by Paul Tincknell, Partner
The Great Wine Depression
The wine industry is in a depression. Not a downturn, not a recession, no – a full-on depression. Since an anomalous sales bump during the pandemic, wine sales and consumption are falling to levels not seen since the 1970’s and, despite hopeful predictions and unfounded market speculation, the decline has not abated. In fact, the decline started before the pandemic, with peak volume and sales in 2018. We’re well past the definition of a recession as three consecutive quarters of contraction, so by any economist’s measurements, the wine market is in a true depression.
The causes have been extensively written about, and some of biggest ones are due to external forces that industry participants have little control over: rising costs, a resurgent, political, neo-temperance movement, and generational shifts in consumers. But the industry has not risen to meet the moment; instead many of the biggest companies have made matters worse by passively and actively embracing anti-consumer trends and practices.
Cory Doctorow, author, blogger, pundit, advisor to the EFF, and champion of open-source and copyright-free tech and content, coined last year’s Word of the Year, ensh*ttification. The word includes a vulgar slang term for the idea that a product or service is made intentionally worse. The definition connotes active and purposeful actions by a company meant to degrade their products or services to extract extra value from vendors and consumers.
Now, wine itself is not getting worse. On the contrary, over the last several decades, we’ve had a glorious range of wines from all around the world, most of which are well-made, without flaws, and often excellent. In the 1960’s and 1970’s, coming across a flawed wine was much more frequent. They are a rarity nowadays. We are in a golden age of wine – but that makes the industry’s systemic degradation all the more frustrating.
The ensh*ttification of the wine industry is happening in how the wine industry operates and, specifically, how the marketing and sales of wine is conducted. But first, courtesy of Mr. Doctorow, here is a synopsis of ensh*ttification:
“First, [companies] are good to their users; then they abuse their users to make things better for their business customers; finally, they abuse those business customers to claw back all the value for themselves. Then, they die.”
He defines those three phases:
- User-First Phase: a company tries hard to build its customer base by providing lots of value to create loyalty.
- Vendor-First Phase: once a company has either locked in or created deep loyalties with their consumers, they refocus to provide lots of value to create loyalty and lock-in with their vendors and suppliers, often at the expense of consumers.
- Company-First Phase: once the company has locked in both consumers and vendors, they refocus to extract the maximum value out of both through higher prices, worse service for consumers, and demanding bigger discounts and more service from vendors to maximize their or shareholders’ profits.
Mr. Doctorow was mostly discussing tech companies and social media platforms, but the general process of ensh*ttification has apt applications to other industries and companies. Indeed, the wine industry has embraced the process without realizing it.
Ten Ensh*ttification Trends in the Wine Industry
#1: Premiumization
Premiumization hails back to the late 1990s. It really took hold in the mid-2000’s as the beginning of a generational shift in consumers began. Baby Boomers – the generation that drove growth in the wine industry during the 1980’s-2000’s – were at peak earnings power and began to retire, age, and slowly reduce consumption. Millennials have not stepped fully into their shoes, though, as the first internet generation was trained to pay attention to new and different sources of information other than mainstream wine media, and were slowly changing their shopping behavior as ecommerce grew. These cultural changes are more pronounced in the subsequent generations.
The wine industry was quick to pick up an interesting “trend” as a result of the generational shift: consumers were buying better quality but less volume. In the simplistic thinking of too many, that translated into equating higher prices with perceived quality, and marketers and channel buyers were quick to capitalize on this. If consumers think that a $30.00 Chardonnay was clearly better than a $22.00 Chardonnay, why not just price the $22.00 Chardonnay at $30.00? Consumers think they get a better wine, and the winery, distributor, and retailer make more money. Who’s to say what is a fair price?
This made the true force behind needed price increases – rising costs – even worse for consumers. That wonderful $50.00 Napa Valley Cabernet Sauvignon became $120.00 seemingly overnight, as rising costs and premiumization amplified prices. Big, corporate wineries introduced new brands at higher price points with barely any discernible qualitative differences from their established, lower-priced brands.
Premiumization also turned wine from an affordable, frequent luxury into a special-occasion only beverage. Out-pricing other beverage alcohol competition has persuaded consumers to switch to them – beer, wine, canned cocktails, cider, spirits – for their more casual drinking occasions.
Seven years into the Great Wine Depression, some industry CEO’s are still pushing premiumization as the solution to declining sales. Impending tariffs will make pricing worse. But the takeaway should be that milking consumers is never a long-term winning strategy despite short-term profits, and reading a few posts in Reddit’s r/wine sub reveals the rage and suspicion enthusiast wine consumers now feel towards the wine industry. They no longer think price equates to quality, but rather to wineries’ greed, which is both justified and unfair – the other channel players are greedy too.
#2: Tasting Room Fees
As a battle-scarred veteran of the wine industry, when I first began my career path winery tasting rooms had no fees, even in Napa Valley. As wine became more popular and wine tourism increased, the generosity of the wineries was abused by numerous consumers; there would be parties of persons traveling winery to winery getting outright drunk on the free wine. The costs of free wine, the pressures of tourists on the hospitality infrastructure, and the desire to cater to those consumers most interested in a brand’s wines forced the implementation of tasting room fees. For a short while they worked to the benefit of both winery and serious wine consumer.
And then they didn’t for most consumers, serious or not. Once wineries saw real profits from charging higher and higher fees, what began as a crowd-control tool became a profit center. For many wineries today they are an important part of their revenue. But for consumers, they have become a serious barrier to entry in many of the most desirable wine-growing regions, making a leisurely visit to wine country affordable only for the well-to-do.
Some wineries are beginning to reverse the fees. Whether this consumer-friendly move expands remains to be seen. But the high tasting room fees have made a negative impact on loyal wine consumers. It is one reason local wine tourism outside of the Big 5 wine states (CA, WA, OR, TX, NY) is increasing, while within the Big 5 it isn’t.
#3: Producer Consolidation
This is an inexorable force in any industry: bigger is more efficient and more profitable. Therefore, getting bigger either through organic growth or M&A is an inevitable step in a company’s growth.
The top five biggest wineries (GALLO, The Wine Group, Constellation Brands, Delicato Family Vineyards, and Trinchero Family Estates) combined have over 58% of sales in the US wine market. The top 50 brands account for 90% of the US market. A detailed and thoughtful overview by Jeff Seigel outlines the consequences of this historic consolidation in the last two decades. Basically, consolidation reduces consumer choice, which in turn often fuels price increases due to loss of competition. And, as well-made as most of these wines are, scaling wine production forces a degree of conformity not typically associated with fine wine. Sameness in style and quality regardless of vintage or AVA creeps into the product lines, segmented ultimately only by brand, packaging, and price. More and more wine in grocery stores and big-box chain retailers resembles the type of selection in cereal; how different is one brand’s Corn Chex from another’s Corn Squares?
Wine’s role in society and culture is meant to enhance culinary pleasures and social celebrations. If all Sauvignon Blancs taste roughly the same, then the role wine functions in our society is reduced to enjoying only expensive wines bought for special occasions.
#4: Wholesaler Consolidation
Like wine producers, wine wholesales, with the lock-in provided by state legislatures and backing by big wine producers, have been going on a consolidation spree over the last two decades. In 1995 there were 1,800 wineries in the US and 3,000 wine distributors. By 2023, there were 12,000 wineries (a 567% increase) and 1,000 wine wholesalers (a 67% decrease). This constriction of access to market has helped the big wine producers, who can leverage power in the market more effectively through fewer partners. It has closed the US market to many small and mid-sized wineries; why, as a wine wholesaler, would you spend time moving 500 cases of a winery’s wines in a market or two when the majority of your profits come from selling millions of cases from a big winery partner in multiple states?
The result furthers the lack of selection and competition, and fuels premiumization and product conformity. Basically, there is a mutual interdependence between big wine producers, multi-state wine wholesalers, and big-box chain retailers that essentially leaves the consumer out of luck when it comes to healthy competition in the market.
#5: Retail Consolidation
Decades ago I worked in wine shops, those small retail stores that focused on finding and selling interesting wines to consumers. Customers would come in seeking expertise and direction in finding wines for an occasion, for their palate, or for exploring the world of wine. Service and a curated selection were necessary to develop loyalty. There were many independent, locally-owned wine shops in every mid-sized and major metropolitan area.
Most of those wine shops are gone. In their place Sam’s Club, CVS/Long’s Drugs, Total Beverage, Beverages & More, Liquor Barn, Trader Joe’s, Aldi, Walmart, Costco, Cost Plus World Market, etc., dominate wine retail. Their franchises across state lines gives them enormous bargaining power against small and mid-sized wine wholesalers, and a partner for the big, multi-state wine wholesalers and biggest, corporate wine producers and importers. Same results: selection suffers, pricing becomes uniform between locations and competitors, and customer service is axed to lower costs.
Adding to onerous states’ regulations, the growth of the big, corporate wine producers, and the consolidation of the wine wholesalers and big-box wine retail chains have created barriers to market for small and mid-sized wineries that are nearly insurmountable. The consolidating three-tier sales channel adds excess margin to wine prices, while reducing consumers’ access to the most interesting and exciting wines being made.
#6: Restaurant Pricing
Want to know what enrages engaged wine consumers even more than premiumization on Reddit’s r/wine? Restaurants’ prices for wines on their wine menus and by-the-glass lists.
The on-premise market segment took a major hit from the pandemic. While consumers have been slowly returning, traffic remains down as consumers discovered the joys of eating at home. A recent press release by the National Restaurant Association noted that 75% of restaurant business is off-premise – that is, 75% of patrons are doing take-out or using food delivery services. Even discounting that the majority of that 75% is fast-food and family dining operations, the portion of that 75% that isn’t is another blow to the fine-dining industry and the wine business. The NRA suggests that this trend is growing, too.
Restaurant wine pricing is simply obscene. In developing channel pricing for on-premise, wineries must assume that a fine dining establishment will mark up a wine 300-400% from cost for placement on their menu or by-the-glass list. A well-used but lazy formula in the industry is the cost of the bottle of wine equals the price of a glass of wine. If a restaurant offers a Chardonnay by-the-glass for $18.00, it likely paid around $18.00 for the whole bottle.
“‘The profit of the restaurant comes down to alcohol, plain and simple,’ [Irene] Miller (wine director at Le Coucou in New York) says. ‘There’s only so much that people can eat, and therefore spend on food, but the limits are off when it comes to wine.'”
Gouging consumers on the add-ons to your dining experience is akin to the airlines charging extra for every checked bag and stale, shrink-wrapped sandwich. Once the customer is essentially committed, the urge to extract more from them becomes irresistible.
#7: Wine Clubs and Wine Allocations
What was once a way to reward loyal customers and acknowledge their value to the winery, some wine clubs have become a way to extort extra value out of them in return for access to a winery’s most special wines. For highly sought-after wines, joining a wine club is often the only way to buy them. Interested in that one wine? You need to make a commitment to buy other wines that may or may not interest you, at quantities set not by you but by the winery, at intervals controlled by the winery.
I can hear wineries crying out, “Then how do you propose I allocate my low production/high demand wines to my loyal customers?” There are several ways, including doing multiple releases of a vintage, offering it privately to buyers who have already purchased a target quantity or dollar amount, or offering futures.
Certainly the best wine clubs cater to the interested and loyal fan. Fans that are interested in most of your wines or just want to continuously have some of their favorites on hand will get the most out of a wine club. But locking away your best behind club programs to extract maximum profits doesn’t create reciprocal loyalty with new wine drinkers or the casual patron.
#8: 100-point Wine Reviews
Scoring wines reduces the subjective, enjoyable experience of drinking wine to the shallowness of an Amazon starred product review or a Fresh Tomatoes ratings on a movie. The obligatory 3-4 sentence word review that accompanies those wine scores offer little qualifying analysis or experiential impressions from the reviewer. That’s because the score is all that is important.
Time has degraded the scoring process even more. Where once receiving a score in the 80’s would be regarded as positive, “score inflation” has made it such that any wine scoring less than 90 points might as well be used for cleaning floors. Hence, the scoring wine media excludes thousands of unique, different, experimental, and just plain interesting wines from review. Or, if they do review them and score them less than 90 points readers, trained by the media to focus on the best scores, simply ignore them. Wine reviewers’ subjective biases – yes, they do have them – also limit what wine styles get popular. During the late 80’s heyday of The Wine Advocate, Robert Parker’s clear preference for extracted, fruit-forward, soft-structured wines was not only well-known but discussed by the wine industry and winemakers. He is directly responsible for the rise of the “international style” for red wines, which describes a sameness in style and structure found in many Napa Valley Cabernet Sauvignons, red Bordeaux, and even Cabernet Sauvignon-based Super Tuscans from Italy.
Wine scores have driven homogeneity and mediocrity, especially for the most popular wine varietals. Hence, old and regional styles find it difficult to get media exposure and wider audiences for their unique wines.
#9: Social Media/Pay-to-Play Influencers
From the rise of the internet to now, mainstream wine media has been on the decline and social media with influencers are the focus today. The internet could have opened the doors to the more exotic and interesting wines – and it did for a brief moment – but the control of the most dominant social media by the big tech platforms combined with their avarice driving them to spam ads to everyone every waking moment has corrupted that opportunity. AI Is accelerating that by killing search links to small, independent websites while freely using their content.
The spiraling pressures of building audience and cashing in on that audience’s attention becomes more important than the integrity of content. Eager to game the system, first with SEO keyword manipulation, now with outright payola, businesses are pouring money into influencing the influencers, and those with the most money get dibs. The lines between paid and unpaid content becomes blurry, and the consumer loses in the end, unable to fully trust any source of information.
Wine media is even worse. Wine demands some level of discourse given its complexity and diversity. A 10-second TikTok hawking a Provençal Rosé cannot adequately offer enough relevant information for most casual consumers to form an opinion. The shortening attention spans of the internet generations is forcing wine marketing to simplify its messaging to the shortest and most innocuous content possible, erasing the qualities of wine that make it interesting. Instead we mostly see banal clips of vineyards and young people visiting wine country, with focus on the visit rather than the wine.
#10: Searching for the One True Catchphrase
Paul Masson nailed it back in 1978 with “We will sell no wine before its time.” Since then, every clever marketing and ad agency has tried to find the “Got Milk?” of the wine industry to no avail. “Wine is Us!” “Come Over October!” “Wine: 8,000 B.C.” “What are you saving it for?” “Wine is …” And on; the industry continues to lose consumers. As far as can be ascertained, those efforts have amounted to little impact on sales. Impressions may be an important metric, but sales is the most important.
Something needs to be done. Advertising, social media, and more creative marketing are critical right now. But instead of fruitlessly trying to create a generational “Where’s the Beef” for wine, the industry should collectively be exploring accommodating the changed media consumption and buying patterns of internet-era consumers. Contrary to trend #9, wineries, AVA regional organizations, and independent wine writers should be helping to create a new ecosystem that leverages content platforms that provide consumers longer-form information, such as YouTube, Substack, Bluesky.
We’re Doing It to Ourselves
Most of the above has been ongoing for decades. The vast majority of wineries are unaware of their participation in these trends because they have been happening slowly over time. What’s the harm in submitting wines for scores, choosing a multi-state distributor, or targeting a chain placement? Cumulatively, though, these choices have created an unfriendly consumer wine market. Each decision to support an industry extracting maximum value from its consumers without further value is contributing to a shrinking wine demographic and market.
To reverse ensh*ttification, wineries could consider these steps:
- Learning how to price wines appropriately and benchmarking them against your peer group helps reverse premiumization while acknowledging costs and quality.
- Consider using tasting room fees to moderate traffic rather than building a profit center by adjusting the fees to reflect demand during the day and days of the week or, as many do, applying them to purchases.
- In working national distribution, small and mid-sized wineries should seek out small and mid-sized wine wholesalers and independent retailers, strategically placing their wines rather than simply forcing volume into the market.
- Re-examining your wine club programs to evaluate if they reinforce a customer’s loyalty, while also wooing new consumers with custom opportunities for your most prized wines, and creating other purchasing programs that provide your customers with more flexibility.
- Instead of pushing scores to convey the quality of your wines, emphasize the reviewer’s context and written review. Support wine critics that discuss wines, not just score them (via points, stars, puffs, whatever). And maybe we should re-evaluate paying people to inanely promote brands. Social media offers a chance to engage directly with your audience. Don’t squander the value of your brand by paying someone else to use theirs on your behalf. It is their brand that benefits more from such a deal.
- It may not have the broad impact of Joe Rogan swigging your Malbec on YouTube, but working with and promoting more wine-friendly new media to your loyal consumers can slowly create the messaging channels the wine industry needs to build market share again. It won’t be done by one, single, pithy slogan playing in an ad on a cable station.
The Great Wine Depression isn’t just the result of macroeconomic forces or cultural shifts. It’s also the byproduct of an industry increasingly disconnected from its consumers, its heritage, and the essence of what makes wine special. If the wine industry wants to reverse course, it must rediscover not just how to sell wine – but why people should love it in the first place.