Snooth Blog

Snooth User: Philip James

Is wine recession proof?

Posted by Philip James, Jul 28, 2008.

Clearly this is a hot topic, and something we think about a lot and try to infer data, based on site usage figures and other metrics.

Starting with Snooth. We saw our strongest week of traffic last week in over 4 months and our traffic has picked up over 20% in the last 60 days. We're a young site and hardly representative of the dollars spent, so I wouldn't use that data for anything, however, people are still searching for wine, so that's a good start. Anecdotal evidence supports this.

Compared to the spirits industry, wine is rock solid. Users have been migrating from spirits to wine for several years now and the winery businesses are the jewels in the major drinks company's portfolios .

"Constellation Brands, the world's biggest wine company by volume, said three weeks ago its first-quarter profit jumped 50 percent." That combined with UST (snuff tobacco giant), who said that it was thanks to their wine portfolio that they limited their decline in profits as much as they did, presents some solid cases for the wine industry's health.

On the flip side, we have data trickling in telling us that on-premise sales are suffering . Is this really a surprise? When times are tight, people are clearly going to be dining out less, and probably less likely to be springing for wine at triple the retail value. The same article references "off-premise" sales (grocery stores, liquor stores etc.) seeing just a 5% decline in sales over the past few weeks. It was a short study, over a limited number of participants in a single market, but ties in with Neilson's predictions that wine might be "recession proof".

This is backed up by the folks at Silicon Valley Bank who said that " wine is still an affordable luxury even in a bad economy. So while wine is not recession-proof — like electricity and visits to the doctor — people still continue to consume wine even during difficult times, and our experience is that wine continues to demonstrate volume growth."

"Affordable Luxury" - I like that phrase, and although some may see wine as a 'necessity', for most of us, I think thats a the sweet spot. People who are buying $80 wines, probably can weather the recession, and for everyone else, while there may be a little trading down (I may buy $10 wines, instead of $14 wines) I still foresee people drinking a glass or two to unwind at the end of a long day.

Replies

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Reply by oceank8, Jul 28, 2008.

I have heard before that wine is recession proof and I would tend to agree. I can see people spending a bit less and looking more and more for bargains but most wine drinkers aren't willing to give it up. It's not the same as a beer or a mixed drink, we see it as part of the meal.

Blog comment by wineguy, Jul 29, 2008.

While I think wine generally is recession proof, but those that produce mid range products or depend only on the local consumer market will suffer. It is those wineries that have a global reach that will not suffer due to the fact that they can divert product to areas of demand from an area that is under going a recession. The local wine merchant will feel the effects during a recession due to the fact that their clients are no longer buying as much of their top end wines and that their margins will suffer.

Blog comment by Dan, Jul 29, 2008.

From the wine making / selling perspective, the word on the street (from distributors nationwide) is that the on-premise (restaurant sales) are lagging as restauranteurs are carrying lower inventories trying to wait out the economic downturn. We've seen, as well as others I have spoken to, restaurant buying to lag in upwards of three months before renewal purchases are made. Restaurants are just not stock-piling like they did in past years. And on the retail front, we are hearing more and more that people are trading down, from $30 to $50 purchases to $20 and $30. However, like HondaJohn related in his recent post, we are seeing a pretty steady (actually a slight increase) in on-site direct sale percentages. For example, one guy this past Saturday purchased $10,000 in wine. Recession, what ?

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Reply by Mark Angelillo, Jul 30, 2008.

Zounds! Maybe he needed an airplane ticket home and it was cheaper to buy all that wine and trade in the flyer points.

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Reply by Philip James, Jul 30, 2008.

Dan - I think people will trade down, but that much? I was thinking more like $15 instead of $18, so just small differences.


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