Don Draper, the Middle Class, and the Mad US Wine Consumer
Economically speaking, a luxury good is one with a demand curve that's straight up and down and a commodity has a horizontal demand curve. Practically speaking there's a lot of gray between the two and Luxury for American's is easier to segment into "need to have" (a vacation camping close to home) and "want to have" (a vacation at the Hilton in Rome).
There was a time when luxury goods were that: Custom goods manufactured for the wealthy. Mass Luxury? At best that was just an oxymoron. Back in the day, lettuce was not a luxury good. It came in fresh iceberg or older iceberg. There were no field greens mixed in a gas sealed bag replete with mustard greens and escarole. But when the boys came home from a World War and the Boomers started popping out and growing up, America grew a large appetite for something more than 'need to have' products. We desired, wanted and coveted the Jones' stuff next store. An exploding middle class was the catalyst that gave the Mad Men out there license to pitch our wildest needs and wants, and we consumed our way to prosperity.
Today with a shrinking middle class, displays of wealth politically incorrect, a waning Boomer, and a $9 trillion dollar hit to the net worth of America's consumers in real estate losses, can we still have Mass Luxury goods like we used to and more important, will we be able to afford them, and even more important still, what does that mean for wine?
Mass Luxury is now a heavy component in consumer spending and our GDP. Wine is positioned as more of a luxury or a lifestyle enhancement, even in the lower price points. Its that explosion in marketing, along with the rise in wealth of the Boomer that has allowed the huge growth in the wine business in the past 20 years. Problem is, the average age of the Boomer is now passing the prime spending years of 35 -55. In fact, 10,000 Boomers a day are now passing 55. That is a headwind for wine producers that is structural. Its one the Millennials wont solve anytime soon no matter what else you read, simply because they lack wealth and they aren't yet at their prime spending years.
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Is wine a need or a want? Consistently, the answer ends up being that it is a need more than a want. Stacked up against other grocery goods in the Great Recession, wine sales ended up performing the best overall. By all measures, consumers in the US continue to grow in their affinity for wine and that appears to only have upward momentum.
There is a difference between growth in volume and growth in price however and that leads me to conclude we will see growth in volume of wines consumed, but more or less stagnation of the real price paid for wine. What does that mean and how that will impact the long term structure of the business is the topic for next week in SVB on Wine. But what do you think? Are you more of an optimist about the prospects for higher real prices for wine, the middle class, and the time-line for a recovery? Join the community here, sign in and sound off.