Friday, October 08, 2004

Slowing down in the 'high end' market segment

Some people have asked questions (especially after the advent of Two Buck Chuck) about where and how the flood of "cheap" table wines has occurred. Since most of it is from the California wine glut of the past few years, I think it would be helpful to discuss some of the reasons that these wines can be made in this ultra-bargain price range.

California's wine glut has several factors:
  • failure of the boom which eliminated quite a bit of the high-end 'conspicuous consumption' luxury wine purchases
  • the mild recession which hit
  • exacerbation of that economic downtrend with terrorist fears sparked from 9/11 (and further tweaked by a color-code alert system of debatable usefullness)
  • vineyard plantings which were not yet producing, but started to come on-line during this period
  • loss in market share to imported wines which were produced & marketed at prices well below that of most domestic wines in the same quality category
  • the general upward trend of wine quality expectations which had made the Central & San Joaquin Valleys' wines less desireable, and therefore dropped the price out of the bottom of their market

All of these have played into the current domestic glut (let's talk about the global wine glut later).

Now, what this means to the consumer:

  • more competition in the marketplace for consumers (lowering of prices)
  • as wineries have fewer consumers and oversupply of the high-end wines, they attempt to sell the excess wine on the bulk market (a term which refers to the purchase or sale of wines which haven't yet been bottled)
  • they may start to roll some of that excess downward into their lower price tier wines if they can't get what they want for their product on the bulk market or can't sell as much as they need to (meaning increased quality for consumers at or below the previous market price)
  • lower prices and greater availability of wines for everyday consumption (and that's what we're really looking for isn't it? that isn't so expensive & elusive that we feel we have to rob Ft. Knox just to have a nice glass of wine?)

However, many are quick to point out the wide variability in wines in that low-end range. Others are equally quick to question where the grapes came form, or even if it's of the varietal stated on the label. [Answers: a) Primarilly the Central & San Joaquin Valleys, b) TTB mandates that a minimum of 75% of the wine in the blend is from the varietal named on the label (with some exceptions).]

Many of Two-Buck Chuck blends were initially supplied with excess from higher-priced wines.
So will all these cheap wine deals end when the excess dries up? Perhaps not…
Fred Franzia of Bronco Wine Co & Two-Buck Chuck fame, who has extensive vineyard holdings in the Central Valley, has publicly stated (as did Golden State Vintners) that he could continue to profitably produce a $2 wine (bearing in mind that much of the viability comes from being able to sell direct to Trader Joe's and not through a wholesaler).
It wasn't that producers couldn't make a $2 wine in the 90's, they did - but they put it in a jug or box and called it 'burgundy', or 'paisano'… its just that there was no perceived market for it.
Much of Charles Shaw's initial success was due to consumers thinking that they were "getting back" at the wine business by buying their overstocked inventory at a deal (and ultimately that's true, it's just that it wasn't Charles Shaw's inventory - it was Beringer's and Mondavi's and others).


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