US Market Conditions (August 2010)

It will probably not surprise viewers when we note that former Federal Reserve Chairman Alan Greenspan recently lamented that there has been a "pause in recovery" of the US economy, or that Paul Krugman, Nobel Prize winner in Eonomics and New York Times columnist, says that "growth is slowing". While the US government is working on new regulations to help the economy recover from the financial crisis, unemployment continues to grow, there is still a foreclosure crisis, and we keep hearing conflicting advice: consumers need to spend more in order to keep the economy healthy, versus consumers need to save more to keep the economy healthy. While large banks, large corporations, and wealthy individuals are doing quite well, smaller banks, small businesses and the non-wealthy continue to suffer in this economy.

Despite that bleak picture, wine continues to be consumed in the US, and a recent Gallup Poll found that 67% of US adults say they drink alcohol, "a slight increase over last year and the highest recorded since 1985." The Wine Institute of California reports that wine consumption in the US was 2.50 gallons per resident in 2009, up from 2.48 in 2008. Total table wine consumed in 2009 was 670 million gallons, up from 658 million in 2008. 

IMPACT Databank Review and Forecast, 2009 Edition, gives statistics on the U.S. Wine Market for 2008. Domestic wines did better than imports in 2008. Imports recorded their first decline since 1993, dropping 2.8% in 2008, and accounting for 26.8% of the market that year. 72.8 million cases of imported table wines were consumed in 2008.

In the wine industry overall, notes the International Wine Cellar, some relationships are strained, many smaller suppliers are being ignored, restaurants have scaled down their wine lists, old inventory is being sold off at reduced prices, and cash-flow pressures are being felt widely. However, looking forward, the stronger U.S. dollar may begin to benefit all parties -- producers, consumers, importers, wholesalers and retailers, as the International Wine Cellar optimistically suggested in its Market Monitor earlier this year.

Yet South African wines have been faring better than many other imports. SAWIS (South Africa Wine Industry Information & Systems) reports that for the year ending May 2010, total table wine exports from South Africa to the US grew to 9,616,159 liters, up from 8,880,863 the prior year, a growth of 8.3%. The overall trend of 2010 over 2009 (for the period from June through May) was 103% for whites, 111% for reds, and 108% total table wines. The Soccer World Cup events in South Africa and around the world focused attention on the country, naturally increasing interest in and sales of South African wines. In the four-month period ending April 2010,  according to the Gomberg-Fredrikson Report, South African bottled table wine imports to the U.S. were up 96% over the same period last year! Imported value for those wines was up 28% in the same period and case volume up 17%. We hope the effect to be lasting, as many people discovered and were delighted by South Africa's fine wines and excellent values. 

December 2009:

As can be expected in view of the ongoing world financial crisis, the wine market is undergoing significant changes. Wine prices are falling in retail, restaurant, and winery locations in the U.S. In addition, the fastest growing segment is for wines under $9 per 750 ml bottle retail, and sales above that price are starting to trend down, according to Jon Fredrikson, a respected industry analyst.

Yet there is good news with regard to imports of South African wines to the US. Market Watch, in its October 2009 issue, reports that "after a brief pause last year, South African wines are back in growth mode, with consumer interest building steadily." Writer Kevin Barry notes that South African "wines often attract consumers because of their unique varietal makeup and rich flavors."

Fiscal Crisis:

Despite the conventional wisdom that luxury is recession-proof, even sales of high-end auction wines are slowing and are going for far less than predicted. The wine industry overall is definitely feeling the pinch that is being experienced nearly universally. The Los Angeles Times reported on November 22, 2008, that "High-end bottles languish on shelves as shoppers opt for cheaper vintages." Retailers are stocking more "value" wines", and once-rationed high-end wines are very slow to move and are plentifully available. 

Consumers are dining out less frequently now, cutting wine sales in restaurants -- as much as 15% notes Fredrikson. Distributors and wholesalers report informally that they are not taking on new wines, and are discreetly dropping brands or cutting orders.

The head of Constellation Brands, recently discussing declining Australian wine exports, noted that consumers are drinking lower-priced wines, and the industry needs to respond by either selling their wines "cheaply with hopes of building volume," or "they can maintain price, take a hit right now and build dollar sales value over time." Another industry expert describing the current wine market said that consumers are not only looking for value, but are "experimenting less and sticking with brands they know and trust." (Diageo's  President Ray Chadwick).

Distributor Consolidation Means Producers Need to Create Consumer Pull:

During a recent Wine & Spirits Daily interview of Patron Spirits Company's chief operating officer, John McDonnell, he was asked how distributor consolidation has affected Patron. His response could easily apply to wines, and of course to imported categories such as South Africa. He noted: "Distributor consolidation puts more pressure on the manufacturer to create the consumer pull because distributors have so many SKUs they have to sell.  So you have to create the consumer pull. Once you do that you get the support from the distributor sales people because at the end of the day this is still a people business. ....  And so you still need to sell the features and the benefits of your products.  It's always back to basics."

Food Miles:

 "Food Miles" (the distance that foods and wines have to travel from their source of production to the market) is of great consumer interest these days. The good news for South Africa is that wine shipped by sea from South Africa to the eastern seaboard of the U.S., the Port of New York in particular, uses far less fuel than wine shipped from California to New York via truck, even though technically it has traveled farther. 

The food miles criticism argues that the environment is damaged more by products produced far from the market, because of the fossil fuel consumption required to transport long distances by truck, ship and plane. However, recent research has shown this to be too simplistic a concept, and that a more comprehensive view would take into account the environmental effects and emissions generated at other stages of the product life cycle, rather than only those produced during transport. For example, scientists in New Zealand have suggested also considering factors such as water use, harvesting techniques, fertilizer outlays, renewable energy applications, means of transportation (and the kind of fuel used), the amount of carbon dioxide absorbed during photosynthesis, disposal of packaging, storage procedures and dozens of other cultivation inputs.

Check back to this site for future updates.

		The Great South African Wine Show Download the catalog of the Great South African Wine Show here.
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		Doing Business in the USA, 2008 Edition Download our 2008 edition of the Doing Business in the USA publication.
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		Imported Wines Comparative Survey A Baseline Study of U.S. Wine Consumer and Trade Awareness, Attitudes, and Purchase Behaviors Regarding Imported Wines, conducted by Wine Opinions. Wine Opinions is an Internet-based research company focusing on the attitudes, behaviors, and taste preferences of the segment of U.S. wine drinkers who are the most frequent purchasers and consumers of wine.
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		Industry Meeting Presentation, February 11, 2008, Su Birch, CEO, WOSA (in New York City)
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		Industry Meeting Presentation (Oct. 2007, New York City): Charles Gill, President, Wine Metrics
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		Industry Meeting Presentation (Oct. 2007, New York City): John Gillespie, President, Wine Market Council
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		Industry Meeting Presentation (Oct. 2007, New York City): Su Birch, CEO Wines of South Africa This is a pdf file, 4.3 MB download
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