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Red Wine Consumption Continues To Grow, And Health Is A Good Reason Why

wine-consumptionUndoubtedly one of the biggest factors in the growth of red wine consumption in the US has been the favorable press received regarding the product’s health benefits. “An apple a day keeps the doctor away,” has been replaced by a glass of red wine–certainly for an aging American population looking for the reported cardiovascular benefits derived from moderate consumption. That led to 29.9 percent volume growth and 42.8 percent dollar growth (using constant value) between 1997 and 2001.

“In 1991, US news agencies reported on how the French manage to enjoy a high-fat diet while remaining less susceptible to coronary heart disease than Americans,” says the report. “The so-called ‘French Paradox’ led to the discovery of the antioxidant effect of fermented grapes, especially red varieties. This, combined with alcohol, was found to be a good antidote to arteriosclerosis (clogging of the arteries) by increasing the level of HDL (i.e., ‘good cholesterol’) and reducing the level of LDL (‘bad cholesterol’). Still wines, particularly red varietals, were also found to reduce age-related macular degeneration, which is the main cause of eye disorders in older people.”

This substantiated news disseminating from the US Department of Health and Human Services and the Department of Agriculture, which revised its Dietary Guidelines in January 1996. The updated version states: “Current evidence suggests that moderate drinking is associated with a lower risk of coronary heart disease in some individuals.” The guidelines also add that, “alcoholic beverages have been used to enhance the enjoyment of meals by many societies throughout human history.”

Several additional studies have since found wine consumption to be beneficial. Studies in 1996 and 1997, for example, found that wine may have a potential role in the reduction of certain forms of cancer. A 1997 study found that wine drinkers may be at reduced risk of Alzheimer’s disease and senile dementia. A 1999 study found that light-to-moderate consumption of red wine reduces the risk of strokes.

Trends in Wine Retailing

Consolidation has been the name of the game in the off-premise retail sector for the past five years, with larger companies swallowing up the smaller players by the bucketful. As a result, retailing giants such as Wal-Mart were the primary beneficiaries of the growth in consumer spending that occurred from 1997-2001. Key factors behind this growth trend have been the price discounting practices of many big-pencil retailers, combined with their ability to minimize supply-and-operating costs, thanks to economies of scale.

As a result, large national retailers have gained prominence across the US. In the past, leading retailers tended to be regionally based, as some still are today. In previous eras, no single retailer dominated the national retailing market in the way that Wal-Mart has in recent years.

Supermarkets and hypermarkets now dominate off-premise wine retailing in the US, thanks largely to the aforementioned consolidation along with legislative regulations constraining alcohol specialists. Supermarkets and hypermarkets saw their share of volume sales increase by 0.4 percent to almost 43 percent in 2001. Improved merchandising, wider selections, stocking of larger bottle sizes and strong price promotions characterize supermarket wine strategy. Weekly “specials” and 2-for-1 purchases are effective in-store promotional tools in the supermarket channel, primarily employing neck tags on bottles. Some supermarkets have even launched wine sampling and tasting programs.

Conversely, mounting retail consolidation has significantly damaged other food outlets, most notably small, independent grocers. Unable to compete with the big-pencil competitors’ overwhelming economies of scale, independent food outlets saw their share of wine volume sales fall by 1.1 percentage points between 1997 and 2001.

Like supermarkets, discounters have benefited from mounting retail consolidation. “Moreover, outlets such as Wal-Mart, Kmart and Target are extremely well positioned to exploit large economies of scale to undersell their competitors,” says the report. “The advent of even larger Super Wal-Marts and Big K Kmart outlets has further allowed large discounters to drive out local, independent competition.” As a result of this activity, discounters’ volume share of wine sales increased by 1 percentage point between 1997 and 2001, to 19.2 percent.

Warehouse clubs and supercenters have experienced the fastest growth in recent years, with volume share of wine sales increasing by 0.3 percentage points to 10.6 percent between 1997 and 2001.

All this growth, however, has come at the expense of specialist outlets–primarily wine-and-spirits retailers and warehouses, which experienced a decline in volume share from 23.5 percent in 1997 to just under 23 percent in 2001. To combat this erosion, liquor stores have adopted strategies of wide selection stocking, carrying niche varieties of wine from smaller wineries and new and upcoming import countries, in addition to running price promotions on mainstream wine brands. Customer loyalty discounts, promotions offering wine glasses, newsletters, tastings and wine lectures are all merchandising tools employed by wine specialists to compete with non-specialist outlets.

Econimic Slowdown Prompts Trade-Downs

Today’s economic downturn, which began in March 2001 and was accelerated by the 9-11 terror attacks, continues to adversely affect US consumer confidence. But there appears to be good news on the horizon: Euromonitor forecasts that this economic climate will not lead to volume declines across the wine sector. Indeed, wine volume is expected to actually increase by 4.8 percent to nearly 2.2 billion liters in 2006. Nonetheless, consumers are expected to tighten their belts in the face of economic uncertainty. And that means less being spent at the high end of the price spectrum.

As a result, by 2006, dollar sales are projected to decline by 1.6 percent to just over $21.3 billion (at constant 2001 prices), as the specters of economic recession and restricted budgets force consumers to trade down to lower-priced labels.

Sales growth is likely to be greatly constrained in the first two years of the forecast period, as economic recession sharply curtails US consumer spending on luxury goods. Euromonitor predicts annual total wine volume growth will fall from 1.9 percent in 2001 to zero in 2003. However, as many analysts predict an economic recovery in 2003, Euromonitor anticipates that recovery will directly benefit wine sales beginning in 2004.

Between 2004 and 2006, Euromonitor expects the US wine industry to gain 2.1 percentage points in annual volume growth and 3.8 percentage points in dollar growth (using constant value), as US consumer spending picks up and Americans celebrate the return of economic stability.

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