First, an increase in supply. There has been a surplus of grapes due to over-planting and large harvests in Napa Valley. Since it takes about 5 years from planting to market, it's difficult for vineyards to forecast demand. Inventory management is a large risk when consumer tastes constantly change. According to the Mondavi Winery case, "inventories are measured in years, not days" which adds complexity when predicting supply and demand curves.
Second, as we've discovered in this class, there has been a consistent decreased demand for wine over the past few years. Several reasons for this decrease can be attributed to a shift in consumer preference, particularly in the millennial segment (i.e. weed over alcohol) and the threat of new entrants (i.e. spiked seltzers as a substitute).
Overall, this is actually a benefit to consumers who are avid wine drinkers. I know I will be stocking up on my favorite wines as prices continue to decrease. Cheers to the next three years!!
This post (and the article you linked) makes me wonder if in the long (long) run this short-term price drop is a good thing for the wine industry? Similar to the way some retailers offer "loss-leaders" to get customers in the door, so that they buy higher-margin items, I think this dip in wine prices might open the door for those who might not have consumed wine otherwise (or just consumed less).
ReplyDeleteIn the short-term, this price dip might squeeze some financially unstable winemakers out of business, however, in the long-run, it might take those new wine-consumers (younger millennials and Gen Z), who for the next several years might find wine to be relatively affordable, and turn them into lifelong wine drinkers.
Every time I'm at a Trader Joes - looking at the mountains of Two (or Three) Buck Chuck - I have the same thought: that Trader Joes wines and other, similar priced wines, might be responsible for helping a whole new generation grow into wine drinking.