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Profitability of lower-priced wines increasing stateside

Published:  08 June, 2016

Profits are up in the US even though volume is down as consumers trade up at the lower end of the market.

Data from Rabobank found that consumers in the US are drinking less wine priced below $10 per bottle, and more wine priced above $10 per bottle.

The shift appears to have been driven in part by price increases at the lower end of the market, as well as some mild discounting in wines priced between $10 and $15 per bottle.

In short, the overall profit pool of the industry has accelerated, as lower-priced wines become more profitable, even as the growth was occurring in higher margin price segments.

The data comes against a backdrop of slowing volume growth in the US over the opast 15 years, with the US table wine market growing at a CAGR of 2.8% from 2000 to 2010, then slowing dramatically to less than 1% between 2012 and 2015.

Californian table wine shipments have been even more lacklustre, growing only 0.6% in that same period.

Millennials are playing an important role in this shift, with the younger generation eschewing value-priced jug wines and large-format box wines in favour of more premium offerings.

Stephen Rannekleiv, senior beverages analyst at Rabobank, said profit growth was still exceptional despite disappointing volume growth.

He said: "At a panel discussion at a conference last year, I was asked, 'Has the US wine market lost its mojo, and what does it need to do to get it back?' The reason for the question was obvious.

"Volume growth in the US wine market has clearly slowed, and it seems a matter of when, not if, it actually turns negative. But in spite of the slowing volume growth, the growth in the overall profit pool remains exceptional."

Unfortunately, the premiumisation of the low-end market has not benefitted everyone equally, and is creating its own series of challenges - not least, securing long-term supplies given the limited capacity that many premium wine regions have to expand production.