Drinking cheaply: the demand for basic wine in Italy

The wine market has evolved dramatically over the last three decades. The premium wine segment has expanded significantly to the detriment of basic wines. Nevertheless, in traditional wine producing and consuming countries, inexpensive wines still account for a large market share, both in volume and value. Marketing strategies for such wines are changing in an attempt to tap this increasingly crowded market segment. Despite its importance, the basic wine segment has not been studied in-depth and is often assumed to have no product differentiation. This paper tried to ascertain the existence of a possible degree of heterogeneity within nonpremium wines and to measure, by means of elasticity computation, the relationships among categories of wines aggregated with criteria that go beyond price. A demand system (censored QUAIDS) was estimated, using a statistically representative panel of 6,773 Italian households, to see to what extent, if any, substitution occurs in home consumption of basic wines, which is the main channel of distribution of inexpensive wines in Italy. Although price is an important lever in supply policies, our results also suggest the importance of packaging, such as carton as an alternative to glass.