According to Philip H. Howard, Associate Professor at Michigan State University, the wine industry is becoming more concentrated each year. Just three firms account for more than half of the wine sales in the United States.
Howard claims a large number of acquisitions and mergers have taken place in the past decade, such as Constellation Brands acquisitions of Mondavi in 2004, Vincor in 2006, and Fortune Brands’ wine business in 2007.
Howard notes that although wine choices remain abundant, it is increasingly difficult for consumers to recognize which companies they are supporting with their purchases.
After Howard conducted an inventory of wine offerings at 20 retailers in Michigan, he recorded more than 3,600 unique varieties of wine, and traced their relationships with more than 1,000 different firms.
This graphic shows the 1,892 brands owned, licensed or exclusively imported by these firms.
But despite this astonishing degree of choice, wine sales are dominated by a much smaller number brands, and an even smaller number of firms, as this graphic shows.
Howard suggests 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.
Even company websites may not make ownership apparent, says Howard.
This graphic shows some of the more than 200 brands offered by the five largest wine firms in the U.S.
Howard claims 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.”
There is far more ownership diversification 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.”
Howard explains part of the reason wine remains far less concentrated at the brand level 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.
“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.”
A recent strategy to increase profitability by Constellation Brands is to focus on offering higher-priced, premium wines.
Constellation sold its lower-priced brands Almaden, Inglenook and Paul Masson to The Wine Group in 2008, and also announced last June that it would be introducing more than 50 new brands and line extensions during the year.
In the beer and soft drink industries, only two firms control approximately three-quarters of all sales in the U.S., and each year the wine industry becomes more, and more condensed.
January 10th, 2013