PEST Analysis for the Wine Industry

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PEST Analysis for the Wine Industry
Overproduction glutted the wine industry in 2009. (wine barrels image by Horticulture from Fotolia.com)

The wine industry has seen many changes since the early 1990s, including a resurgence in boxed wine, a shift from natural corks to screwcaps and synthetic corks, new entries into the market from Argentina and Chile and consolidation across the industry. Despite a recession, the industry has managed to hold on to market share and continues to embrace political, economic, social and technological changes in the marketplace.

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Political

The wine industry in the United States continues to face political challenges as it tries to extricate itself from arcane laws left over from the prohibition era. Although some states have abolished laws prohibiting the sale of beer, wine and spirits on Sundays and have opened the door to Internet sales of wine, many other states are not as progressive.

The hot political debate in 2010 revolved around the privatisation of alcoholic beverage sales. Every state has a department that sets and enforces the regulations concerning the sale of wine, beer and spirits. Nineteen states, called "control states," also manage the sale of alcoholic beverages by acting as either the retailer, distributor or both. The governors of Virginia and Washington have both lobbied to open the door for private retailers to take over the business of distributing and selling alcoholic beverages in their states. The wine industry has taken notice of this push and advocates the concept in general, as some of the control states do not allow the sale of wine in their state-owned liquor stores which may impact overall sales trends in those states.

Economic

The economic recession that started in late 2007 had a profound impact on the wine industry as consumers turned to the more affordable value-priced wines. In California's Sonoma county, a robust grape harvest in 2009 added insult to injury as wineries discounted their prices even more to keep their inventories down. Although US wine consumption grew by 1.9 per cent in 2009, total sales dropped by 3.3 per cent -- the first decline experienced by the wine industry since the early 1900s. Forecasters expect luxury spending fuelled by economic growth to bring high-priced wines back to the forefront.

Social

In their 2010-2011 State of the Wine Industry report, SVB Financial reported that Boomers and Gen Xers continue to drive the luxury wine segment, and they expect that trend to continue until at least 2020. The Millennials' consumption matched that of the Boomers in 2009, but they spent significantly less per bottle. If all trends continue, the Millennials will become the new drivers of the industry as they expand their palates and increase their income.

Technological

Mobile bottling expanded to the Midwest in 2011 in a move expected to foster growth in the area's small boutique wineries. For the larger wine producers, the big news involves advances in computer hardware and software. The 2010 Wine Industry Technology Symposium's featured topics included mobile marketing, customer relationship management or CRM systems, how to fight cybercrime and a host of other low-cost technologies.

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