The Warning Lights Are Flashing
I had lunch with an old friend from the wine industry this week and we didn’t even bother asking one another how our families were, or if we enjoyed our recent vacations. From the moment we sat down to eat it was clear we both had the same thing on our mind: the imminent collapse of the wine and spirits industry.
“In Napa, it’s just crazy,” he said to me, as we perused the menu; “Some of California’s most historic vineyards have been gobbled up by huge corporations who then tripled the price of the wines. Now they’ve hired teams to travel all over the country, throw these lavish tasting events, and convince people to buy their new and improved product, yet they don’t understand why the wines aren’t selling.”
“They probably would have made the exact same amount of money had they just kept the prices where they were and not hired a team of luxury brand ambassadors,” I replied; “By raising the prices so drastically they scared off their core consumer base. Who’s going to pay $150 for a wine that was historically $50?”
Of course, this trend is ubiquitous on the spirits side of the industry as well, particularly with single malt Scotch whisky. Over the last few years, some of the most prolific and beloved single malt whiskies have taken huge price increases, which basically scared off a huge swath of current and would-be future customers in the process.
This morning, the Scotch Whisky Association announced that exports of Scotch whisky are down 18% year over year so far. In that report, the SWA blames taxes, the lingering effect of COVID, and Trump’s U.S. tariffs for the downturn. Yet, there’s no mention of the ridiculous price increases that came long after the tariffs were removed and consumption was at an all-time high during the pandemic.
For some reason, greed never seems to enter the conversation of why the wine and spirits industry is currently suffering. Instead, industry pundits like to blame young people for not drinking, or market “headwinds,” or just about anything other than their own avaricious decisions.
The whole scenario reminds me of a stand-up bit I saw on social media recently where the comedian claims the goal of business today is to take something that works well for everyone and make it work for absolutely no one.
In the end, the prices are all going to come down anyway. Waaaaaay down. We’re about to witness an industry bloodbath the likes of which I’ve never seen in my career. With consumption and pricing going in opposite directions, we’re already in an unimaginable glut. The consequences are currently playing out on the retail side with daily closeout offers for wine and whiskey across the nation.
There are distributors in the U.S. right now whose sales are down 50% or more over last year, and who cannot afford to take on more inventory as a result. There are retailers who cannot pay their bills because the products they’ve purchased are not moving off the shelves. Even if wine and spirits producers were to lower their prices today, where would all that new inventory go?
If the SWA thinks the 2024 numbers are bad thus far, wait until Q4 numbers are posted at the start of 2025. Given the current logjam of inventory currently sitting in distribution and retail warehouses, I’m willing to wager this year’s OND will be the worst in modern history.
-David Driscoll