Internet Buzz Strong for Growing Wine Regions

FILED AUGUST 1, 2009

Dear Client:

The wine industry has seen major changes over the past year and a half as we all know. Yes, consumers are drinking more at home, eating and drinking less at “fine dining” restaurants and even trading down to value brands. And wine has been hit the hardest in the alcohol beverage industry. It continues to grow at retail, but now dollar sales gains are the result of price increases and not trading up, Nielsen’s Danny Brager recently noted in a June presentation at Vinexpo in Bourdeaux (not a bad gig). However, there are some inexpensive ways to market your brand even in this environment.

FRENCH WINES MOST “BUZZED” ABOUT, BUT NOT MOST POPULAR. The item we found most interesting from Danny’s presentation is the importance of word-of-mouth recommendations from consumers. Internet buzz is growing and regions like Chile, Argentina and New Zealand are benefitting. Along with staying more at home, consumers are increasingly cruising the internet. With that, social networking is exploding, and consumer word of mouth online is now the most trusted media.

The more popular a region or a varietal, the more people talk about it. Makes sense right? Unfortunately that also applies to unpopular areas/wines too. Wine buzz is most favorable for Argentinean wines, most neutral for French wines and most negative for Australia. (Australia just can’t seem to catch a break). People are increasingly buzzing about Chile’s Cabernet Sauvignon, Argentina’s Malbec and New Zealand’s Sauvignon Blanc. And although French wines are down, Nielsen found that French wine “buzz” is significantly ahead of any other country online.

PRICING BOOSTS DOLLAR SALES, NOT PREMIUMIZATION. In the 52 weeks to May 2 Nielsen’s scan data shows that pricing grew 1.7% at the off-premise, causing dollar value to grow 4.3%. Volume, meanwhile, grew 2.1% at the off-premise. In fact the $3-$6 wine category is growing the fastest while $20 and above suffer dramatically. The most expensive wines to show any growth are priced in the sweet spot of $9-$12. Retailers are offering more promotions on inexpensive wines as a result.

Domestics are still growing at a much faster rate than imports as consumers strive to save money. (This is a trend the beer biz is seeing as well). To help balance declines in growth, importers are amping prices. In the 12 weeks to May domestic pricing grew 0.8% while import pricing was up 3.5%.

FRENCH ROSE SHINES AMID DECLINING REGION. Several old word countries like Italy, France and Germany are particularly feeling the pain, while South American wines (especially Argentina) and New Zealand are performing strongly. Interestingly, Danny notes that French rose’s annual value sales rose 18%, with roses priced below $12 growing a whopping 44%. Clearly the French did something right when fighting to preserve their traditional production technique.

GLIMMERS OF HOPE. Danny ends his presentation by noting that there are some “glimmers of hope” that the recession is winding down, and the wine industry will certainly benefit. A recent poll showed that consumers are more willing to increase their spending on wine than other alcoholic beverages once the economy improves. Interestingly, this response was led by millennials. Consumers are also looking forward to dining out once things improve, but still plan on exercising restraint. Casual dining restaurants should expect a boost when the economy (finally) turns around, and with that so will wine and spirits.

WINERIES EXPERIMENT WITH PLASTIC

Speaking of wine trends today, plastic wine bottles are starting to make inroads on retail shelves and even restaurants. But the question is: will the trend catch on? Jerry Hirsch at the LA Times wrote an interesting article on the subject, noting that plastic wine bottles cost less and are environmentally friendlier (not to mention wineries can save money in shipping costs).

We suppose you can argue that the average wine drinker only cares about taste, and nowadays, price. Wineries and restaurants are also benefiting from the cost savings: plastic is cheaper, lighter and doesn’t break. It also doesn’t seal wine as effectively as glass, so they’ll come with an expiration date much like beer.

John-Charles Boisset, founder of Boisset Family Estates, believes “plastic will become the future of a big portion of wine packaging.” The article points out that boxed wine and screw caps are catching one, so maybe plastic bottles are the future. However, the poster child for expensive wine begs to differ. Fred Franzia told Jerry he is wary of going the plastic route, believing it “would just blow off the line.”

GALLO MOVES TO GLAZER’S IN CENTRAL TEXAS

E & J Gallo moved their brands to Glazer’s in central Texas, which covers Austin, San Antonio, Corpus Christi, and the McAllen/Lower Rio Grande Valley area. Glazer's is also Gallo's distributor in the majority of the rest of Texas, as well as 6 other states. This helps make up for losing the Constellation brands to Republic last month.


Until Monday, Megan

“Everything you can imagine is real.”
Pablo Picasso

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