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02.26.2008

What Wine Goes with Recession?

If the election buzzphrase in the early 1990s was "It's the economy, stupid!" in 2008 that might be revised to, "it's the stupid economy!" Everyone is in a tizzy these days, and rightfully so. America is going through a rough patch that many believe is the culmination of decades of bad financial habits on a national level, not the least of which is our tendency to spend beyond our means on the level of the individual and the government.

Housing prices plummet, foreclosures rise, the dollar weakens, consumer confidence wavers, and of course, all business sectors are beginning to think, "what does this mean for me."

So what wine goes with recession? Most people think the answer is: any wine, so long as its cheaper than last year's.

Specifically, a lot of people in the wine industry are nervously examining their fingernails, chewing their lower lips, and wondering whether the trend lines of the last five years are going to leave their beautiful upward trajectories and tick downwards sharply.

I must admit I'm not a huge follower of economic trends when it comes to wine and spirits. I mostly like drinking the stuff, but reading through some industry commentary today I learned a bit more about the current economic outlook for wine, along with a word that I'd never heard before: premiumization.

It's quite a mouthful, but it's a pretty clear concept. In addition to rising sales across all categories of wine and spirits in the last few years, the industry has seen a growing interest and strength in the highest end of wine and spirits. Called many things (Luxury, Ultra Premium, Etc.), this segment of alcoholic beverages represents the highest priced category of wares, including those purchased for investment.

Many people seem to think that this category of wine, in particular, will suffer in a weakening economy. There seems to be consensus that wine and beer tend to be less affected by economic downturns than other industries -- after all, we all need something to drown our sorrows -- but industry types have a range of opinions on just what part, if any, of the wine industry will soften as our economy coughs and sputters its way to wherever it's headed at the moment.

I only have one data point to bring to bear on the discussion, which is the spending of some of the world's top retailers on some of California's most unique wines last week at Premiere Napa Valley. The 200 lots on auction brought in a total of $2.2 million dollars, in comparison to the $2.1 million dollars that 192 lots brought in last year. The increase in revenues was the smallest percentage gain that the auction has seen since 2001, and the average revenue per case of wine auctioned dropped $2 (from $1,777 to $1775 per case) from the year before.

Is this a softening in the demand for Napa's top wines? Well, you wouldn't know it from the enthusiasm in the room during the wine auction this past Saturday. But it remains to be seen just how Napa and the rest at the top of the wine world, weather this economic storm. Already there are rumblings about the pricing of 2007 Bordeaux futures, with some going so far as to suggest the Bordelais will ruin themselves if they continue to attempt to raise prices to "immoral" levels on what many consider to be already stratospherically priced wines.

No one knows just how long this particular downturn will last, and no one seems to know for sure just how much of their disposable income American wine lovers will want to spend on their favorite beverage as they watch those lines that used to point up-up-up, go ever more steeply down-down-down.

The best that we can do, I suppose, is face the future glass-in-hand. Bottom's up!

Comments (17)

Leio wrote:
02.27.08 at 8:23 AM

Alder, the answer to your question is easily answered by one of Napoleon's famous quotes:

"In victory, you deserve Champagne, in defeat, you need it."

:)

Arthur wrote:
02.27.08 at 9:22 AM

Alder

Good topic. In retrospect (20/20 as it is), I wonder if all the mergers and buy outs we've seen in the last year or two represent attempts to shore up against the anticipated economic down turn. Are all these wine producers and distributors trying to be big fish capable of sustaining big hits?

Kirstin wrote:
02.27.08 at 12:42 PM

Perhaps this recession will urge California winemakers to reconsider their high price tags. Yes, there are many factors to the price of wine, but sometimes the mere desire to price one's cab at $60 drives the cab or whathaveyou to be priced higher than their quality or grape nice connotes. In addition, maybe if we lower our prices now, we'll be better able to ease ourselves into foreign markets. I'm thinking they'll appreciate our wines more if they cost closer to what their own wines do.
I know I buy more European wines than domestic. Even with the rising Euro, their low-cost wines GENERALLY taste better than ours.
But then again, I'm all for turning to sparkling too.

Sheppy wrote:
02.27.08 at 2:00 PM

As someone who works in the industry I can attest that this year's pre-sales of top shelf wines have not suffered. Either my clients are unaffected by the economic downturn or they're not buying into the recession hype.

mike wrote:
02.27.08 at 5:20 PM

I wish 60 were as bad as it gets. Some of the increases this year on mailing list wines are absurd and many of them have gone into the circular file for the first time ever. 100% increase in 1 or 2 years is crazy. Time for more from Spain and Chateauneuf!

David Tong wrote:
02.27.08 at 5:48 PM

While blue-chips like Insignia and Monte Bello should do fine, some of the upstart producers of triple-digit Cabernets might be in for a shock.

Maybe the combination of people having less money to spend and realising that cults and first growths are overpriced and over-rated will drive them to look for values. There are plenty of great wines priced from $20-$50 that until now may have flown under their radar.

For sub-$20 wines I've generally been looking to South America rather than locally or Europe. Argentine Malbecs, Chilean Cabs and Syrahs provide a great bang for the buck.

02.27.08 at 8:36 PM

There is surprisingly little research on the relationship between economic indicators and the consumption of wine. The few academic articles I have read are fairly uniform in concluding that there is little relationship between per capita income and volume of wine consumption (or, more likely, the income effect is overwhelmed by shifts in consumer culture and taste). At least two studies indicated some relationship between the economy and spending on wine, and therefore possibly prices. On the other hand, sales of premium wine increased through the last 4 U.S. recessions. This topic needs more research and reflection.

Morton Leslie wrote:
02.28.08 at 3:40 PM

Leio is right. The one wine that has a history of increased consumption during times of economic downturn is Champagne. His quote is as true today; people may keep their Lexus another year before trading it in, but at the restaurant, "What the hell, bring a bottle of the DP."

I think the Napa Valley Premiere results are partly due to a more knowlegeable wine retailer at the auction who has made the mistake in the past of being overly optimistic on what their customers would actually buy. At least that's what one said when asked why they were not actively bidding.

winehiker wrote:
02.29.08 at 9:13 AM

Our dear President suggests that there will be no recession which, in turn, suggests that there will be one. But he's leaving office early next year, and that's cause for celebration. I believe a lot of wines can pair with that notion!

03.02.08 at 12:09 PM

Never mind the buying of wine at retail, what will this do to the purchase of wine in restaurants? I know I have become religious about bringing wine from my retail store or my cellar when I'm dining out...I'd rather pay the $15 or $25 a bottle than $150 for a $60 bottle.
Julie

Gregg wrote:
03.02.08 at 7:13 PM

Australia or bust.

breezy wrote:
03.05.08 at 4:31 AM

There seems to be a reverse correlation in this issue; most people who worse off financially like to stretch out and decadently drink more expensive wines, whilst the financially fit drinkers are more frugal and, though may enjoy premier wines, they certainly don't quaff like parvenu's!

mark wrote:
03.07.08 at 12:02 PM

Good or bad economy, people still need the warmth of a good wine. It will depend on how much they spend that will make the difference during this "recession".

Doug F wrote:
03.08.08 at 8:58 AM

To add to the restaurant comment...my chef friends tell me that the dining out biz is down as much as 20%. This can't bode well for in-restaurant wines sales. But...that doesn't mean people are not consuming at home. If the great depression and prohibition couldn't stop people from drinking, then a little recession should be a mere "speed bump".

Gayathri wrote:
08.04.08 at 12:27 AM

We can put While blue-chips like Insignia and Monte Bellow together. That makes a good taste.

Elvira wrote:
09.29.08 at 4:37 PM

In vino, veritas!

Tom wrote:
07.27.10 at 10:32 AM

Now that this post is 2 years old and the economy seems even worse... How is the wine industry holding up in 2010?

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