Premiumisation is regularly cited as one saving grace for the wine trade amid depressing global sales-volume figures.
Despite significant macro-economic uncertainty, many continue to hang their hat on people drinking less but choosing to spend more when they do.
Go deeper with GlobalData
Discover B2B Marketing That Performs
Combine business intelligence and editorial excellence to reach engaged professionals across 36 leading media platforms.
But how long can this trend continue? What is driving it? And are people really trading up, and up?
US premiumisation “has slowed”
In the US, data suggests premiumisation has already slowed. Analysis by Wine and Spirits Wholesalers of America’s SipSource shows the gap between volume growth and value growth has narrowed significantly in the past year.
“The number-one driver is going to be financial,” explains SipSource analyst Dale Stratton. “Across the spectrum, people are being more choiceful, broad-scale, with how they spend their money and that is having an impact on premiumisation.”
Any shift in this trend moving forwards will be “directly correlated to the overall economy”, he says. “If we don’t see an uptick in the economy, premiumisation is likely going to remain challenged.”
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalDataAt the more-expensive end of wine, however, the story is different.
Robert Hanson, the CEO of The Duckhorn Portfolio (with wines ranging from $20-$230) says premiumisation is “where the growth lies” in American luxury wine.
“Premiumisation is at the core of our current growth strategy,” Hanson says. “While consumers are drinking less, the data clearly shows that wine drinkers are trading up. They are also gravitating to and supporting trusted wineries that deliver quality and consistency vintage after vintage.”
Could premiumisation peak, even for luxury brands? No, Hanson says, though it could “plateau”. He adds: “Premiumisation raises the average price ceiling but it also broadens the perception of wine as a lifestyle and luxury experience, not just a commodity. That can be attractive to new consumers who see value in story, craftsmanship and provenance.”
“There’s always going to be a consumer group out there that is premiumising, in every industry,” Stratton at SipSource reflects. But will they be enough to keep the wine industry afloat? “The answer to that is: ‘Yes’,” he says, with a caveat: “I am being hopeful.”
Channel outlook: US D2C
The mid-Year Sovos and WineBusiness D2C report, released in September, revealed continued declines in shipment value and volume in the US as “overall, the D2C wine-shipping segment is poised for another year of contraction”.
However, online shoppers (though fewer) are spending more per shop and buying more bottles – leading Sovos to advise “leaning into premiumisation” in the coming year.
“When you look at the Sovos ShipCompliant data, the premiumisation in that area is really strong,” says Stratton. “Higher-price things are doing much better than lower-price things. That also makes me think that the consumer for higher-end wines is still out there. There’s still a lot of room to grow.
The consumer for higher-end wines is still out there
Dale Stratton, SipSource
“Prices are holding pretty steady for the wine category, so we do think premiumisation is driving this [rather than inflation]. It’s going to continue. It’s just not going to be as robust as it was in years past but we’re hopeful that it does tick back up.”
One winery “leaning in” to D2C premiumisation is Willamette Valley Vineyards, where CEO Mike Osborn took the helm in May and is the founder of online retailer wine.com.
Just over half of the company’s sales come from D2C versus distributors, which includes tasting-room, online and wine-club sales. Osborn says for the first eight months of the year the average D2C selling price was up almost $5 a bottle YOY.
While more volume can be sold through the wholesale side of the three-tier system, Osborn says “to be competitive [you need to] get a customer who becomes a raving fan” – for him, this is best done through direct sales and experiences that then translate to retail sales when people return home – as well as through the company’s 27,000 shareholders “who show up and are really there to support the brand”.
By-the-glass boost in UK on-trade
In the UK, C&C Group-owned distributor Bibendum Wine says premiumisation is coming from “two angles” of shifting consumer behaviour. Firstly, people socialising less due to strapped budgets but, when they do go out, “wanting it to really count”.
Secondly, comes moderation. Andrew Ingham, director of on-trade sales, says moderation is leading to by-the-glass (BTG) offerings “gaining much more relevance” for operators and an increased investment in preservation technology. Venues are then offering higher-priced wines by-the-glass, rather than just fast-moving entry-level bottles.
“I do think this is a culture shift. I don’t think it’s just something that we’re going through right now because times are hard,” Ingham says. But while the trend is “significant”, he adds: “It’s not significant [enough] where it’s taking over volume”, and “there’s still obviously significant volume of entry-level wines going through restaurants”.
In the US, meanwhile, Stratton says the on-trade is “upside down right now”. He says this is due, in part, to “substantial” financial pressure leading operators to reduce the quality of the wine they buy from wholesalers while maintaining average glass prices.
This slightly skews SipSource’s data, which is drawn from transactions between wholesaler and restaurateur/retailer, and so does not reflect end-consumer choices. But looking forward, Stratton says: “We’ll see this continue on, as the pressure remains on the cost side for on-premise retailers.”
David Bowman, chief commercial officer at US wine group Ste. Michelle Wine Estates, questions the prices being charged to patrons.
“Broadly speaking, I do think wine consumers want better wines at the restaurants and bars they visit. But honestly, the prices that most restaurants and bars charge for wine – especially BTG – are too high,” Bowman says. “This is adversely impacting younger consumers sampling, experiencing and adopting wine.”
Balancing portfolios
Where does premiumisation leave entry-level brands and larger wine groups with more diverse portfolios?
Up in Washington State, Ste. Michelle is confident in the promise of $15+ wines and of premiumisation but the majority of its volumes lie in sub-$15.
“Premiumisation as a trend does have its limits, as volumes at these higher prices that consumers are buying simply cannot make up for the volumes lost under-$15 a bottle,” says Bowman. “There needs to be great wine available at lower prices.”
Premiumisation as a trend does have its limits
David Bowman, Ste. Michelle Wine Estates
He says the affordable-quality proposition “is arguably Washington and Oregon’s calling card”, compared to regions like California where production costs have risen “dramatically” in the past two decades. “Wines of substance, quality and character at these lower prices will continue to be an important part of our future.”
Spain-headquartered wine group González Byass says it sees a “general bi-directional trend” in wine sales in the regions in which it sells.
“On one side, increasing demand for less complex, easier-to-drink affordable wines,” says chief marketing officer Marcos de la Torre Muñoz, “and at the same time, for special-occasion wines with a more complex profile, a pronounced premium image, and richer storytelling.”
He says “driving up consumer perception of our wines – and therefore being perceived as more premium – is a key driver for us” but premiumisation will be “equally important as adapting our offer to current consumer trends” like low-alcohol products.
In Australia, newly formed Vinarchy (a merger of Pernod Ricard’s wine assets and Accolade Wines), says its focus remains balanced “to bring more consumers into wine at all levels”.
Aaron Brasher, head of fine wine, says: “Premiumisation will be a major driver of value growth for Vinarchy in the coming years, alongside innovation and sustainability. It will help us build long-term strength across the full breadth of our portfolio and markets.”
With a chunk of its portfolio focussed on “accessible” brands like Jacob’s Creek and Hardys, Brasher says “entry-level wines will always have a place”. He adds: “They give new consumers a way into the category and give value-conscious consumers a reason to stay in wine.”
Last year, Aussie rival Treasury Wine Estates tried, unsuccessfully, to offload its cheaper “commercial” portfolio, which included Wolf Blass and Yellowglen.
In July, the company created a new unit called Treasury Collective, housing the group’s lower-priced wine brands. The division’s managing director Angus Lilley tells Just Drinks the luxury portfolio “remains a core driver of TWE’s sales” but Treasury Collective will play “a vital role in driving category relevance and engaging the next generation of wine consumers”.
“We have increased confidence that Treasury Collective is not only important enabler of TWE’s luxury-led growth agenda but also a contributor to the ongoing premiumisation of our portfolio – reflecting the continued shift in consumer demand toward higher-value, brand-led wine experiences,” he says.
Brand-led premiumising
The wine industry has responded to the allure of premiumisation by launching brands or trying to upgrade existing brands. But premiumisation is not a silver bullet, warns Polly Hammond, founder and CEO of digital-marketing agency 5forests.
With the less-but-better trend, “there’s a belief that if a brand can tap into ‘better’, they’re safe”, says Hammond. “This causes me concern.”
She explains: “When a client comes to us and wants to premiumise, it can take a year of research and behind-the-scenes discussions, decision making and planning before it ever becomes visible to a consumer. So, yes, I worry that wine sees premiumisation and ‘drink better’ as a panacea without seeing all the facts.”
On its own, premiumisation won’t sustain the wine category
Aaron Brasher, Vinarchy
Wine consultant Joe Fattorini adds: “There is no ‘premiumisation’ wave out there like a law of nature that we must jump onto. People will happily – and willingly – pay more for a product or wines if, and we have to stress ‘if’, they identify with it, and they see that wine saying something positive about themselves.”
Hammond says increasing a brand’s perceived status is about “defining how we are going to bring greater value to the lives of our customers” and understanding their motivations for purchasing wine. “Those motivations can be as simple as clout building or hedonism, or as deep as legacy formation and self-esteem,” she says. “And that’s the competitive advantage that allows correct and premium pricing.”
Premiumisation will undoubtedly remain an important trend for wine but certainly not the only one. While it is a “key driver” of value, volumes still depend on entry-level-brand success.
“On its own, premiumisation won’t sustain the wine category”, summarises Brasher at Vinarchy. “The future of wine depends on how well we adapt and innovate with things like mid- and low-alcohol options, new formats and more relevant ways of connecting with consumers.
“If the industry embraces that change, we believe wine can secure its place with the next generation of drinkers and hold its own against other categories.”
