AAWE, Economics Dept, New York University, 19 W 4th St, 6Fl., New York NY 10012aawe@wine-economics.org

The US Wine Market – A Global Economist’s Perspective (Part 1)

Post 222 of 227

by Elliott R. Morss, Ph.D.

Introduction

What is the state of the US wine market? Is it better for buyers or sellers? And what is popular? These questions are the focus of this article. I start with some aggregate numbers on the global wine industry. I then present the results of a survey done of a large retail liquor store in the Boston area. I conclude with some analysis and opinion.

Global and US Market Aggregates

Table 1 provides the total wine production by country for 2008. Note that Argentina now produces more wine than Australia. New Zealand does well in export markets for how much it produces. China’s production is surprisingly large, but so far, most of it is for domestic consumption. Many of the “new” wine countries are being assisted by European vintners who have no more land in their home countries to develop.

Table 1. – Wine Production by Country, 2008

  Wine Production
  2008 2004-08 2008
Country (milhectltrs.) % Change per hectare
Italy 46,900 -6% 56
France 42,950 -25% 50
Spain 34,850 -19% 30
USA 20,550 2% 50
Argentina 14,680 -5% 65
China 13,005 17% 26
Australia 11,700 -20% 68
Germany 10,400 4% 102
South Africa 9,890 7% 75
Chile 7,860 25% 40
Romania 6,300 2% 31
Portugal 5,400 -28% 22
Greece 3,750 -12% 32
Brazil 3,500 -11% 35
Hungary 3,400 -22% 47
Austria 2,400 -12% 47
Bulgaria 1,800 -8% 19
New Zealand 1,700 43% 49

Source: http://www.morssglobalfinance.com/the-global-economics-of-wine-past-present-and-future/

The Wine Institute estimates that American consumed 28.5 million gallons of wine in 2008, or 9.4 liters per resident. Table 2 presents data on US wine imports by country of origin.

Table 2. – US Wine Imports, 2008

Country Mil. US$ Percent
Europe 4,074 72.6%
France 2,150 38.3%
Italy 1,383 24.7%
Spain 312 5.6%
Germany 156 2.8%
Portugal 73 1.3%
Other 1,374 24.5%
Australia 738 13.2%
Chile 240 4.3%
Argentina 197 3.5%
New Zealand 151 2.7%
South Africa 48 0.9%
Misc. 161 2.9%
World 5,609 100.0%

Source: http://censtats.census.gov/cgi-bin/naic3_6/naicMonth.pl

The high imports of France and Italy include a significant portion of bulk shipments for house labeled products and other non-bottled uses.

The US wine market continues to grow. The Census Bureau reports that between 2002 and 2007, U.S. wine imports grew 74% in value and 53% in quantity. Although the Europe is the largest regional supplier of imports to the United States, its share has declined in recent years: the share of the European Union dropped from 77% in 2000 to 71% in 2008. Imports from the rest of the world increased from 29% in 2008, up from 22 percent in 2000.

To get a better picture of the retail situation, I undertook a survey of the holdings of a Boston store described below.

The Survey

I collected data from Martignetti’s retail liquor store in Brighton, just outside of Boston. The Martignetti family has been in the liquor business since the repeal of prohibition. In addition to retail, the company is the 7th largest distributor in the US. The store has more than 2,500 different wine offerings.

A Brief Aside on Varietals and Regional Descriptors

Before proceeding, a brief statement on the tradition of categorizing wines by grape or varietal is in order. The French and some other European countries describe their wines by the region in which they are grown. Other countries use the dominant varietal/grape to describe their wines. Table 3 provides equivalencies for some varietals and regions.

Table 3. – Varietals and Regions

Color Grape Country  Name
White Sauvignon Blanc US Fumé Blanc 
  France Sancerre, Pouilly Fumé
Chenin Blanc France Vouvray
Riesling Germany Mosel, Saar, Rheingau
Chardonnay France Chablis, White Burgundy,
Champagne, Blanc-de-Blanc, Pouilly Fuissé
Red Pinot Noir France Red Burgundy
Gamay France Beaujolais
Cabernet Sauvignon France Bordeaux
Merlot France Pomerol, St. Emilion
Syrah or Shiraz France Hermitage, Côte-Rôtie
Nebbiolo Italy Barbaresco, Barolo
Sangiovese Italy Chianti, Brunello
Tempranillo Spain Rioja

Back to the Survey. I first did a count by country and price range on wines dominated by the following leading varietals:

  • Light White – Sauvignon Blanc;
  • Heavy White – Chardonnay (including French White Burgundy);
  • Light Red – Pinot Noir (including French Red Burgundy);
  • Heavy Reds – Cabernet Sauvignon (including French Bordeaux), Shiraz, and Malbec.

In addition, because of the global importance of Italian and Spanish wines, I did a total red and white wine count by price range for each of them.

I am sure my wine counts for the store are not completely accurate. I also make no claim that the sample is “representative”. But as I have indicated in an earlier article, Massachusetts’s residents drink more wine per capita than any other state in the US, suggesting they are knowledgeable buyers. Also, because of the size of the Martignetti store and the amount of time in business, their retail offerings should be a good indication of what US buyers want.

The Results

Table 4 provides totals and average prices by country for my survey data. The total number of wines from each country is not surprising. One would expect the US to be the leader inasmuch as the store is in the US. Note that my sample constitutes 45% of the wines displayed in the store.

Table 4. – Martignetti Wine Totals, by Country and Price

  Price Range (US$) Total Average
Country 8 – 10 11-13 14-16 17-19 20-23 24-30 30+ Wines Price[1]
US 54 54 73 62 18 38 66 365 20.3
France 0 2 10 13 14 22 156 217 34.8
Italy 26 43 33 34 15 7 13 171 16.9
Spain 28 23 23 15 3 8 15 115 17.6
Australia 27 20 9 13 4 6 13 92 17.6
New Zealand 14 16 18 10 2 4 0 64 14.4
Argentina 10 13 9 15 2 6 3 58 16.8
Chile 9 17 0 1 1 0 0 28 11.6
South Africa 3 0 2 0 0 0 0 5 11.4
Total 171 188 177 163 59 91 266 1,115 21.3

Source: Morss Survey of Martignetti Retail Liquor Store, June 30, 2010.

Neither the total number of wines nor the prices are surprising. Most of the leading country producers are well represented at Martignetti’s. The French were in the market “first” and they have done a great job in distinguishing their wines by region rather than varietal. US average prices are 40% lower than the French.

Light Whites – Sauvignon Blanc

Table 5 provides data on Martignetti’s Sauvignon Blanc offerings. Given that New Zealand ranks only 18th in global wine production, it has done a wonderful job in marketing its Sauvignon Blancs. The fact that its average price is less than a dollar below the average US price is a testament to it having established a strong market position in the US. It also appears that Chilean companies are breaking into the market with lower priced offerings.

Table 5. – Martignetti’s Sauvignon Blanc Offerings, by Country and Price

  Price Range (US$) Total Average
Sauvignon Blanc 8 – 10 11-13 14-16 17-19 20-23 24-30 30+ Wines Price
Chile 4 6 10 10.8
Argentina 1 1 12.0
New Zealand 7 8 9 5 1 2 32 14.4
US 7 16 11 10 2 2 48 15.1
Total 18 31 20 15 3 2 2 91 14.3

Source: Morss Survey, op. cit.

Heavy Whites – Chardonnay

Table 6 provides data on Martignetti’s Chardonnay offerings. Chardonnay is the leading heavy white grape. It serves as the basis for wines using its name as well as being the dominant grape in French White Burgundies and Champagne. The French tradition of “branding” their wines by region gives their wines unique market niches. And as can be seen in Table 6, it works with their White Burgundies where their average price is almost twice that of the US Chardonnay price. But how long will it last. The US and other “New World” competitors are now marketing good Chardonnays at much lower prices. Martignetti offers more Chardonnays than any other varietal in my survey.

Table 6. – Martignetti’s Chardonnay Offerings, by Country and Price

Price Range (US$) Total Average
Chardonnay 8-10 11-13 14-16 17-19 20-23 24-30 30+ Wines Price
Argentina 1 2 1 4 12.8
Australia 7 7 9.0
Chile 3 2 1 6 11.5
France (White Burgundy) 2 6 4 8 66 86 35.8
US 19 19 23 20 7 10 12 110 18.2
Total 30 23 25 28 11 18 78 213 24.7

Source: Morss Survey, op. cit.

Light Reds – Pinot Noir

Table 7 provides data on Martignetti’s Pinot Noir offerings. Pinot Noir is the dominant light red varietal in its own name and in France’s Red Burgundies. France has again established itself in price way above its competitors. But the US is number 2 and it has good offerings at all prices.

Table 7. – Martignetti’s Pinot Noir Offerings, by Country and Price

  Price Range (US$) Total Average
Pinot Noir 8 – 10 11-13 14-16 17-19 20-23 24-30 30+ Wines Price
Italy 2 1 3 10.0
Chile 1 2 3 11.0
Australia 1 1 12.0
US 5 4 12 17 4 12 15 69 23.0
France (Red Burgundy) 72 72 40.0
Total 8 8 12 17 4 12 87 148 30.7

Source: Morss Survey, op. cit.

Heavy Reds

There are many heavy reds not covered in this survey – most notably, the Barolo and Amarones of Italy and the Rioja’s of Spain. But the most important dominant heavy red has historically been the Bordeaux (Claret) from France. The dominant grape in Bordeaux is the Cabernet Sauvignon. Other heavy reds that have become popular in the US are Shiraz and Malbec.

a.      Cabernet Sauvignon

 Table 8 provides data on Martignetti’s Cabernet Sauvignon offerings. While the French put Cabs on the map with their Bordeaux’s, other countries make very good ones as well. As can be seen in Table 8, the Bordeaux’s higher prices are not nearly as pronounced as in the case of French Burgundies. The US has numerous Cab offerings at all prices, and the other countries listed in Table 8 are trying to establish themselves in the US market with much lower prices. Martignetti carries almost as many Cabs as it does Chardonnays.

Table 8. – Martignetti’s Cabernet Sauvignon Offerings, by Country and Price

Price Range (US$) Total Average
Cabernet Sauvignon 8-10 11-13 14-16 17-19 20-23 24-30 30+ Wines Price
Argentina 2 1 3 3 1 10 15.1
Australia 6 4 1 5 16 12.9
Chile 1 7 1 9 12.7
France (Bordeaux) 2 8 7 10 14 18 59 26.8
South Africa 2 2 15.0
US 17 8 24 13 5 15 31 113 23.0
Total 26 22 38 28 17 29 49 209 22.4

Source: Morss Survey, op. cit.

b.      Shiraz (Syrah)

Table 9 provides data on Martignetti’s Shiraz offerings. The French have used the Syrah grape for many decades in blends, e.g., the Côte Rôtie. But the Australians were the first to heavily promote wines using Shiraz on the front label. And as can be seen in Table 9, they have become dominant in the US with prices slightly higher than the US producers. The South Africans, who originally tried to break into the US market with high prices after the US embargo was lifted, have now reversed course and are trying to enter with much lower prices.

Table 9. – Martignetti’s Shiraz Offerings, by Country and Price

  Price Range (US$) Total Average
Shiraz 8 – 10 11-13 14-16 17-19 20-23 24-30 30+ Wines Price
South Africa 3 3 9.0
US 6 7 3 2 1 6 25 19.4
Australia 14 15 8 8 4 6 13 68 19.7
Argentina 1 1 27.0
Total 23 22 11 10 4 8 19 97 19.4

Source: Morss Survey, op. cit.

c.       Malbec

While the Malbec grape had once been used by the French to make Bordeaux wines, it is now primarily associated with wines coming from Argentina. As Table 10 indicates, Martignetti carries 42 Malbecs across the price range. While a few Malbecs are produced in Chile, Argentina dominates the market.

Table 10. – Martignetti’s Malbec Offerings, by Country and Price

  Price Range (US$) Total Average
Malbec 8 – 10 11-13 14-16 17-19 20-23 24-30 30+ Wines Price
Argentina 7 9 6 11 1 5 3 42 17.5

Source: Morss Survey, op. cit.

Italian Wines

As Table 11 indicates, Italy ranks behind only the US and France in terms of wines carried in the store. It has reds selling at all prices (Amarones, Barolos, and Brunellos at the high end), while most of its whites sell for less.

Table 11. – Martignetti’s Italian Offerings

Price Range 8 – 10 11-13 14-16 17-19 20-23 24-30 30+ Total Average
Red 12 16 13 20 4 6 12 83 19.1
White 14 27 20 14 11 1 1 88 14.8
Total 26 43 33 34 15 7 13 171 16.9

Source: Morss Survey, op. cit.

Spain ranks 4th in the store. It is notable that very few white Spanish wines are carried. Riojas dominate their expensive wines.

Table 12. – Martignetti’s Spanish Offerings

Price Range 8 – 10 11-13 14-16 17-19 20-22 23 – 30 30+ Total Average
Red 23 22 20 11 3 7 15 101 18.0
White 5 1 3 4 0 1 0 14 14.4
Total 28 23 23 15 3 8 15 115 17.6

Source: Morss Survey, op. cit.

 Conclusions 

1. Liquor stores do not have counter space for more wine. That means a new wine must replace an existing wine. A tough order. Going forward, the US market will be hard to break into. It will take an extremely low price or a varietal that catches on, like Pinot Noir, Malbec and Shiraz did.

2. European wine producers will continue to lose market share. Land and labor costs are higher in Europe. In addition, as the US buyer becomes more knowledgeable, the price edge French producers enjoy by using the region rather than the dominant varietal to market their wines will decline.

Quality

To this point, there has been no mention of wine quality, ratings, or tastings. A complex topic. It will be the focus of Part 2 of this wine survey to be published shortly. But one conclusion is worth mentioning here. 10 years ago, it was difficult to find a reasonably good wine for $10. This is not true anymore. Good $10 wines are available for every varietal.


[1] The average price in this and following tables is calculated on the basis of the mid-pint of each range, e.g. for the 8 – 10 range, I used 9. For 30+, I used 40.

This article was written by Karl Storchmann

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