Drink Charitably!

The wine industry is not exempt from economic ups and downs as some experts may want you to believe.  But after going through three of these major economic downturns (in the early 80′s, early 90′s and after 9/11), I can say that the wine industry weathers the storm a bit better than most.  And why is that?

Wine is an affordable luxury.

Maybe that sounds a bit too simple and a bit too anecdotal, but that’s my opinion based on close to 30 years experience.  People cut back — they don’t take that trip to Hawaii.  They hold off buying the new car.  They don’t re-do the kitchen.  But they do drink wine. 

History shows a very steady incline in consumption over the last 40 years.  There are some peaks & valleys, but it is remarkably stable.  Do people drink down — ie, do they still drink, but drink less expensively?  Sure — but they still enjoy their affordable luxury.  Do they drink it in different locations?  Sure — restaurants are one of the places people cut back — they eat at home more & buy their wines at a store to consume at home.  Again — that is natural.  I was just talking to someone who works for one of the iconic cab houses in Napa.  She commented that XYZ restaurant, for the first time in history, didn’t take their allocation this year because of the economy.  So they sold that allocation to consumers on the waiting list for this particular wine.  As a result, the winery improved their margins (by selling direct to the consumer rather than through the lower margin 3-tier network) & are making more money than they would have in good economic times.   

And the ripple affect is in place.  As wineries dial back their production in anticipation of a volume slow-down, the suppliers to the wine industry such as the glass, cork, capsule, label producers, and even the bulk wine brokers (even with two short vintages in a row), have growing inventories.  And what happens when a company has too much inventory?  They cut prices to stimulate purchases.  Label production time frees up.  Barrels that were allocated before suddenly become available.

In other words, we are in a cycle, and like all cycles, there is a up-turn on the horizon.  But the wine industry suffers much less than other industries.  Why?  Because we are an affordable luxury.

Any thoughts on this?  If you work for a winery, how has the economy impacted your business?  Consumers – do you drink differently because of the economy?  I’d love to hear back from you and start the conversation.  Meanwhile, when you do drink wine, feel free to continue to drink charitably!

Judd Wallenbrock - Humanitas Founder