Two of the most-read Wine Economist columns of 2023 analyzed theories of the global wine glut. The first focused on demographic theories (generational differences and life-cycle patterns) and the second took aim at economic forces (rising inflation, interest rates, housing costs, consumer and business debt). The first column got more attention. Until now.
A recent OIV report on global wine sales found that consumption measured by volume fell in almost every major consuming country between 2022 and 2023. It really is a global issue. And while there are many factors involved, including rising health concerns, the OIV stressed the economic theory of tighter budgets squeezing consumer choices. Why didn’t the OIV stress demographic trends? I can’t speak for them but it is clear that they are interested in the global problem and not every consuming country has the same demographic pattern as the U.S. Baby boom or lifestyle explanations don’t help us understand the sudden collapse of wine consumption in China, for example, but changing economic circumstances might.
Everyone knows that people are feeling economic strain these days, but can it really be affecting wine sales as much as that? Remember that sales in most countries haven’t collapsed (China being an exception). The volume of consumption has fallen by 2% to 4% in most countries. This is relatively small in percentage, but a big deal to winegrape growers and producers with unsold product.
This is where Starbucks and McDonald’s come in. Both are U.S.-based global firms and both have suffered significant declines, just like wine. I’ve been following the news about both companies recently and I think there are insights that wine producers need to consider.
Starbucks’ share price fell by 15% in a single day recently. Why? The Wall Street Journal published an article about persistently declining sales at the coffee giant. The problem, it noted, was that the company was running out of American customers who are willing to pay $5, $6, $7, or more for a beverage. Starbucks was premiumizing while their customers were belt-tightening. It turns out that many people don’t think they need Starbucks as much as Starbucks maybe needs them. Starbucks’ CEO announced a turnaround plan that seemed to miss the mark and the stock value took a dive.
What is the lesson for wine? Wine is sort of the Starbucks of its own category. Wine is more expensive per serving than other alcoholic beverages. It is a discretionary purchase. Consumers don’t need to buy wine. They don’t need to buy beverage alcohol at all. If only a few percent of them change behavior, you’ve got a Starbucks problem.
McDonald’s might also have lessons for wine. Once upon a time, fast food in general was seen as good value, but rising costs have increased the average drive-thru bill considerably and the volume of traffic has fallen. The McDonald’s CEO recently recognized the economic problem and vowed to restore the value proposition. There are rumors of a $5 hamburger meal, for example. Significantly, McDonald’s stock did not tank upon this announcement.
Perhaps wine needs to reevaluate its value proposition, too. Yes, there are inexpensive wines on the shelf, but are they good value? Consumers don’t seem to think so. Sales volumes have been falling for several years. Significantly, one of the few bright spots in the current market is the premium 3-liter box category ($4+ per bottle equivalent). Apparently many consumers see value here that they don’t find elsewhere on the wine wall.
I am not arguing that health concerns are over-stated or that generational and life-cycle explanations are wrong. But I think that the economic argument about the global wine market is important and wine producers need to take consumer budgets explicitly into account as they move forward. Consumers are feeling the squeeze. How can wine producers address this situation?