Wine economist Mike Veseth identifies factors that will shape the future of the U.S. wine industry

In addressing the 23rd annual Wine Industry Financial Symposium, held on Sept. 23 at the Napa Valley Marriott, wine economist Mike Veseth presented a 30,000-foot view of both short- and longer-term scenarios that could spell boom or bust for domestic winegrowers and producers. Armed with the latest industry data courtesy of Nielson, as well as Rabobank and feedback from his popular blog,, he provided attendees with insights into the current state of the global wine industry.

Veseth tackled the broad topic by breaking down his insights in to three areas of interest: the economy, salient trends and the ever-shrinking supply chain.

Bird’s Eye View

Few would argue that the global market for wine is now intensely competitive and becoming increasingly more so. Veseth pointed out that over the last six years there has been a significant restructuring of the industry with a decrease in the acreage devoted to producing low-end supply and an overall rise in quality standards. We see this evidenced by ongoing vine-pull schemes and the shift toward premium-priced wines by producers such as the Australians, for whom price-cutting left little margin for error.

Coined the “Reset Period” by Veseth, the situation is marked by a drop in consumption in the mature markets of Europe and by slow and steady growth in North America and northern Europe. “The U.S. is ‘the’ market,” Veseth stated, “and the wine producers of the world are looking to find a home for their products here.” He also pointed to South Africa, which is regrouping using a “multi-market” approach for another go at U.S. consumers and other growth markets.

Innovation in the craft beer and cider industries, however, is proving to be a proverbial fly in the ointment for growing wine sales in the United States. Veseth cited the popularity of products such as Midas Touch, a saffron-scented, honey-infused beer-mead hybrid produced by Dogfish Head Brewery in Delaware, and apple and fruit ciders such as those made by the Blue Mountain Cider Company in Oregon. Blue Mountain uses its production facility year-round to make a portfolio of products that range from dry to sweet.

Wine marketing is also diversifying as companies pursue lifestyle strategies to market wine experiences, and “enotourism” is being touted globally with shows such as Australia’s “The Food Lovers’ Guide to Australia,” a hybrid format that combines the interests of the Food Network and the Travel Channel.

Spending More for Better Quality

Consumer confidence in the U.S. is once again on the rise. With 15.5% growth in the $20 price segment and double-digit growth in the $12 – $14.99 segment over the last six months, premiumization now means that consumers are once again willing to spend more for better quality. Veseth points to the brand ladder replete with higher-priced brand extensions as an effective means of upselling to Baby Boomers.

However, he cautions that the strategy hasn’t proved to be effective for experimental Millennials, who are responding to non-traditional marketing cues. Alternative branding that eschews traditional images or associations and gender-specific products such as Anew Riesling, a brand designed for and marketed specifically to women, have found better footing with this demographic.

Shortening the Supply Chain

Referred to as disintermediation, the move to reduce the number of hands that products pass through on their way from producer to consumer is clearly changing the face of the industry.

Shortening the supply chain and putting the squeeze on the three-tier system are winery-direct sales to retailers – as in the case of Costco’s Kirkland brand and BevMo’s robust private label program – direct-to-consumer sales, and the success of online retailers such as UK-based Naked Wines, which has used private investors to fund its fast-track growth.

Meanwhile, Veseth said, a more heated battle is taking place on the global front lines, where efficiency has become first order of priority. According to the economist, a “disruptive tier” has emerged in which economies of scale achieved largely with the use of flexi-tanks are changing the power structure of the global supply chain.