Concentration in the U.S. Wine Industry
Phil Howard, Terra Bogart, Alix Grabowski, Rebecca Mino, Nick Molen & Steve Schultze
Michigan State University, December 2012
No other section of the supermarket offers as many choices as the wine aisle. A typical retailer is likely to have hundreds of unique wines on its shelves. Just three firms, however, account for more than half of the wine sales in the United States. What impact does this industry concentration have on consumer choices? To answer this question we conducted an inventory of wine offerings at 20 retailers in Michigan. We recorded more than 3,600 unique varieties of wine, and traced their relationships with more than 1,000 different firms. The graphic linked below shows the 1,892 brands owned, licensed or exclusively imported by these firms (click to zoom).
Despite this incredible degree of choice on the shelves, wine sales are dominated by a much smaller number brands, and an even smaller number of firms, as the graphic below shows (click to zoom).
This retail landscape is not as concentrated as beer and soft drinks, particularly at the brand level, as leading products in these categories (Bud Light, Coors Light, Coke, Pepsi, etc.), can be found at almost every store. In contrast, the only unique varieties of wine found in more than half the retailers in our inventory were Clos du Bois chardonnay (Constellation Brands) at 13 out of 20 stores, and Cavit pinot grigio (Cavit) at 11. Half of the stores carried the following six varieties:
Inventory of 20 Michigan retailers (n=3,626)
The top firms each contribute to an illusion of diverse ownership by offering dozens of brands (and hundreds of varieties), many of which do not clearly indicate the parent company on their label. The graphic below, for example, shows some of the more than 200 brands offered by the five largest wine firms in the U.S (click to zoom).
Even company websites may not make ownership apparent. To give just one example, “Octavin Home Wine Bar” is in smaller print on a number of boxed wine brands, including Silver Birch (New Zealand), Pinot Evil (Hungary) and Herding Cats (South Africa). If you go to the Octavin website you’ll see it is a trademark of Underdog Wine & Spirits. If you then go to the Underdog Wine & Spirits website and make the effort to go to the “about” page, you will see in the fine print that it is a unit of The Wine Group, the second largest wine company in the U.S. (hardly an “underdog”).
We found the illusion of diverse ownership to be strongest at chain drug stores. CVS and Rite Aid each offered more than one hundred unique varieties, but the majority were supplied by E. & J. Gallo or Constellation Brands, and fewer than 20 firms were represented on the shelves. It was weakest at local retailers with extensive wine selections. One wine shop we visited offered products from 446 different firms, and no firm represented more than 2.6% of the varieties.
Part of the reason wine remains far less concentrated at the brand level when compared to beer and soft drinks is that wine distributors do not usually stock the shelves directly, and stores have retained more control over their selections. Many retailers rely on “category captains,” or staff from beer and soft drink distributors (which carry products primarily from one producer) to plan the alignment of all of these beverages on their shelves.
Another reason for so many brand choices among the top firms is that wine has a much larger price range than other beverages. A single company may offer products in niches that range from inexpensive boxed wines on the bottom shelves, to $100+ bottles on the top shelves. Interestingly, Constellation Brands’ recent strategy to increase profitability is to focus on offering higher-priced, premium wines. This firm sold its lower-priced brands Almaden, Inglenook and Paul Masson to The Wine Group in 2008. Constellation also announced in June 2012 that it would be introducing more than 50 new brands and line extensions during the year.
Although it is not at the same level as the beer and soft drink industries (where two firms control approximately three-quarters of all sales in the U.S.), the wine industry is becoming more concentrated. A large number of acquisitions and mergers have taken place in the past decade, such as Constellation Brands acquisitions of Mondavi ($1.3 billion in 2004), Vincor ($1.3 billion in 2006) and Fortune Brands’ wine business ($885 million in 2007). Although choices remain abundant, particularly for those with access to non-chain retailers, it is increasingly difficult for consumers to recognize which companies they are supporting with their purchases.
For additional aspects of this study see:
Wine Labeling, by Alix Grabowski
The Availability of Michigan-Produced Wines in Southern Michigan Retail Locations, by Rebecca Mino
We conducted inventories of wine at 20 retailers in Michigan in March and April 2012. We recorded every variety of wine, but excluded fortified wines (e.g. port, sherry), non-alcoholic wines, and wines without any grape juice (e.g. 100% cherry wine). Varieties available in multiple sizes were only counted once. The retailers included: