America’s minuscule high-end wine market

By Felix Salmon
September 4, 2012
Dan Levy at Bloomberg has a big story today under the headline "America Drinking Top-End Wine Fuels Napa Deals". It's mostly about land and winery transactions, but this jumped out at me:

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Dan Levy at Bloomberg has a big story today under the headline “America Drinking Top-End Wine Fuels Napa Deals”. It’s mostly about land and winery transactions, but this jumped out at me:

High-end California wine accounts for more than two-thirds of U.S. bottle sales above $20, according to data compiled by Nielsen Holdings NV… Purchases of California premium wine totaled $410 million in the 12 months through July 21, up 14 percent year-over-year, store-scan data from New York-based Nielsen show.

To which my reaction was simple: “That’s it?”

$410 million a year might be some kind of wonderful record high, but it’s still a minuscule figure on an absolute basis: it works out at about $3.50 per US household per year. I don’t know what the average bottle of wine costing more than $20 actually costs — let’s say it’s $25. Then the average US household buys one such bottle of wine every 7 years. Once you account for my wino friends, the median US household buys wine costing more than $20 a bottle exactly never.

Let’s look at this another way. Grey Goose imports about 3.5 million nine-liter cases of vodka into the US every year. Those cases are sold by suppliers for about $200 a pop; the suppliers sell to wholesalers, and the wholesalers sell to retailers and to clubs, bars, and restaurants. But a good rule of thumb is that the retail price is three times the supplier revenues: that’s $600 a case, or $50 a bottle. Which is about right for Grey Goose.

Now 3.5 million cases of vodka, at $600 per case, works out at $2.1 billion of vodka sold annually — and that’s just Grey Goose. Overall, the US vodka market had supplier revenues of $4.8 billion in 2010, according to the Distilled Spirits Council of the United States, which means that we as a country get through about $14.5 billion of vodka per year. If you take only the “high end premium” and “super premium” end of that, you’re still talking $7.4 billion per year.

Meanwhile, the entire national wine market, for wine costing more than $20 per bottle, is $410 million for Californian wines and about $600 million in total.

According to the NYT’s Eric Asimov, $20 is the “sweet spot” for wine — and although he concedes that $20 “is not cheap”, he also says that you won’t find a decent California cabernet for that price. Yet the fact is that most of the over-$20 wine we drink does come from California, and frankly a huge amount of it isn’t very good. (Go on a wine-tasting tour of Napa one day: the vineyards there will all pour you $25 wine all day at a quality worthy of wine costing maybe $5 or $7.)

All of which is to say that if you drink wine costing more than $20 a bottle remotely regularly — every couple of months, say — then you’re an extreme outlier in this country. And if it’s French, or Italian, or even from Washington — if it comes from anywhere at all other than California — then you’re truly a member of the abstruse-and-recondite set.

Because the entire high-end wine market in this country — the amount of money you get if you add up every bottle of wine sold in America for more than $20 over the course of a whole year — is less than one third of the size of the market in Grey Goose vodka alone. Which doesn’t taste of anything at all.

So the next time you walk into a wine store and feel intimidated by the number of bottles costing $40 or $70 or more, don’t be. If you’re merely spending a Jackson on a bottle of wine, you’re part of a tiny elite minority. Everybody else, if they’re not drinking beer, is drinking vodka — a drink designed to be as bland and tasteless as possible.

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