US Wineries Struggle to Raise Prices

Bad news for US wineries is good news for consumers. Wine prices increases are lagging behind inflation, and probably will do so next year as well, according to a leading US wine industry analyst.

Inflation might be going through the roof, but it isn’t helping American wine producers–or their prices. Consumers are happy to switch brands to save a buck, which is a worry for producers.

Source: Wine Searcher. By: W. Blake Gray

Jon Moramarco, managing partner of bw166, produced a raft of statistics Tuesday that show how difficult it is for wineries to raise prices, even as prices are going up on everything else.

For example, comparing prices from August of this year to August of 2021, consumer items in general cost 6.3 percent more, according to the US Bureau of Economic Analysis. Food and non-alcoholic beverage price increases are much higher: up 13.5 percent. Beer producers raised prices by an average of 4.8 percent. But wine prices are up only 1.8 percent, and even that tiny increase came with the loss of customers.

Moramarco showed a complicated chart based on Nielsen data from grocery and drug stores that revealed that whenever a winery raises prices, even by 25 cents, it loses sales volume on that item. For price increases of 25 cents or less, it was worth it, as the sales volume drop did not overcome the increased revenue from the price increase. But for price increases larger than 25 cents, on average, the winery lost money.

The caveat is that Nielsen data from grocery stores tends to accumulate stats based mainly on lower-priced wines, because that is what most Americans drink most of the time. For wines priced from $12 to $20, the overall theme is the same: even a small price increase comes with a volume sales drop. But for these wines, price increases of up to $1 are a wash, meaning that the winery will make enough extra money from that extra $1 to make up for the loss of sales.

For wineries that might have less inventory after two small vintages, that works out to their benefit.

Jon Moramarco. Managing partner bw166.

It’s interesting being basically a consumer-advocate reporter and listening to wine industry presentations intended for producers. I can tell you that this has been a theme since the pandemic started: wineries want to raise prices but they can’t, even though their own prices are going up. Sometimes big distributors push back against price increases and have the power to do so; sometimes consumers push back, as the Nielsen data shows.

US wineries prices

Wine has had a tough time taking price.

Jon Moramarco. Managing partner bw166.

It’s worth remembering that many US importers paid tariffs without raising prices during former president Trump’s trade war with Europe, so they may consider a little extra profit this year a welcome relief.

Moramarco said wine sales overall will probably be down this year, but mainly because of a huge drop in wine-based cocktails and vermouth. He thinks actual still wine sales will finish higher than last year, though by less than 1 percent. He projects US sparkling wine sales to grow by 4.2 percent.

It’s not the end of the world, but it’s slow growth… It won’t surprise me if over the next few years, we’re going to be looking at 1 percent growth for still wines and probably continued 3 or 4 percent growth for sparkling wines.

Jon Moramarco. Managing partner bw166.

And even if inflation continues to push costs higher, wine costs won’t go up as much. That’s not good news for wineries (sorry), but it is for the rest of us.

You may be interested in: Beer Wine & Spirits: COVID-19, Two Years Later.

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