Posted on | June 19, 2015
Written by | Roger Morris
Recovery from the Recession has been slow, steady and spotty.
What wine retailer could forget 2007? “It was my best year ever,” says Jim Knight, the owner of the Wine House in Los Angeles. “Customers weren’t afraid of spending $100 on a bottle of wine.” Then the Recession hit in 2008 and, as it did with most retailers in America, the bottom dropped out in 2009. In a little over a year, Knight went from his best year ever to his worst year ever.
It wasn’t that people stopped drinking wine. “Everyone started looking for those great bottles of wine under $20 a bottle,” Knight says, “and some wanted under $10.” Indeed, “under” became a new magnet word—wines under $20, under $15 and under $10 were in demand. Wine writers couldn’t praise them enough.
“The drop in sales at the beginning of the recession was very sudden,” recalls Giuseppe Capuano, head of marketing and operations for Vias Imports. “Some wines that had been on allocation before suddenly had to be discounted on close-out. Our clients in Italy couldn’t understand what happened.”
Meanwhile, wineries worldwide whose stock in trade was bottles between $30 and $100 struggled. California wineries were forced into some soul-searching: If they drastically cut prices, what would it do to their image?
Some swallowed their pride and sold off both un-bottled and bottled wines at slashed prices. Some shifted gears and brought out new labels, at lower price points.
But now, six years later, 2014 was Knight’s best year since 2007—a steady improvement over 2013, which was an improvement over 2012. And that’s even with increased competition.
Has the high-end market for wine finally come back? Yes and no. We asked several people in the retail channel, as well as those whose business affects that channel, to evaluate where the high-end wine business is today. Here are some of their thoughts:
The trophy level never suffered.
Mark Golodetz, President of Sleepy Hollow Wine Co., is a consultant to many wine collectors. “I don’t think the really high-end market ever went away,” he says. “There was talk in Bordeaux in 2008 about negociants going out of business, but they were saved by the Chinese. And Burgundy found the vintage it needed in 2009.” Justin Gibbs, co-founder of Live-ex, the London-based wine market exchange, backs up Golodetz. The Live-ex 100, he says, fell 22% in late 2008 and early 2009, then quickly bounced back 72% over the next two years. It has receded somewhat recently as the Chinese have retreated from buying.
Some nouveau riche wineries and regions won’t recover soon.
“The Recession was a death blow to the Australians,” says Peter Weygandt, President of Weygandt-Metzler Importing, “and it impacted expensive Spanish wines a great deal.” He says many wines “are in never land, being too expensive for good value and not ‘in’ enough for the wealthy.”
Golodetz argues consumer tastes are returning to more classic, food-friendly wines, which, if correct, won’t help the recovery of wines from non-classic areas that flaunted fruit-forward wines with cash-forward price tags.
Vias Imports’ Capuano says that while super-Tuscans still perform well, other classic areas of Italian wines have been slow in recovering. The bright spot he sees is that Americans are increasingly interested–—partly through tourism,—in Italian wines produced from indigenous grapes.
Champagnes And Other Sparkling Wines Are Back On Track
After a serious dip in 2009, Champagne sales have been steady every year since, with more than 17 million bottles sold to the U.S. annually. Imported sparkling wine in general led industry growth in 2014 with an increase of 6.6%.
A new generation with money is driving the recovery.
The Wine Market Council recently interviewed a number of mixologists and other beverage professionals, and there was strong agreement that craft beer drinkers will become high-end wine drinkers. “They are a group that has all the traits of a big wine drinker,” one interviewee observed. “They’re interested in where things are produced, techniques on how it’s made and the artisanal or boutique nature of things.” Added another, “I would say the beer drinker that buys one $10 Belgian 11.2 oz bottle will probably be a ‘high-end wine buyer,’ while the $2 IPA buyer won’t be.”
Don Cochran, regional sales manager for Wine Cellar Innovations, says demand for customized wine cellars is booming today, being driven mostly by young men, albeit their spending level is less than the captains of industry.
The slumping euro is helping sales of pricey European imports.
With a struggling euro, wines from Burgundy, Bordeaux and other premium European wine regions are suddenly becoming more attractive to American buyers. The hope is that, once reintroduced to these wines, buyers will tolerate future currency fluctuations.
Wines over $30 are recovering-— with some caveats.
Those mid-range wineries which could wait out the Recession are doing much better. Jim Knight in LA says there is still strong demand for California cult wines, but demand for Napa stalwarts such as Araujo, Caymus and Stag’s Leap has not fully recovered.
Perhaps most encouraging is the recently released Vinexpo annual worldwide wine survey, which states: “Consuming 312.5 million cases in 2013, the U.S. was the only market among the top 10 wine-drinking countries to show growth over the previous year. While the increase was lower than in previous years, totaling five million more cases, its overall value was sustained by a shift in demand towards the higher end of the market.”
In the auction market, Americans are becoming buyers again.
While collectors are not the typical retail customers, their buying habits strongly influence people who like to drink and entertain with fine wines. “When China took the market to new highs, it was the European and U.S. collectors that were selling,” says Live-ex’s Gibbs. “Today, we are beginning to see growing demand from these two markets. The U.S. in particular, after many years as a net seller and supported by a strong dollar, seems to be bouncing back.”
Perhaps Knight sums up the current high-end wine market best. “It’s not gangbusters,” he says, “but it’s much better than it was.”