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The wine premiumization trap.

In the global wine market, there is increasingly talk of premiumization which has shifted consumption towards the medium-high price ranges.

The upward shift in consumer bottle prices is a trend that began before the pandemic, which has accelerated in the last two years due to the sharp increase in production and transportation costs. Increases that for the consumer mean spending more on a bottle of wine, regardless of whether this derives from the increase in the cost of bottles, gas or strategic choices made by the wineries.

This trend is observed in all major markets, but is particularly evident in the US market, where all wines in the shelf price segments below $14.99/bottle are decreasing in volume sales, while all those above that are growing.

For this reason, the recommendation that comes from many experts and market analysts is to position yourself above that price, to participate in this consumer’s interest in more expensive wines.

To confirm this recommendation, recently another study indicated the too low price, less than 12 dollars/bottle, as the limit for the success of Spanish wines on the US market.

Such a strategy that may be valid for the individual winery, but risks to be dangerous for the sector as a whole if we take into consideration the other elements of the wine consumption scenario.

In fact, in the USA wine consumption has been substantially stable since 2016, apart from the +3.3% recorded in 2020 linked to the pandemic, and slightly decreasing since 2021. 2023 forecast in volume is -4,13%.

In the same period there was a reduction in both the number of consumers and the frequency of consumption in the age groups younger than Baby Boomers, which today are above 60 years old. At the same time, wine consumption by Baby Boomers and Seniors has continued to increase, so overall wine consumption is the result of two opposing trends on the part of Gen Z + Millenials + Gen X and Baby Boomers + Seniors on the other.

The threshold price below which volume sales fell and above which they grew went from $8.99/bottle in 2014 to $11.99/bottle in 2021 and $14.99/bottle in 2022.

Let’s add the last element: wines priced below $14.99/bottle, although decreasing, still represent 70% of volumes sold in the USA.

A picture is therefore outlined in which the growth in sales of more expensive wines derives from the (more frequent) purchases of Baby Boomers, the age segment with the highest spending capacity and from the (more occasional) purchases of Generation more “celebratory” approach to wine consumption and therefore more interested/attracted by prestigious wines (let’s remember that price is always an approximation of prestige).

Conversely, Millenials and, especially Gen Z, prefer other alcoholic drinks.

People’s introduction to wine consumption occurs through “entry” wines both in terms of style, more immediate taste profiles, and price.

Focusing as a sector on the medium-high segments risks further distancing younger consumers from wine due to the reduction of entry choices, increasingly concentrating the market on the wine lovers niche.

This is a large niche, which to date has managed to compensate for the decline in “normal” consumers, but is physiologically destined to shrink over time.

In the US market, today there are 55 million people aged 65 and over, while those aged 5 and under are 19 million. In the next twenty years, the productive period of a vineyard, 35 million consumers will be missing (barring positive migratory balances).

Will the greater margins generated by premiumization be enough for everyone?

Vinophila 3D Wine Expo - The metaverse for Wine, Beer and Alcoholic Beverages

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