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Beverage Trade Network

Merlot curse is over! Merlot is still tanking! The Upstairs, Downstairs phenomenon

Shortly after this news release — Fifth Annual Merlot Month Celebrates Noble Grape this October — hit the web, Bloomberg rushed to declare that The Sideways Curse Has Lifted: Merlot Is Having a Comeback.

 

Yes and no. It all depends on whether you’re looking just at the top shelf, or the overall market.

 

First, the top shelf: According to the  news release, “Luxury Merlot over $20 grew 5 percent in the last year in U.S. retail channels” and cited “Source: Nielsen IRI 52-week data ending 8/13/17.

 

Second, the rest of the story: Merlot overall, still sinking according to the most recent Nielsen data (see chart below.)

 

But is the luxury Merlot increase really just a downshift alternative to over-priced luxury Cabernet Sauvignon?

 

Screen Shot 2017-10-05 at 3.37.54 PM

Right-click chart to view a larger image

 

Wine Industry Insight does not have access luxury categories, but Rob McMillan, EVP & Founder of the Silicon Valley Bank Wine Division thinks a price-motivated shift might be the case.

 

According to McMillan, “We know that merlot grapes are half the expense of Cabernet, and prices of both have been rapidly rising (Napa/Sonoma Cabernet = $6,830.22 / $2,964.60. Napa/Sonoma Merlot = $3,351.99 / $1,818.10).

 

“Wineries have been trying to pass on the increasing costs of Cabernet grapes to consumers but it’s not easy,” he explained. “Cabernet is the already the most expensive varietal so produces the most costly bottles.

 

“We might see some consumers making trade downs from expensive Cabernet, into less expensive Merlot from good producers. It’s luxury consumers seeking luxury value. So it’s not really that Merlot has grown in popularity, as much as Merlot as a luxury good is a very good substitute for Cabernet.”

 

McMillan added that, “Boomers on fixed incomes and millennials without cash will change the dynamic from here on out.”