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U.S. Wine Drinkers Root for Home Team

Economists report a distinct consumer bias for domestic wine

by Peter Mitham
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Summary statistics on retail sales of red wine New Hampshire Liquor commission stores July 2005-July 2006 by country of origin. Source: New Hampshire State Liquor Commission as presented in Richard Friberg et al., "Why is there a home bias? A case study of Wine," Journal of Wine Economics, Working Paper 65 (July 2010) viewed online.
Seattle, Wash.—Domestic table wine sales are trending ahead of 2010 in the United States, and a paper in the current issue of the Journal of Wine Economics indicates that even five years ago, New Hampshire consumers showed a distinct bias in favor of domestic wines over international competitors. (An earlier version of the paper was published by the association last year as part of its ongoing series of working papers.)

Using a year’s worth of sales data for red wines priced at $25 or less per bottle, sold through the New Hampshire Liquor Commission between July 2005 and July 2006, Richard Friberg of Sweden’s Stockholm School of Economics; Robert Paterson of Industrial Economics Inc., Cambridge, Mass.; and Andrew Richardson of the Department of Organismic and Evolutionary Biology at Harvard University, concluded that consumer preferences favor U.S. wines despite factors that might prompt them to buy non-U.S. wines.

Traditional criteria working against foreign products include higher import costs that boost their price relative to domestic products, a smaller selection relative to domestic product and a smaller number of outlets that carry them.

However, the study found that a simple preference for buying American wines is the single most important explanation for the bias, which saw U.S. wines claiming a 54.6% share of the market vs. 14.6% for Australia and 10.6% for France.

“Our investigation of the New Hampshire wine market leads to the conclusion that preference for domestic goods is an important contributor to home bias on this market,” the authors concluded.

Sweden as control market
The results in New Hampshire were checked against sales in Sweden, which, the authors noted is, “an appealing benchmark since it has no domestic production of red wine (thus we can disregard home bias).” Sales through Sweden’s state-run liquor distributor, Systembolaget, are dominated by Spanish, French and Italian wines.

When sales figures were adjusted to parallel sales activity in New Hampshire, the results showed that in Sweden, “U.S. market share falls from 58% to 38% if all country-of-origin effects are set equal.” This highlights a greater consumer preference for U.S. wines in New Hampshire than in Sweden, all things being equal.

“Home bias (in New Hampshire) is not explained by higher marginal costs for imports or by lesser store coverage of imported brands,” the paper stated. “The evidence rather points to higher foreign fixed costs of entry, coupled with a preference for U.S. wines, as the main sources for the high domestic market share.”

The report’s authors were unavailable for comment this week, but consumer preferences for domestic wines have, if anything, strengthened since 2006. Weakening of the U.S. dollar on the international stage has made U.S. wines more affordable relative to many foreign wines, especially from Europe, which now cost more to import (see “Wineries Cope with Foreign Exchange”).

Northwest reflects change
Washington state producers capitalized on the shift last year with a campaign targeting Washington residents that highlighted the variety and value of Washington wines.

“When the recession came and the economy changed, the marketplace changed,” Noah Goldman of Seattle’s Black Bottle Gastro-Tavern said at the time. “There was a lot more value in Washington wine—and not just the high-end aspects.”

Ryan Pennington, public relations director for the Washington State Wine Commission, told Wines & Vines that Washington wines typically claim 20% to 30% of the state’s wine consumption.

Oregon wines have about 15.5% of market share in their home state, consuming an impressive 41% of state production. While this is below Washington consumption of state-produced wines, 56% of Oregon wine is sold elsewhere in the U.S., supporting domestic consumption across the country.

Meanwhile, a home bias is emerging in the Canadian province of British Columbia, Washington’s northern neighbor, which has its own growing wine industry. Washington producers have found it tough to break into B.C., where consumer pride in buying local has helped wines made entirely from B.C. grapes bearing the B.C. Vintners’ Quality Alliance mark to pull ahead of premium wine imports from any other country, including Australia.

Sales figures from the British Columbia Liquor Distribution Branch, the province’s government-run liquor distributor, indicate that a spike in the volume of domestic wine sales in September 2010 have kept total sales of domestic wines trending above overall foreign sales for the past year.

B.C. saw sales of 8,223,174 liters of domestic wine through the provincial distributor in September 2010 vs. 7,292,800 liters of imported wines. This shifted the share of domestic wines in the market (including those made by domestic producers from domestic and foreign juice) from approximately 48% in the preceding four years to 52.9%.

Border crossers buck the trend
Meanwhile, in Quebec, which borders New Hampshire—and, like Sweden, lacks a significant red wine industry (the majority of red winegrapes planted are hybrid varieties includ ing Maréchal Foch, Frontenac and De Chaunac) —foreign, and particularly French wines, dominate. This bias shows even when Quebecers shop in New Hampshire.

The paper’s authors found that sales at a New Hampshire state liquor store in Colebrook, 20 minutes south of the Quebec border, are “abnormally high compared to other stores” during the week between the Quebec holiday of St. Jean Baptiste on June 24 and Canada’s national holiday, July 1—even considering import restrictions on Canadians returning from the U.S.

Sales to visitors from Quebec explain a corresponding rise in sales of French wine during this period, reducing the share U.S. wines sold at the Colebrook store to 35%. The state-wide average for the week is 53% U.S. wines, with the difference in sales highlighting the affinity New Hampshire consumers have for domestic wines vs. the distinct preference of their French-speaking neighbors to the north for imports.

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