Is Wine Premiumisation A Doom Loop?

Posted: Nov 08, 2019

Damien Wilson, of Sonoma State University, has a warning for the US wine industry: wine premiumisation can be a path to ruin. He explains why.

Wine sales figures for the first half of 2019 show that the premiumisation trend in the US has begun to head south. The question every wine producer should be asking themselves is: “So what do we do now?”

Californian wineries are thinking about premiumization, higher revenues, and greater profitability – and what better way to demonstrate the focus on premiumisation than by pushing up prices? However, the argument against such a push needs to be considered. Should wine producers chase short-term profit by pushing prices higher – or is it time to focus on creating more wine consumers for long-term business growth?

Wine producers might think customers will support price increases in the next 12 months; however, there is already ample evidence that recent price increases are dissuading consumers from choosing wine as their beverage of choice. Further price rises are only likely to exacerbate that trend.
If prices continue to go higher, it could result in an oversupply of high-priced wines fighting for an ever smaller market. There is already a surplus of wine inventory in upper price brackets; more than 50% of wine producers in the US do not even have a distributor. Many of these producers have years of supply back-logged in cellars and are looking for new ways to sell in an increasingly competitive market. Such a situation requires an influx of new customers, coupled with renewed interest from existing customers in order to help clear these inventories.

This emerging US market trend echoes what happened in Europe in the 1980s. The impact on that region’s wine sector was disastrous for most producers, as wine consumption plummeted from the 1970s through to at least the second decade of the 21st Century. The cardinal European error was focusing on quality improvements and ignoring the customer. Instead of giving wine consumers what they might want, the wine sector focused on producing what it wanted to produce. The US wine sector now stands at the same precipice, facing an identical decision on its future.

By Professor Damien Wilson
November 7, 2019
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