## Monday, September 4, 2017

### Increase in US wine consumption over 10 years

Recently, the American Association of Wine Economists published on their Facebook page some data (here and here) showing the annual wine consumption per capita in the USA, both in 2005 and in 2014. Recalculating these data shows that there was, on average, a 13% increase in wine consumption per person between these two years, for the country as a whole.

However, this is only part of the picture, as we all know that wine consumption will not have increased equally among all of the states. So, I have plotted the state-by-state data in the graph below. Here, each of the points represents a particular state, with its location on the axes representing consumption (liters per person) in 2005 (horizontally) and 2014 (vertically). If the consumption per capita was the same in both years then the points would lie along the pink line; and if they are above the line then the consumption was greater in 2014 than in 2005.

The graph shows that the biggest boozers are in the District of Columbia. Indeed, the per person consumption in DC is more than double that of fully 37 of the states. This may explain some of the decisions that come out of Washington.

DC is followed a long way back by New Hampshire, followed even further back by Vermont and Massachusetts. For comparison, a couple sharing a bottle of wine per week would consume 20 liters per adult per year, which is equivalent to 15 liters per capita (given that 25% of the population is below drinking age). The graph shows that only DC, NH, VT and MA exceed this annual level (ie. the top four points in the graph).

For 20 of the states the annual wine consumption increased between 2005 and 2014 by more than 1 liter per person — the dotted lines on the graph indicate plus/minus 1 liter per person. The biggest increases were in Vermont, followed by Massachusetts, New Jersey and New Hampshire. Of these, only Vermont was a long way above the average increase.

None of the states had a decrease in annual consumption of more than 1 liter per person. However, three of the states were a long way below the average increase (ie. much less than +13%): Delaware, Colorado and Nevada.

These results seem to be quite good for the wine industry. As Charles Olken says: "Phew. Thank goodness" (Americans are turning away from wine ~~ No, they are not. Yes, they are). Nevertheless, almost all Americans drink much less than a bottle of wine per week; so there is much room for improvement.

1. David:

You report:

"a 13% increase in wine consumption per person between these two years [2005 and 2014]."

July 1, 2005 U.S. population = 295.52 million
July 1, 2014 U.S. population = 318.56 million
U.S. population increase = +23.04 million
U.S. population increase = +8% between 2005 and 2014

U.S. wine consumption per person = +13% between 2005 and 2014

U.S. wine consumption per person grew at +67% [13% divided by 8%] above the underlying growth of the U.S. population.

A circa 2010 market research report by Folio (a wine importation and distribution company founded by Michael Mondavi) projected that 96 percent of all wine in the U.S. is consumed by 16% of U.S. wine drinkers.

That same report projected that 35 million adults drink virtually all of the wine sold in America.

Between 2005 and 2014, did U.S. wine consumption per person rise because more consumers adopted wine as their adult beverage?

Or did U.S. wine consumption per person rise because the 16% of "core" drinkers were drinking more wine than ever?

I suspect the latter. And here's why.

A particularly nasty U.S. societal disruption occured between 2005 and 2015: The Great Recession.

Wine is an elective -- not necessary -- purchase funded from a household's or individual's discretionary income.

(Discretionary income is the amount of income that a household or individual has to invest, save or spend after taxes and necessities are paid. Necessities a household or individual may have are rent, clothing, food, bill payments, goods and services, and other typical expenses.)

The shock of high U.S. unemployment and high U.S. under-employment (part-time workers who could not find full-time employment) ushered in a new era of "frugality." [*]

Those unfortunate unemployed and under-employed were not spending as much of their discretionary income on wine as they did before The Great Recession. Were not spending as much of their discretionary income on wine during the Achingly Slow Economic Recovery.

Those who retained their jobs during the Recession and Recovery saw little or no reduction in their discretionary income. Saw little or no reduction in “the wealth effect.”

(Aside: if you had no reason to sell your stock portfolio or residence in a falling market, then the “paper losses” were immaterial. You simply waited for the markets to rebound.)

I assert that their wine purchases became the rising time that floated all boats.

I welcome any member of the American Association of Wine Economists who has pertinent spending data at her or his fingertips join this comment, for the purpose of either validating the assertion – or refuting it.

~~ Bob

*See:

From The Wall Street Journal “Main News” Section
(April 6, 2009, Page A2):

“Frugality Forged in Today’s Recession Has Potential to Outlast It”

[Use link to see accompanying exhibit]

By Kelly Evans
“The [Economic] Outlook” Column

1. "did U.S. wine consumption per person rise because more consumers adopted wine as their adult beverage?"

Actually, there is some evidence that the opposite is true (see Charlie Olken's blog post). There is a trend of consumers turning towards cider, craft beer and fancy cocktails, rather than wine.

"did U.S. wine consumption per person rise because the 16% of 'core' drinkers were drinking more wine than ever?"

The national increase in wine consumption is not evenly distributed across states, as shown in the blog post. It is very unlikely that the core drinkers are evenly distributed either. It is also likely that the effects of the recession were not evenly distributed across the states. So, untangling the "cause and effect" of your scenario would be very difficult. However, it is quite likely that you are right.

2. If the 16% "core" drinkers are responsible for propping up the U.S. wine market, then that reinforces this notion:

Excerpt from The Wall Street Journal “Marketplace” Section
(November 26, 2008, Page B6):

“Marketers Reach Out to Loyal Customers”

http://online.wsj.com/article/SB122766322705958805.html

By Emily Steel
Staff Reporter

"It’s an adage of . . . business: Persuading a satisfied customer to return is cheaper than attracting a new one. Now, in the struggle to do more with less, that concept is becoming even more important.

"Acquiring a new customer costs about five to seven times as much as maintaining a profitable relationship with an existing customer, says Marc Fleishhacker, managing director at WPP’s Ogilvy Consulting . . ."

Be opportunistic in "gaining share" by poaching customers from your competitors.

And avoid squandering your marketing budget on trying to convert non-drinkers and infrequent drinkers into customers.

(There is a good reason why they're not drinkers -- religious belief, poor health, low income, et cetera. Your marketing efforts won't be able to resolve any of those impediments.)

A highly recommended book on growing your business is Michael Treacy's "Double-Digit Growth: How Great Companies Achieve It No Matter What."