bad wineI was skimming through the Silicon Valley Bank’s 2016 report on the state of the wine business today and two points caught my eye. The first is that wine consumption in the U.S. had shown a steady and substantial rise from 1994-2011. And then from 2012-2014 the growth in consumption flat lines. Of course, the growth in the popularity of mixology and craft beer might have something to do with that. But why, now that the recession is mostly behind us, are consumers not buying more wine?

But the other point is one of the key take-away points from the report: Producers are focused on what is called premiumisation, encouraging consumers to trade up from their cheap wine in the $8-$12 range to more expensive bottles approaching $20. It seems to be working.  The over $10 segment of the market is showing the most growth despite the flat line in growth of overall consumption.

Do you suppose that in order to encourage consumers to buy better wine, the big players in this market (and it’s the big guys we’re talking about here) are making better wine? Or are they charging higher prices for the same stuff they used to charge $8 for? My guess is the latter since that would explain the absence of overall growth. If so, consumers might be dissatisfied with the cheap stuff but not finding satisfaction when they pay more.

Time will tell, but as consumers become more sophisticated about wine they may be telling wineries to stuff it if higher prices don’t provide higher quality.