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Elliott Morss has spent most of his career teaching and working as an economic consultant to developing countries on issues of trade, finance, and environmental preservation. Dr. Morss received a B.A. from Williams College in 1960 and a Ph.D. in political economy from The Johns Hopkins... More
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  • The US Wine Market – A Global Economist’s Perspective (Part 1) 3 comments
    Jul 6, 2010 3:10 PM
    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
     
    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%
     
    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 Red - 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.
     


    Disclosure: no positions
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Comments (3)
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  • John Lounsbury
    , contributor
    Comments (4046) | Send Message
     
    Elliott - - -

     

    Great summary for a casual wine lover like me. We are always experimenting and have found that some of the "out of the way" wines are great. For example, we have found several British Columbia Merlots that we like very much and Sangovese from the Biltmore Estate Winery in North Carolina is another favorite. We have to special order the Sangovese because no one seems to stock it.

     

    Look forward to more in Part 2.
    6 Jul 2010, 08:23 PM Reply Like
  • Elliott R. Morss
    , contributor
    Comments (749) | Send Message
     
    Author’s reply » John:

     

    I wish I could order wine directly, but I cannot. MA, like other states, in violation of the Interstate Commerce Act, do not allow me to order wine direct from outside the state. It has to come in thru a distributor to a liquor store.

     

    For casual but analytic wine lovers like you, take a look at - www.wine-economics.org.

     

    OK- all economists, but not all bad....
    6 Jul 2010, 08:48 PM Reply Like
  • John Lounsbury
    , contributor
    Comments (4046) | Send Message
     
    We have always ordered through a wine shop. I do not know if North Carolina allows direct shipment of wine. It would be in state shipment for us since both the winery and our resident is in NC.
    6 Jul 2010, 09:02 PM Reply Like
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