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

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