Daily Archives: April 8, 2014

Wine Industry Struggling?

One of the oldest adages is that alcohol – or more directly in this circumstance, wine – is recession proof.  Is that true or is the wine industry struggling?

The general thinking is when times are good, everything in an economy Grapebin-Portugal_EU_Winedoes well, but when there is a dip in the markets, consumers will cut back on all but the necessities.  However, booze has always been a staple of recessional or depression oriented times because folks need an outlet of entertainment and products such as wine are considered as important enough as staples that people aren’t willing to give them up.  That’s why business portfolios often will have ‘sin’ stocks in alcohol related industries.

Here in the United States and for that matter, the rest of the world has been in an elongated recession – depression for places like Detroit and parts of Europe.  This troublesome trend has reared its ugly head and affected many aspects of society and shall we say … egads … the wine industry?  How could this be?

Top down

Some would say that even the alcohol oriented business is susceptible.  And recently, the biggest news yet seems to agree with that assessment, because the largest wine company in the world, Treasury Wine Estates has been hit hard and as such, will be slashing jobs and costs (source: Sydney Morning Herald).  Here in the U.S., Treasury Wine owns California based Beringer Vineyards, which is one of the oldest wineries in California.

Beringer Vineyards

Beringer Vineyards is one of the oldest in Napa Valley but they along with their parent, Treasury Wine, are struggling.

An interesting side note to the troubles at Treasury Wine is the fact that last year, the company destroyed older and aged wines.  Yes, that’s right, the company felt compelled to destroy large amounts of wine because they felt there was too much wine on the U.S. market.  Net profits for the company had tanked and in-turn, their CEO was pressured to leave.  By the way, most of the wine destroyed was from Beringer.

This is an odd situation because if you’ve paid attention to the news in the wine business, there appears to be a shortage in wine supply.  I’m not an expert in this field but still, destroying wine because you have too much of it in a certain markets doesn’t mean it couldn’t be sold somewhere else given the supposed world-wide scarcity of wine.  Yes, this information is contradictory and we may not know the exact answer, but my thought is if an extended recession has forced the largest wine producer to destroy wine, a shortage is a bit far-fetched.  And a report just came out saying Bordeaux wholesalers feel the market is soft (source: Harpers) and that “current demand is ‘dead’”.  Ouch!

I do know that while the U.S. and China are consuming more wine year-in and year-out, Europe, where the biggest consumers were based, has shown a fairly sharp decline in wine consumption.  With poor economies in much of Europe, it would seem obvious that wine consumption is being directly affected.

The South American wine industries have suffered due in part to the world-wide recession and high inflation.  Argentina in particular, has seen inflation raging and therefore has instituted price controls.  The country has surged to the left politically in the past decade with government intervention at every level.  Politics may be one of the problems with the wine industry but there’s another issue: demographics.

Competition & other issues

There are a myriad of alcohol drinks that wine is competing against.

There are a myriad of alcoholic drinks that wine is competing against.

The beer industry has seen a shift from standard beers like Budweiser, Coors et al, to microbrews.  That shift is also impacting the wine industry (source: London Wine Fair).  Young adults aren’t enamored by wine and there’s seems to be a detachment and “an overall lack of engagement”.  Hard booze such as multiple flavored vodka’s have also become popular with the young adult population.

Other problems like China which has too seen a drift into a flat pattern of wine drinking after a steady climb up, is also affecting wine industry.

California has its own problems with drought and a lack of support from state and federal regulators who have hurt farmers recently with peculiar rulings that have exasperated the water situation.  The lack of farming has led to a drastic increase in unemployment as well as hammering the economy as a whole.

So while the wine industry struggles against a constant recessional pounding, they’re also being attacked by other liquors that appeal more to younger generations, while governments confound the problems further.

We hear so many positive stories about the wine industry especially here in the Paso Robles where we garnered the top spot as the number one wine region in the world.  However, troubles loom and even the winery business world needs to look deep as the situation maybe emerging that indeed the wine industry is struggling.

Cheers,

Daryle W. Hier

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http://pasowinebarrels.com/

 

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