Millennials Drive Growth, Core Consumers Trade Down

FILED JANUARY 1, 2010

Dear Client:

The wine industry can take comfort in the fact that consumption continues to grow in the United States, said John Gillespie, president of the Wine Market Council, at the Council’s 5th Annual Presentation of US Wine Consumer Trends in Dallas. Not only are older generations drinking wine, but the industry has a big champion in the millennial generation. By process of being younger, millennials were not as hurt by the economy and feel more comfortable spending money on wine as an affordable luxury. They don’t view wine as elitist and enjoy, rather than feel intimidated by, all the choices that wine presents. John also gave insight into what the “new normal” is for wine consumers, and what we can expect from marginal and core wine drinkers in the future. [Ed Note: The data that John presented is available to Wine Market Council members. The research comes from an annual tracking study performed by Merrill Research and online consumer focus groups conducted in October 2009.]

THE NEW NORMAL. Over the past year people in the industry have debated the idea of a “new normal.” Are US consumers forever changed from the downturn? John gave a brief outline of what the “new normal” has meant so far: (1) Consumption continues to rise but there is an “undeniable” shift from the on- to the off-premise; (2) the $20 and $50 wine categories are demarcation lines at retail; (3) core wine drinkers are increasing, while marginal drinkers are bailing; (4) more imports are coming to the US in search of growth; (5) and direct to consumer wine sales are growing.

CORE VS MARGINAL WINE DRINKERS. A theme of John’s presentation is that both core and marginal wine drinkers plan on continuing to purchase cheaper wines after the recession. In the US, about 43% of the population are “non-drinkers;” 15.9% are “core wine drinkers,” which means they drink wine once a week or more; 14.1% are “marginal wine drinkers,” which means they drink wine less than once a week; and 27% are beer or spirits drinkers. Core drinkers are by far the most important group to the wine industry because they account for most of the sales.

“As core drinkers have been trading down in price points, they’re finding good quality wines they’re pleased with,” said John. Survey results show that 69% of core drinkers and 64% of marginal drinkers believe they “are finding good quality wines available at lower prices. Once the economy turns around, 43% of core and 32% of marginal drinkers say they “will to continue to buy wine that is less expensive than the wine I used to buy.” Thirty percent of core wine drinkers said “if the economy turns around, I will buy more expensive wines.”

Not surprisingly, core and marginal wine drinkers mainly stick to domestics, but core drinkers are more willing to experiment with imports. Core drinkers are increasingly purchasing wines from Spain, Argentina and Chile.

In looking at domestics, core and marginal drinkers are also purchasing wines outside of California. One out of four core drinkers and 1 out of 6 marginal drinkers are buying more wine from Washington, Oregon, New York, Vermont and/or Texas. When surveyed online, however, the majority of respondents say they prefer wines from California when compared to other domestics.

Alternative means of purchasing wine are also growing rapidly. Thirty-one percent of core drinkers bought wine at a winery in 2009 and 11% bought wine through a website. John noted that “yes, these are small numbers but they’re growing rapidly.” Meanwhile, 83% of core drinkers belong to a wine club, and chances are that they belong to several different wine clubs. A large number of people “get a quarter or half of all the wine they purchase in a year from their wine club(s),” said John.

WHERE SHOULD WINERIES PUT THEIR FOCUS? When asked by an audience member whether wineries should focus on maintaining core drinkers or transitioning marginals, John noted that it’s Wine Market Council’s job to move marginals to core consumption. Producers should instead focus on younger generations and core drinkers.

MILLENNIALS ALREADY LOVE WINE. Right from the get go millennials have begun drinking wine at core consumption levels, while gen X and baby boomers have increased wine consumption with age. As John pointed out, 20 million of the 70 million millennials aren’t even at legal drinking age yet, so this is great news for the industry. “We have the pipeline full for core wine drinkers for the next 5 years, assuming the 20 million who aren’t 21 yet will follow in the older millennials’ footsteps,” said John.

Last year 9% of the US population was trading off to wine. This means they were either choosing to decrease their consumption of beer or spirits while increasing consumption of wine, or choosing to drink wine on occasions when in the past they would have drunken beer or spirits. Interestingly, 32% of millennials traded over to wine, which means young people are increasingly favoring wine over beer and spirits.

A series of focus groups taught Wine Market Council that millennials are much more adventurous than older Americans. For example, they consume more imports than other generations, are more likely to belong to a wine club, and dine out more often. Millennials view wine as an affordable luxury. They don’t see wine as elitist or unattainable but believe it denotes maturity and sophistication not given by beer or spirits. This age group is also the first truly gender neutral generation when it comes to drinking wine.

Packaging can help motivate or deter a sale. Millennials find alternative packaging and interesting labels attractive, but if they come across a wine that seems marketed directly to them then they usually have a negative response.

SPIRITS VOLUMES GAIN 4.4% IN DECEMBER

Spirits volumes grew 4.4% year over year in the 4 weeks to January 9, reports UBS based on Nielsen off-premise scan data. Volumes were up 2.6% in the 52-weeks. Price mix declined -0.3% for the month but grew 0.2% for the 52-weeks. Meanwhile, dollar sales grew 4.1% in the month and 2.8% for the year. The percentage of market volumes sold on promotion grew to 47.7% in the 4 weeks.

Diageo, Pernod-Ricard, Remy Cointreau, Skyy Spirits and Brown-Forman lost share at the off-premise, while Constellation saw gains. Diageo volumes grew 3.8% year over year in the 4-weeks but price/mix was down -1.2%. Diageo’s promotional activity increased to 57.5% of volumes sold on promotion, which UBS considers “an improved trend.” Pernod volumes grew 4.2%, with negative price/mix of -1.1%. Pernod also saw an increase in promotional activity to 54.9% of volumes.

Skyy’s volumes fell -3.1% in the 4-weeks and grew 3.4% in the 52-weeks. UBS notes that Skyy Vodka was up against some tough comparables. Remy’s volumes fell -1.6%, while sales rose 1.5%. Volumes of B-F’s spirits grew 4.4% with price/mix falling -0.4%. Constellation’s volumes grew 2.8% and sales gained 6.9%.

UBS forecasts “1% market volume growth, 0.5% value growth” in 2009. They rate Diageo and Constellation as “buy,” and B-F and Remy as “sell.”

WSD BRIEFS:

THE NATIONAL RETAIL FEDERATION projects that industry sales (which exclude automobiles, gas stations, and restaurants) will increase 2.5% in 2010 compared to the same period last year. Total industry retail sales for 2009 declined -2.5%. “As we continue to see signs of improvement throughout the U.S economy in 2010, overall sentiment will begin to lift, making way for slight increases in consumer spending,” said NRF chief economist Rosalind Wells. “While we still expect shoppers to continue to be frugal with their discretionary spending, retailers will soon be able to reap the benefits of leaner, smarter inventories and a year and a half of pent up consumer demand.”

BACARDI LIMITED has donated $50,000 for immediate relief to aid victims of the devastating earthquake in Haiti.

HEB HAS NAMED Craig Boyan as its new president and coo.

INTERESTED IN THE BEER BUSINESS? Attend the industry's best conference on beer marketing, best practices, consolidation, and top management networking. Meet AB InBev's Dave Peacock, MillerCoors' Tom Cardella, Crown's Bruce Jacobson, and more, including Latino marketing, word-of-mouth, and financing consolidation. The Beer Summit 2010 is in Phoenix, February 28 to March 1. More information here.


Until tomorrow, Megan

“Just because something doesn't do what you planned it to do doesn't mean it's useless.”
Thomas A. Edison

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