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North Bay Business Journal

Thursday, January 20, 2011, 11:28 am

Expert: ‘Luxury drought’ challenge to winemakers

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    SANTA ROSA — Producers of high-end wine face a “luxury drought” decade through 2020, in which attracting younger “affluent” consumers who actively acquire luxury goods will be increasingly challenging as the ranks of such buyers decline until the buying power of the Millennial increases as they age, according to a luxury products marketing expert at a major wine direct-sales conference Wednesday.

    This demographic trend suggests that recent indications of increased sales of wines over $20 a bottle do not portend a return to boom times for luxury-tier wines, according to Pam Danziger, president of Unity Marketing and Wednesday’s keynote speaker of the 2011 Direct to Consumer Symposium in Santa Rosa.

    “Don’t buy it,” she told the audience. “The consumer has changed. It’s not going to go back to the boom again until 2020.”

    Her firm’s quarterly survey of 1,250 households in the top 20 percent of U.S. earners showed a 25 percent increase in spending on wine in the past two years, from $400 a quarter in 2009 to $500 in 2010. Similar growth was seen in a two-year survey of American Express credit card wine purchases prepared for the symposium.

    U.S. consumers reach their highest personal income, called the “window of affluence,” from age 35 to 54, and those in the first 10 years of that bracket spend two to four times more on luxury goods than older consumers in that window, according to Ms. Danziger, the keynote speaker of the 2011 Direct to Consumer Symposium in Santa Rosa.

    Trouble is, in 2010 the ranks of the younger “affluents,” who are more likely to acquire and experiment with luxury products and services, started decreasing in proportion to those in the second 10-year phase of the “window,” and that trend is expected to continue through 2020.

    Affluent consumers in the second 10-year portion of the window tend to dominate the target market for luxury goods but “have a house full of stuff and are downsizing,” she said. In the middle of this decade, the larger Millennial generation, which has more affinity to fine wine than Generation X, will start entering the affluence window significantly. That is expected to increase the proportion of young affluents back to 2010 levels by 2020.

    Thus, marketers of luxury goods such as a number of wines from the North Coast will have to work harder to attract affluent consumers who increasingly will have less interest in spending money on luxury goods, creating a “luxury drought,” Ms. Danziger said.

    Organic luxury wine sales growth from Millennial consumers now age 25 to 34 will have to come as they become affluent enough to make such purchases. Marketing that speaks to the new “‘value shift” among younger affluents and up-and-coming Millennials should dominate this decade, Ms. Danziger recommended.

    “The good news is there is opportunity coming,” she said. “The bad news is that they are not affluent yet to be able to buy $25 bottles of wine.”

    Each quarter her firm surveys the spending habits of 1,250 U.S. households in the top 20 percent of earners. That slice totals about 23.5 million of 120 million U.S. households, with annual household income  starting at $100,000 and averaging $170,000. They contribute more than 40 percent of consumer spending and more than half of all U.S. household income, 90 percent of which is considered disposable.

    Households earning $100,000 to $250,000 a year commonly are called High Earners Not Rich Yet, or HENRYs. Above that are the top 2 percent of U.S. household incomes, called the “ultra-affluents,” and they number about 2.4 million households.

    Ms. Danziger, author of a new marketing how-to book “Putting the Luxe Back in Luxury,”  said the winning wine marketers this decade will be those that excel at integrating consumers into the brand experience, innovating business practices and inspiring staff and trade partners to promote the brand. Integration requires having contact information for the consumer, she said.

    Innovation already has brought e-commerce and direct-shipping but may call for cutting edge packaging, tight focus on how vertically integrated a company is.

    “Most operations in the wine industry are virtually integrated,” she said. “Those business models are not sustainable in the 21st century, where there are more virtual organizations.”

    Other news from the symposium: FedEx rolls out wine services

    FedEx is expanding its wine-shipping services to accommodate shipments to a FedEx store or facility for pickup instead of a home, temperature-controlled trucks for summer club shipments and virtual wine tasting, according to Scott Bunder, vice president.

    The large parcel carrier has been testing the use of temperature-controlled trucks in certain markets for transporting wines during hot months and plans to launch a second phase of that service in April.

    FedEx Express and Ground shipments of wine can be sent to one of about 1,700 locations for the recipient to pick up. The hold-at-location service avoids security and temperature-damage issues with wines deliveries made or attempted to a home or business. The company will hold the package at no extra charge.

    FedEx continues its partnership with U.S. Commercial Service, the trade promotion arm of the U.S. Department of Commerce’s International Trade Administration,  in a virtual wine tasting events in Hong Kong and Japan later this year. FedEx has been fulfilling wine for tasting via videoconferncing for the past few years, including U.S. Commercial Service events in Senegal in 2007, in Singapore in 2008, and in Malasia and Thailand in 2009.

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    Comments

    1 Comment

    1. January 20, 2011, 11:16 pm

      by Joshua Pedroli

      There is an overabundance of ‘economy wine’ and it’s producers struggle to scrap for discounts and attempt to skim off quality leaders in the absence of distinction and competitive advantage.

      The best producers of great wine are limited by yields, the availability of prime vineyard sites, and suitable production facilities and they are not producing wine for daily consumers.

      Meanwhile the number of consumers drinking and collecting wine continues to expand. There is far more gold mined annually than new “luxury” wines released per capita, yet gold prices remain strong but trail the 10 year performance of the best wines, why is that?


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