These are challenging times for many (but not all) consumers. Rising housing and interest costs are squeezing budgets. Pandemic-era stimulus check bank balances are going or gone. Student loan payments, paused for a time, are back again.
Faced with tight budget constraints and rising debt costs, consumers are struggling to cut costs without sacrificing their standard of living, which means they are more and more focused on value for money. Perhaps the most obvious indicator of this trend is the surge in purchases of store-brand supermarket products at the expense of similar but more expensive name-brand products. But, as the financial news reports, the changes in buying patterns go far beyond that.
Do You Want Fries with That?
Two recent news reports suggest that consumers want value, not just lower prices. A Wall Street Journal story about casual dining restaurant chain Red Robin (see article link below), noted a two-prong strategy to get diners back. Step one was to improve food quality. Step two was to expand the number of “bottomless” offerings so that there is a sense of abundance and value, even when (like me) diners rarely ask for free extra servings. Menu prices have not declined, but business traffic is up. Value sells
The Economist newspaper’s “Schumpeter” business columnist recently compared fast-food king McDonald’s value strategy with casual Mexican chain Chipotle (see article link below). McDonald’s has struggled in the post-pandemic era and recently introduced $5 meal deals in an attempt to regain its lost reputation for good value. Chipotle, on the other hand, has actually raised its prices. Which strategy do you think would be more successful?
Chipotle wins, at least according to the Economist columnist, who argues that Chipotle is better value despite being more than twice as expensive as the McDonald’s meal deal. Maybe, as the column notes, the demographics of the two food chains are too different to make a comparison valid. But perhaps restaurant dinners look beyond price in calculating value. Schumpeter reports having two generous meals from his Chipotle order, but not wanting to even finish the salty McDonald’s $5 meal.
Price vs Value?
If value for money is a rising priority for many consumers it is fair to ask if wine provides good value? Or is wine’s value proposition one of the reasons the industry is facing headwinds these days?
This is an awkward question because different people have different ideas of what makes something a good value and also because wine comes in so many different price/quality combinations. When I asked my university students to do an economic analysis of the wine wall at a local Safeway store, for example, they found wines as cheap as about $2 per bottle equivalent and as expensive as about $225 per fancy glass bottle.
How can you generalize when there is such wide variation? One way is to look at average cost per serving of wine and other alcoholic beverages. Every study that I have seen suggests that wine is more expensive per serving than either beer or spirits using average price data. So there is reason to believe that consumers might see a value problem with wine.
The way that wine is packaged is a value problem, too. Many consumers hesitate to open a 750 ml wine bottle for only one or two glasses because they are afraid that what’s left will quickly go bad, making the bottle purchase an even worse deal than the per-serving averages suggest. (By comparison, beer comes in single-serving containers and spirits can keep for a long time, so they don’t suffer the same wasted money problem.)
Well, you might say, if this wine is too expensive, trade down to cheaper brands. Indeed, wine can be very cheap (per bottle or per serving) if that’s what you really want. But, good value isn’t the same as cheap price, as McDonald’s problems show.
And, indeed, consumers have for several years moved away from inexpensive wines, calculating perhaps that they are not worth even the low price charged. The premiumization trend has plateaued, too, suggesting that perhaps higher price doesn’t always mean better value.
It’s in the Bag?
If consumers are feeling the budget squeeze (and many are) and looking for value in wine as they are, apparently, in fast food and casual dining, where will they go? Some will abandon wine and indeed cut ties with beverage alcohol, generally. Some will drink less but focus on quality when they do. Others will try to find the spot on the wine wall with the best value proposition. Where is that?
NIQ market data reported in Wine Business Monthly finds only a few bright spots on the wine wall, one of them is for “premium” 3-liter bag-in-box wine selling at about $5 per bottle equivalent. Sales of wine in this format have held up pretty well while sales of glass bottle wine at about the same price point have fallen. Maybe that Red Robin sense of abundance applies here, too.
Clearly, the economic side of the wine market equation, with its focus on disposable income, consumer budget constraints, and value for money, is not the whole story when it comes to today’s challenging environment. But I am convinced that it is part of the story and one, perhaps, that should be taken more seriously. The people who are having trouble selling other consumer goods have got the message.
What is wine’s value proposition? Food (or maybe drink) for thought?
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Blake Gray’s recent Wine-Searcher.com column is one example of what a value-driven wine marketing strategy might look like.
Here are links to the articles referenced above.
Economist newspaper “What Chipotle and McDonald’s say about the consumer slowdown.”
Wall Street Journal “Bottomless Fries, Floats, and Broccoli. One restaurant chain’s bid to get diners.“