of their shopping basket. Upper income families, which are most important to the wine industry, are doing this to a lesser extent. Nonetheless, Americans are “desperately seeking value,” said Danny, which means they’re “redefining what’s discretionary and reevaluating their shopping lists.” Suppliers are obliging consumers’ desire for a bargain by waging big price wars and putting more emphasis on private labels. They are “relentlessly” focused on price and optimizing space to fit their strategy.

Consumers are moving back to familiar territories. Nielsen looked at the top 10 wine brands in terms of dollars and they’ve managed to gain share over the past 2 years. In 2008 the top 10 brands had 26.3% share and in 2009 they had 26.5% share. This means that launching new brands is risky. “Line extensions with brands consumers are already familiar with may be a better way to go,” said Danny, but that will change in the future as things improve.

Retailers are responding to the “at-home” shift by offering more prepared meals, fresh food and yes, even wine. Research shows that when wine is in a shopping basket, the overall basket price goes up. A whopping 4,000 more stores were selling wine in December 2009 versus a year ago, including Wal-Greens. In retailer stores that sell multiple goods, wine is the 9th highest growing category out of 122. Spirits come in at #20 and beer is #46.

CORE WINE DRINKERS WILL CONTINUE SEEKING VALUE. Wine drinkers, including core wine drinkers, are consistently dining out less. They’ve scaled back on upscale dining the most, followed by casual and then independent restaurants, according to an online study of 600 core and marginal wine drinkers in October. Once consumers are at a restaurant, they’re ordering significantly less wine than in the past. According to Nielsen’s survey, 18% of consumers are ordering more wine by the glass, while only 4% are ordering more by the bottle. Most consumers (70%) are ordering bottles at the same price as in the past, while 22% are buying less expensive bottles.

There’s a universal agreement among core and marginal wine drinkers that good quality wines are available at lower prices. Most core drinkers (43%) say they “will continue to buy wine that is less expensive than the wine I used to buy” once the economy turns around.

When it comes to the off-premise, Core wine drinkers are still purchasing wine frequently and several bottles per trip, while marginals have trended down big time with both measures. Of the core wine drinkers who are spending less on wine, it’s because they’re looking for deals or good value at lower prices. Marginals say it’s because they don’t have the money.

Core consumers buy wine in several different types of retail stores and are shopping more in mass merchandise stores, buying directly for a winery and shopping online. Marginals, meanwhile, are less adventurous. Core drinkers say they have about the same amount of wine stored at home while marginals have less. Danny pointed out that marginals likely depleted their at-home wine storage before buying more.

WINE BUZZ GROWS ONLINE. Digital and mobile media is growing in importance as older consumers join social networking sites such as Twitter and Facebook. The number of consumers online grew 19%. Research found that once they’re online, the amount of time spent on social networking sites “has just exploded.” Facebook now has 89 million followers that are 21 or above. YouTube has 74 million, MySpace has 38 million and Twitter has 16 million. How does this apply to us? Nielsen found that “wine is discussed at a disproportionately high, and growing level within the online world,” especially on Twitter. Wine buzz is up 30% from last year which is ahead of buzz amounts for spirits (14%) and beer (20%). Nielsen found that French wines are “hugely” discussed online, but that “buzz” is not converted to sales. “Consumers love to talk about wines from France but they don’t necessarily buy them,” said Danny. Wine buzz from Australia is “very” low. There’s a “healthy” amount of talk about German, Spanish and Oregon wines which are generating sales. Seventy-five percent of consumers say they trust other consumer opinions online only second to a recommendation from a friend. “Having your advocates talk about your wine online can make a difference,” said Danny.

CO-FOUNDER DAN LEESE LEAVES 585 WINE PARTNERS

Dan Leese, co-founder and president of 585 Wine Partners, left the company last Friday, according to a statement. The company was started in 2005 by Dan and Katy Leese and Doug and Becky Walker with a small group of investors when they purchased a controlling interest in Red Truck Wines from Cline Cellars. Katy Leese, co-founder and director of public relations and packaging, is also leaving, while chief operating officer Doug Walker is continuing with 585 Wine Partners. Dan will continue to play “a significant role” in the development of Red Truck, Picket Fence Vineyards, Bivio Italia and Steelhead Wines. Dan has been in the wine industry for 30 years and has served as president/managing director of Foster’s Wine Estates Americas and evp/managing director of Brown-Forman Wine Group’s U.S. Wine Business. According to the statement, “he looks forward to continuing his career in the wine industry.”

WSD BRIEFS:

BACARDI AND BROWN-FORMAN say they will end their distribution arrangements in Germany where Bacardi has distributed B-F’s brands. Instead, B-F is establishing its own distribution company in Germany, effective October 1, 2010. B-F is also in discussions with Bacardi and other distributors in additional European markets with contracts expiring in 2010, and expects to provide an update when the distribution arrangements are completed. According to a statement from Bacardi, the two companies’ cooperation will continue in the United States and the United Kingdom as well as a number of other markets worldwide.

SKYY SPIRITS has added “ginger” to its Skyy Infusions line, which joins Citrus, Cherry, Passion Fruit, Raspberry, Grape and Pineapple infused flavors. Available nationwide in February, Skyy Infusions Ginger will be supported by a fully integrated marketing campaign featuring advertising, social media activities and on-/off-premise promotions.

ABSOLUT VODKA is debuting “Berri Açaí” as its eleventh flavor, effective today. “From 2005 to 2007, the açaí fruit industry jumped from $3 million to $14 million and sales of acai products more than tripled to $66 million in the last year alone. Now is the perfect time to launch Absolut Berri Acai,” said senior brand manager of Absolut Vodka, Clare Kanter.

HEAVEN HILL DISTILLERIES has launched Blackheart Premium Spiced Rum, based on the Blackheart character. “The core target for this rum embodies the rebellious nature of the Blackheart Rum. As the high-proof segment of the category grows, we believe Blackheart will be ideally positioned,” said brand manager Brittany Blevins.


Until tomororw, Megan

“There are two tragedies in life. One is not to get your heart's desire. The other is to get it.”
George Bernard Shaw

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