The Wine Drinking Habits of Robber Barons and Peasants
The Wine Drinking Habits of Robber Barons and Peasants
How the age of want and splendor impacts the wine industry
What happens when the wine industry’s primary source of growth, the Middle Class, shrinks and continues to shrink?
As reported in Bloomberg Wealth in October, the economic 1% now holds as much wealth in the United States as the entire middle class:
“After years of declines, America’s middle class now holds a smaller share of U.S. wealth than the top 1%. The middle 60% of U.S. households by income -- a measure economists often use as a definition of the middle class -- saw their combined assets drop to 26.6% of national wealth as of June, the lowest in Federal Reserve data going back three decades. For the first time, the super rich had a bigger share, at 27%.”
It is astounding to consider. But look at this graph, provided by the Federal Reserve and demonstrating the long, continuous decline of the American Middle Class.
Make no mistake about it. It was the middle class that generated the continual growth of the American wine industry beginning in the mid-1980s and running through the 2010s. As the middle class begins to shrink, you might expect consumption to shrink too.
This exact trend was identified by Silicon Valley Bank’s Rob McMillan in his 2018 industry report:
“Today, consumers are leaving the lower price segments in favor of better-quality offerings, but after more than 20 years of straight-line growth trends, total volume growth is leveling out. Premiumization is still the dominant trend, so volume drops in lower-priced generics are part of the explanation for flattening volume; but in a more recent development, even premium wine growth is slowing.
Meanwhile, Joel Kotkin at The American Mind notes the impact of this trend toward concentrated wealth at the top in an article describing wealth concentration’s impact on politics.
“Today, the Federal Reserve demonstrates that the top one percent have more assets than the 60 percent who occupy the middle rungs. The remarkable rise of the tech oligarchy has paced this change, creating a gusher of wealth for the chosen few…The pandemic has accelerated this trend, vastly enriching the elites, and raising executive salaries to the highest ever. Meanwhile much of the working and middle classes may become increasingly dependent on what Marx called “the proletarian alms bag.”
Looking at this ominous development from the perspective of the American wine industry and the leveling off of consumption, the premiumization trend and even the slowing growth of the premium segments makes sense: Fewer in the middle can afford premium wines and there are fewer at the top to buy up the Napa, Sonoma, Oregon and other Super and Ultra-premium wines.
This graph from the 2018 SVB report illustrates the decline. The graph only takes us through 2016, but were it to carry on into 2020 we’d see the flattening of consumption and sales continue.
What we are looking at here is a macro trend you don’t try to fight. The wine industry, in confronting a shrinking, less financially well-off middle class, can’t do anything to stop the trend. It’s one thing to see that folks appear to be gravitating toward sparkling wines and wineries staying true to what has made them successful by not throwing a new sparkler into their mix or retailers deciding to double down on their commitment to Italian wines and ignoring sparklers’ rise. Counterprogramming can work. It’s another thing altogether to ignore a trend that will have an inescapable impact.
I don’t have the answer as to how to confront the unquestionably destructive trend of a shrunken and apparently still shrinking middle class. There are a number of answers being suggested from Biden’s “Build Back Better” plan to calls for restructuring the economy on a more socialist footing to more or less authoritarian responses.
But what I do know is that this concentration of wealth and the fewer middle-class Americans of means will play out differently for different sectors of the American wine industry:
The bigger the business the better positioned.
High-end wine regions (Napa) could suffer from fewer visitors while wine regions offering more approachable experiences and products are better positioned.
Consolidation among distributors and producers will unquestionably accelerate.
Small to medium-sized retailers and producers will fail to flourish and likely struggle without cultivating a robust digital presence.
Wine as a category is very likely to continue to lose market share to other beverages.
Finally, I see this trend of concentration of wealth among the top 1-5% as a trend that will not be disrupted without the intervention of a significant event. History tells us that kind of event is usually economic or martial. I’m thinking here of the American Civil War, World War I, and World War II. I’m thinking of the Progressive Era and the Depression. I’m thinking of the Industrial Revolution at the end of the 18th and early 19th centuries. I’m thinking of the Digital Communications Revolution.
All this is to say that just as attempting to fight the concentration of wealth is a futile effort for members of the wine industry, it is also true that members of the wine industry ought to be prepared for major disruption arriving within the next twenty years.