Wine and the downturn.

The Wine Economist has two interesting posts on the impact of the economic downturn on the wine market here and here.

On how the current credit freeze will impact wineries' ability to obtain the funding they need throughout the year:

Even if the Treasury rescue plan is a success, I still believe that credit will be much tighter for the next three years (some of my colleagues think it will take even longer to work though the credit cycle). This will have serious effects because so much of the real economy has become dependent upon ready credit to finance business operations and to fund customer purchases. Winegrowers are obvious potential victims of this trend. Winegrowing is a risky business with special credit needs and an overall credit freeze could have serious effects that may extend all the way from the price and availability of the grapes themselves to the value of vineyard properties. Retailers and distributors may also need to scale back their operations to match their reduced access to credit.

Second, there are already signs of the "hollow middle" being, er, hollowed out:

There is a lot of turbulence in the middle of the Wine Wall ($4-$10), which is the heart of the market in some respects. Microdata harvested from grocery store loyalty card programs suggests that buyers really are trading down from $7.99 to $5.99, for example. Since the cost of making the distributing a $5.99 wine is not $2 less than a $7.99 wine, trading down has a big effect on producer and retailer profits. Wine may be recession proof if you look only at overall volumes, which have held up pretty well for the industry as a whole, but don’t expect revenues and profits to tell the same sanguine story.

Finally, spending patterns may be seeing a shift:

So while some people will trade down to lower price, others will trade over — to a different idea of wine that allows them to spend less without feeling like they are giving up their lifestyle. I’m still serious about wine, their choices say, but I don’t take my self so seriously all the time. I like to have fun with wine and so I’m buying wine that reflects this fact now.

Here at House H., wine spending has dropped tremendously over the past few months. There are a number of first tier wines that I am passing on now (e.g., Penfolds Grange, the 2005 Leoville-Barton) as that same budget could be spent on more wine and for less. Value has become the watch-word, with wine that I find well-made but over-priced being pushed to the side (e.g., Grgich Hills Cabernet and Chardonnay). Focus has shifted toward a combination of short-term consumption with a smaller portion dedicated for long-term aging. In all, it makes for an interesting phase during which to maintain a collection!