SUPER-premiumization: A Sunny Forecast for the High Teens and Twenties

Supplier-Side Economics

Vintners must plan their business years in advance. Today, the smart money is clearly confident that consumers will continue to increase their per-bottle spend. The biggest players are responding by forming new ‘luxury’ divisions, snapping up scarce resources and launching aspirational brands that fashion higher-quality wines tailored to the preferred flavor profiles of yesterday’s value drinkers. So far in 2015, California’s industry leader Gallo has acquired two prestige wineries, Monterey’s Talbott and sparkling specialist J Vineyards & Winery, adding to a growing cadre of iconic brands that includes leading imports in the $20 plus segment like Allegrini and Pieropan from Italy. Treasury Wine Estates just bought most of Diageo’s US wine brands and assets, greatly expanding high-end offerings.

Premiumization has been the prevailing trend since 2011, but wines in the $10 to $15 segment were first to lead in growth. Double-digit year-on-year increases in that category show no signs of slipping, but 2015 numbers show a shift in momentum toward even higher end wine. Dale Stratton, Vice President of Strategic Insights at Constellation Brands, confirms that “wines over $20 are the fastest growing segment at retail and this trend is likely to continue.”

Importers are seizing upon the chance to capitalize on this shift as well. Florida-based Shaw-Ross, which built its business on the success of Blue Nun, recently launched a new division called the Lineage Collection for its over-$20 imports, such as the luxe Provençale rosé Whispering Angel from Chateau d’Esclans, and Marqués de Riscal’s top Riojas. According to Shaw-Ross national fine wine director Paul Chevalier, the move relates directly to increasing comfort with higher price points. “Customers in key markets around the country are accustomed to paying $15 for a nice glass of wine in a restaurant, so spending a twenty-dollar bill on a whole bottle seems quite reasonable.”

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BD15NOV-PremWine2This uptick couldn’t come at a better time for smaller California vintners. They have been squeezed by price-conscious shoppers on one side, and the rising costs of producing fine wines from recognized appellations on the other, according to second-generation Napa Valley winemaker Josh Phelps.

Case in point – Taken, the $30 luxury brand he launched post-recession with childhood friend Carlo Trinchero did well at $30, well below the Napa average. When they were ready to expand, “we saw a real gap one level down at $20, the perfect spot to deliver true quality at a comfortable price, so that’s where we priced our more affordable Complicated range.” However, the costs of doing business in wine country in 2015 led them to look outside California to produce their first wines under $15 – their new tier called Available sports an Italian Sangiovese and Pinot Grigio.

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Millennial Boom or Bust

For all the Millennial hype, the increased bottle rings are mainly coming from Baby Boomers and, increasingly, from Generation X. “Consumer demographics in the $15-$20 price range have not shifted drastically,” says Chris Indelicato, president and CEO of Delicato Family Vineyards. “Household income remains a primary factor, with the majority of super premium consumers earning an average household income over $100K.”

Rob McMillan, founder of Silicon Valley Bank’s wine division, summed it up this way in his influential ‘State of the Wine Industry Report 2015’:

“One day, Millennials will be at the center of fine wine sales. But the reality is — no matter what a generation is called, the most active buyers of fine wine and luxury goods will continue to be in the 35- to 55-year age group. Today, the largest consuming cohort is the Boomers, and the cohort with the greatest immediate growth opportunity is Gen X. That’s where wealth is centered, and that’s where income supports purchasing at higher prices.”  BD

Author and sommelier MARNIE OLD is one of the country’s leading wine experts. Formerly the director of wine studies for Manhattan’s esteemed French Culinary Institute, she is best known for her visually engaging books published by DK – the award-winning Wine: A Tasting Course and He Said Beer, She Said Wine.

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