Posted 2008-12-23 18:04:23 ID=238:0

© 2008 The Romantic Table

Adjusting to slow economic times, challenges but also opportunities for wineries.


There is no question that we are now suffering the consequences of a period of excess. Rationality in pricing of just about everything went out the window so speak (I think the real estate metaphor is particularly appropriate). But maybe a new wisdom about the values of "things" is now setting in. We are not in a depression, there is still money, but consumers are now looking for value and quality in their wine purchases.

If you have been following the news posted on this site and in the general media, you are no doubt aware that; 1 - we are in a recession; and 2 - discretionary spending on luxuries like wine is down across the board. However if you read a bit deeper into the stories, you learn that people have not given up drinking wine, but are altering their buying habits. I have not seen the data yet, but I suspect that the $18 a bottle and under wine market segment is probably still doing OK. It is the high end wines that are most affected.

I don't believe that this is a singularity in the market. It is the beginning of a trend that probably will not change for sometime. There are two fundamental reasons for this. First, the prime consumers of high-end wine, the baby boomers, are looking at a lot of destruction to their retirement portfolios. All excess financial resources are now going towards rebuilding the portfolios. A weariness has settled in about economics in general, accompanied with a new caution about "frivolous" spending. Even when the economy does pick up, I do not expect their spending habits will return to the same levels as before.

And second, the younger "generation next" who will eventually be the mainstay of wine drinkers, are finding their economic resources are also strained because of the bad economy. Their job prospects are not good, and their current salary levels are rising slowly if at all. I believe that eventually their effect on the industry will be profound, changing styles of wine making according to their generations' tastes (that's another blog). But in the meantime, their affect on sales is going to subdued until the economy picks up.

There is no question that we are now suffering the consequences of a period of excess. Rationality in pricing of just about everything went out the window so speak (I think the real estate metaphor is particularly appropriate). But maybe a new wisdom about the values of "things" is now setting in. We are not in a depression, there is still money, but consumers are now looking for value and quality.

Lets face facts, a lot of things in the wine industry got out of hand price-wise. Things like high wine mark-ups in restaurants which may have been OK in flush times are not realistic now. No matter how nice the waiter is, that $40 price for an $18 dollar bottle of wine gives the consumer some pause for thought. Instead of purchasing a bottle, now a glass of wine will suffice. That said, at the same time, I have noticed that some of our favorite restaurants have seen this is an opportunity to lower prices and market new wines better than before in conjunction with their food service. This gives diners a chance to try some wines they would never have before, and gives the restaurant still a relatively high mark-up item to sell. So even in adversity there is opportunity if you look for it. Of course, restaurants will have to adjust their cellars accordingly. You will probably see less of really expensive wines on the list, but hopefully more interesting and moderately priced wines on the list. For Central Coast wineries, this may actually be a good thing. For the most part, we definitely have the quality and without the inflated prices Central Coast wines should be getting more attention by the culinary world.

Of course any questionable high priced wine is now more suspect than ever. Are the days of the $40 and up wine gone? I think not. But to get those pricing levels wineries are going to need to really deliver. Consumers are going to be much more discriminating, and not just accept someone's review for quality - they are going to want to taste for themselves before buying. Just "being" in a particular wine region is not a sinecure and a ticket to high retail value sales anymore. There are a lot of good, but clearly not great over priced wines out there. "Good enough" is not going to cut it anymore. To maintain those high prices, wineries will need to get very serious about quality and pursue excellence.

Finally, a rationality about the economics of the wine industry needs to set in. Except for some very high end "collectible wines", wine is still basically a commodity. To someone outside the industry, the business may look glamorous, but running a vineyard or a winery is hard work, and not exempt from the laws of economics. We have our share of "GMs" and "Chryslers" who need to face reality and shape up. That will be difficult, but unlike GM and Chrysler, at least we have the advantage that areas capable of producing great wine like ours are very limited globally.




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A tip from Sue!

Eating well with no guilt!

For those health-conscious, alternate a "healthy meal" just before and after a "splurge meal." You can enjoy the food much more when you're not plagued by guilt! And this keeps you on a self-imposed "mini-diet" and maintains your weight much better than if you haphazardly eat at random.