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    GROCERY: Beverage Alcohol: The grape race

    As table wine continues to surge among alcoholic beverages, other channels are pouring their fill.

    By Brian Lechner

    The fruit of the vine is as healthy as ever: Table wine continues to be the fastest-growth segment among alcoholic beverages, including beer and spirits.

    Last year, dollar sales of table wine sold in the food channel outpaced beer, with a growth rate of 8.7 percent vs. 1.4 percent, respectively. To a lesser extent, table wine also outpaced spirits, which experienced an 8.3 percent dollar growth rate. The category saw similar results in both drug and liquor channels, according to ACNielsen Scantrack data.

    Data from more than two years of research in U.S. food/drug/major market liquor/c-store channels reveals how wine is also capturing a larger share of the beverage alcohol consumer wallet. The data shows a one-year gain in dollar sales of 8.6 percent, compared with 5.5 percent for spirits and only 0.7 percent for beer.

    This translates into the potential for larger retail sales and profits overall. ACNielsen Homescan data indicates that average basket rings without wine are $33.38, while average basket rings including wine are significantly higher, at $52.29.

    Wine's gain is not necessarily beer's loss. The surge in wine sales speaks more to its own growing popularity than it does to a decrease in beer consumption, which continues to dominate in total gallonage. The trend does, however, highlight increasingly positive consumer attitudes toward wine, marked by societal influencers.

    Wine's lifestyle associations in today's media have played a role in its increasing popularity. Movies and television shows featuring wine, most notably 2004's runaway hit film Sideways, have portrayed wine as one of "life's finer things," perhaps even "culture in a bottle."

    Indeed, the concept of wine as an everyday luxury is being embraced by many consumers, who consider it part of a lifestyle, as well as a contributor to their personal identity. This lifestyle association is sometimes passed down through generations when families include table wine with dinner or celebrations, thus introducing the beverage as an upscale profile option for consumers who are just reaching drinking age.

    Recent reports on the health benefits of wine may have also affected its growing appeal. Studies reporting high levels of cancer-blocking antioxidants in red wine, along with what has become known as "the French Paradox"—the attribution of low obesity rates in France to moderately high wine consumption rates—have all influenced public perception of wine as a healthy beverage.

    Whatever the exact reasons behind it all, strong dollar sales in the table wine category show no sign of slowing down. As of July 1, 2006, ACNielsen reported that growth in the table wine category continued to dominate both beer and spirits, increasing at a rate of 9.1 percent compared with last year (beer sales grew at a rate of 1.6 percent and spirits at 4.7 percent). In fact, wine ranked No. 2 in growth among all of the top 25 food and beverage categories that ACNielsen tracks.

    Premium push

    Despite the fact that California wines now are available in abundant supply across all price points, consumers continue to favor premium-priced table wine.

    On a dollar share basis, table wine priced less than $6 per 750-milliliter bottle is declining significantly compared with premium segments, while higher-priced wines are driving sales increases. Table wine priced at $15 or greater experienced a dollar sales growth rate of 18.2 percent, wine priced at $12 to $14.99 increased 16 percent, and wine priced at $9 to $11.99 grew 12.8 percent.

    These growth rates dramatically dwarf those of cheaper-priced segments, such as $0 to $5.99 table wine, which experienced a sales growth of only 2.7 percent.

    Perhaps reflecting a perception that imported table wine equates to higher quality, imports saw growth in household penetration, up 0.5 points compared with domestics, which noted a slight 1.1-point decline. Table wine imported from Australia leads all other imports in terms of volume sales, with an impressive 39 percent share, up 9 percent vs. last year. France saw the greatest decline, losing 1.9 percent of wine sales in 2005 compared with the previous year. Finally, New Zealand saw the largest growth sales rate, 111.7 percent, though still only making up 0.6 percent of all imported table wine. Although imports have made gains in household penetration, domestics have far outpaced them in sales.

    As for wine types, table wine continues to dominate sales and produce the shortest purchase cycle rate, compared with sparkling, specialty, dessert wines, and vermouth. Data indicates that Americans typically prefer red wine to white wine. Pinot Noir and Chardonnay have gained popularity and market share, while purchases of white Zinfandel and Cabernet have declined.

    Boxed in

    As wine companies are enjoying an upswing at home and abroad, they're also looking for packaging innovations to draw consumers' eyes to their products, through inviting, practical, and provocative means.

    Box or cask wines, once seen as having a low-scale profile, have been making strong gains. Three-liter premium boxed wines have grown 6.8 percent in volume sales, grabbing share from traditional 750-milliliter bottled wine. The rise in the popularity of boxed wines has made for unlikely "bandwagoneers" as large numbers of premium wine makers have begun boxing up their product. The box itself is evolving into different versions by taking the convenient portability of the wine box one step further: Makers have even begun offering their product in single-serve boxes.

    If there were ever a subject on the presentation of wine that has proved the most volatile, it is undoubtedly the question of the cork. For years now, wine makers have been lobbying consumers to accept screw-top wine bottles as an alternative to traditional cork. Pro-screw-top wine makers have recently received valuable endorsements from wine experts who have suggested that cork's unpredictable attributes (drying, crumbling) can be a detriment to a wine's value or even its drinkability.

    Still others believe that the cork is an essential part of the wine experience. In fact, recent polls suggest that the United States is the most resistant to screw-tops, while Australia and Europe show the greatest acceptance.

    Though the cork debate continues, there's one area of agreement that many wine makers have stumbled upon regarding packaging: the value of critters. "Critters" simply refers to the depiction of animal or animal likenesses on wine labels. Critter-labeled brands account for nearly 15 percent of the table wine category and significantly outpace sales of total table wine (29 percent vs. 10.7 percent). Keenly aware of how critters are making wine more approachable or consumer-friendly, wine makers introduced 77 new critter-labeled bands in 2005 alone. All together, critter-labeled wine contributed to slightly more than one-third of the overall annual table wine category growth ($140 million of the nearly $400 million increase).

    Consumers changing the channel

    No other topic perks up the ears of retailers quite like that of channel blurring, and in this category the blur is on. More than ever, consumers are finding multiple choices in where to buy wine. The expansion of club and supercenter stores continues to encroach on traditional consumer shopping options—grocery and drug—and account for growth in the percentage of annual wine sales.

    In reality, grocery and liquor stores are still the dominant channels for the category, however, and remain stable in that regard; however, clubs and supercenters have boasted top wine retailer rankings for five years in a row. Indeed, Issaquah, Wash.-based warehouse club chain Costco has just revealed it sold $805 million worth of wine in its fiscal 2006, a figure that included $390 million of fine wines. It declares itself the nation's largest wine seller.

    Meanwhile natural food stores, typified by Austin, Texas-based Whole Foods, are also proving to be worthy competitors by focusing on nontraditional, higher-end brands not found in grocery and supercenters. These stores have found success in the upscale merchandising of wine with such strategies as featuring wine in prepared and gourmet food (i.e. imported cheese, olives, etc.) sections.

    ACNielsen reported that in 2005, natural food stores led all other channels in sales growth, at 19.7 percent, compared with food, drug, and liquor stores. Convenience stores scored the second-highest sales growth rate, at 18.1 percent. Curiously enough, natural stores led all other channels in average price for 750-milliliter bottles ($10.06), further illustrating the unique upscale niche the channel has created.

    The drug store channel has continued to benefit the least from the increases in wine popularity. While total wine sales rose in liquor and food outlets in 2005, volume sales in drug stores have decreased. Only three drug chains ranked in the top 30 wine retailers in 2006, compared with five in 2000. Ultimately, the drug channel holds the most precarious and lowest position in total percentage of wine dollars by channel, coming in at around 4 percent.

    In response to the successes of supercenters, natural grocery, and club store channels, traditional grocery, liquor, and drug stores have taken steps to appeal to consumers' sense of lifestyle in regards to wine, adapting the look and feel of their wine sections.

    Many stores are replacing tiled floors with hardwood, and removing harsh fluorescent lights in favor of warm incandescent fixtures. By making the purchase of wine more experiential, these retailers apparently hope they'll gain a competitive edge over their increasingly aggressive big-box counterparts.

    The bottle line

    The American consumer is spending more on wine than ever before, and all signs point to continued growth that will outpace both spirits and beer in the alcoholic beverage category. With its growing popularity comes increased competition from the specialty, club, and supercenter sectors.

    To stay ahead of the competition, grocers need to recognize the trends in varietals, the ever-evolving preferences in wine packaging and labeling, product presentation, and ultimately what wine really means to the casual drinker as well as the appreciator. Natural grocery stores are taking a unique approach by offering the "culture" of higher-end wines, while supercenters and clubs are leveraging convenience and value pricing. Grocers can also benefit from the wine boom by taking a page out of other channel playbooks, while recognizing the luxury and lifestyle perceptions and attributes that come from the fruit of the vine.

    Brian Lechner is the client director-beverage alcohol for ACNielsen. He leads the client service West group (most major wine and some spirits clients).

    By Brian Lechner
    • About Brian Lechner

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