Wine profits at the lower end

When everyone is talking about trading up, why are some wine companies going the other way? Jeff Siegel investigates.

Peter Stoneberg, managing director, Dresner Partners
Peter Stoneberg, managing director, Dresner Partners

Talk to anyone in the wine trade, and they’ll say the most important trend in the US is premiumisation: the idea that consumers are trading up, willing to spend more money for a bottle of wine. The idea of premiumisation has been embraced by companies ranging from tiny craft producers to the biggest multinationals.

So why, in the space of a couple of weeks this northern spring, did two of the biggest wine companies in the world head in the opposite direction? The Wine Group, with 53m cases annually, said it would spend “multi” millions of dollars to relaunch its Franzia 5-litre box wine – once the best-selling brand in the US, but which has been in a sales freefall since the end of the recession. Meanwhile, E & J Gallo, the industry’s biggest producer at 90m cases, in April agreed to pay $1.7bn to Constellation Brands for 30 of its sub-$11 labels, along with a variety of wineries, vineyards and production facilities across the US. Although the sale has been delayed because of the need to supply more information to the US Federal Trade Commission, it’s nevertheless predicted to go ahead in the second half of this year.

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