Slower Growth Ahead for Wine Sales
August 07, 2020
Sonoma, Calif. – Channel shifting and panic buying drove dramatic growth rates for off-premise sales and direct-to-consumer (DTC) shipments of wine this year but slower growth awaits, said Jon Moramarco, editor with Gomberg, Fredrikson & Associates during a webinar the market research firm hosted on Aug. 6.
“So much volume and value was transferred to off-premise this year … there will be a channel shift back to on-premise,” he said.
Data for the first half of the year indicate wine sales in the U.S. totaling $34.5 billion on a volume of 213 million 9L cases. While volume was up 5.7 percent from a year ago, value was down 6.5 percent.
Moramarco’s analysis estimates a 13.7 percent increase in the value of sales through off-premise channels and a 15.9 percent increase in volume.
Meanwhile, data from Wines Vines Analytics/Sovos ShipCompliant indicates wineries shipped more than 4 million cases worth nearly $1.7 billion in the first six months of 2020. Volume was up 30 percent while value was up 15 percent versus last year.
But the rise in DTC shipments wasn’t enough to offset the closure of winery tasting rooms.
“Wine took a big hit with winery tasting rooms not being open,” Moramarco explained. “The e-commerce through wineries could not make up for what was lost with winery tasting rooms being closed.”
Coupled with the closure of on-premise accounts, which are a significant component of consumer spending on wine, the market as a whole fell despite stronger off-premise and in DTC shipment volumes.
“Volumes were up for the first half for wine but consumer spending was down, and it’s a challenge for the marketplace,” Moramarco said.
The second half of the year promises an improvement as restaurants, bars and tasting rooms reopen, but on-premise and tasting room activity will still lag last year. In fact, the trough could deepen, especially within the on-premise channel.
“Part of this is because as people go back to drink on-premise – and we’ve seen this specifically in the Texas data – they’re migrating a degree more to spirits than they are to beer or wine,” Moramarco said.
A further variable is the degree to which reopening exists during the latter half of the year. Tasting rooms might only recover half their capacity, he said, while states like Texas, which saw on-premise activity rebound from 10 percent of normal in April to more than 35 percent of normal in May and June are vulnerable to a rollback of reopening.
“It will be interesting to see how these trend through July and August,” he said.
Meanwhile, consumers now accustomed to having wine at home with dinner and who may be starting to face tighter household finances as the pandemic wears on, may not go back to restaurants as quickly.
“Jobs are not going to come back quickly, people will not want to spend as much money for dining out,” Moramarco said. “Habits will change, and will be hard to evolve out of.”
Those new habits are driving Moramarco’s forecast for the remainder of the year and into 2021. He expects the total U.S. wine sales to end the year at $67.5 billion on a volume of 412 million cases. Volume will be up 1.3 percent but down 12 percent in value, driven by a halving of on-premise activity.
But slower growth in off-premise sales through the second half of the year will also be a drag on performance. While sales for 2020 will be up a respectable 9.4 percent to $53.5 billion, they point to moderation in 2021 as the reopening of on-premise accounts and tasting rooms broadens.
“Because of the dramatic growth in Nielsen channels and other off-premise and three-tier channels this year, we’re probably going to see declines versus 2020 in those channels next year,” Moramarco said.
The shifts set the stage for a decade that promises to deliver scant growth in the total legal drinking age population and an anticipated decline in consumption as the population ages. Despite a lack of research into how alcohol consumption changes as people age, Moramarco feels its clear that wineries need to prepare for a more challenging environment by understanding their target market and making a case for the value their wines offer.
“There’s far more need for market share growth, and being able to understand how you grow your market share,” he said.