Outlook and Trends: What We Can Learn from 2020
February 10, 2021
‘We are not all in the same boat. We are all in the same storm.”
The above quote from a poem by writer Damian Barr went viral in April 2020 when Mr. Barr posted it to Twitter. “Some are in yachts,” he continued, and “some have just the one oar.” The poem is about staying non-judgmental and being kind. It was retweeted a couple thousand times before it was shared widely by the Wall Street Journal.
If you were a large wine company with national brands distributed in chains and club stores in 2020, you were killing it and your ship was cruising.
If you were a medium-sized winery with a mix of restaurant sales and off-premise placements, you were paddling fast to regain lost revenue.
If your winery depended exclusively on tasting room sales or restaurants, you might have pivoted toward phone sales, e-commerce, or leaned on your wine club—and were probably treading water, if not struggling to keep afloat.
The year 2020 started out seemingly normal. Events like The Unified Wine & Grape Symposium and Wine Business Monthly’s Innovation & Quality (IQ) Conference welcomed guests; International travel continued. Wineries were set to implement 2020 business plans.
Then came the initial shelter-in-place orders of late March.
It seems like it was a very, very long time ago, but think back to the trends in the wine industry prior to the March lockdowns. Overall, wine sales were decelerating in 2019 and there was an oversupply of grapes and bulk wine following the large 2018 harvest. After two decades of growth, sales were flat. People in the trade finally acknowledged a slowdown—even though we had experienced three years of deceleration. Growth in direct-to-consumer sales wasn’t as robust as it had been. Spirits, hard seltzer and alternative beverages were taking market share from wine. On top of that, wildfires and power outages occurred at the height of the 2019 tourist season. At the time, the overarching belief was, “What else could go wrong?”
Over the decades, we’ve learned that people drink in good times and in bad. As millions of Americans confined themselves to their homes, retail sales surged because consumers stocked up in preparation. The top-line numbers indicate the industry withstood the COVID-19 crisis relatively well in 2020, with overall wine sales seeing double-digit growth in the off-premise.
It was revealed that wine sales volume in the retail channels tracked by Nielsen would need to rise by 22 percent to make up for the on-premise losses. However, preliminary year-end data indicated retail sales rose 16 percent. There were reports that an e-commerce surge was making up for lost tasting room sales but, while that was true for some, it wasn’t the case for most wineries.
Big national brands did exceptionally well, with millions of additional cases sold from brands such as Bota Box, Stella Rosa, Josh Cellars and Barefoot. In addition, consumers gravitated toward boxes and large formats.
“During 2020, consumer behavior shifted. Through numerous data sources, we’ve seen an increase in both retail sales and the number of retail buyers since the onset of the pandemic—around four million new consumers,” E. & J. Gallo chief marketing officer Stephanie Gallo said in an email. “We understand not only the critical importance of continuing to attract these new consumers, but also of holding their interest once they are in the category.”
The Trends That Shaped Our Year
Ebbs and Flows in Business Climates
Beverage alcohol consultant Danny Brager likened 2020 to four different years rolled into one. First, the period before the lockdowns was “normal.”
Next came the pantry loading period, with massive channel shifting as lockdowns were initially enforced. At this time, no one knew what was going to happen. Gomberg-Fredrickson reported that California wine shipments declined more than 6 percent in the second quarter, then recovered in the third quarter. During the first nine months of the year, shipments within California fell 14 percent versus a year earlier, while out-of-state shipments increased 2 percent. This resulted in a net decrease of 1 percent, for a total volume of 185 million 9L cases. Declines in California, Oregon and Washington were driven by reduced activity at wineries, primarily for the smaller producers.
In the summer months, there was a leveling out, and consumers weren’t going to the restaurants or bars that were opened in the numbers needed for the establishments to flourish. By July, tasting rooms were generally open but activities were restricted to outdoor spaces. Then in August, freak lightning storms sparked a series of wildfires and power outages just ten months after the 2019 wildfires, and the air was thick with smoke.
Next came the holiday period, as more lockdowns were enacted before Thanksgiving, shutting tasting rooms and restaurants back down—but even at home, it turned out that many weren't celebrating much.
“Large wineries are doing well, and medium-sized wineries had an initial bump in the April through July time frame,” Chris Indelicato, president and CEO at Delicato Family Vineyards, told WBM. “Now it's getting tougher out there and on-premise is not recovering.”
Thanksgiving didn’t deliver the sales bump the industry had come to expect over the years. Early in the crisis, the correlation between shutdowns and off-premise sales spikes was strong and many had hoped that the fall shutdowns would also spur a spike in retail sales—but it never happened. Christmas week sales were expected to look a lot like those at Thanksgiving.
“November took a total dive. It's a very curious thing,” Rodney Strong Vineyards’ president Carmen Castaldi said. “We think December is going to be the same way for the whole industry. Distributors came in thinking it was going be bigger than usual because of impending pantry loading but, to the contrary, it took an abrupt retrench back.”
In the 12 months ended November 2020, retail channels tracked by Nielsen came to $20 billion and 209 million cases, while DTC came to $3.65 billion off 8.2 million cases. Both channels were up over the previous year, but the growth rates were lower than what was seen prior. Average DTC bottle prices dropped. Consumers who hadn’t previously purchased online before were now willing to try their hands in the channel at more mainstream prices. Producers adjusted prices accordingly to move inventory.
Private label wines grew double-digits in the retail channel, in tandem with the overall market, but didn’t take additional share from branded wines.
Pivoting from On-Premise to Retail
A lot of the medium sized wineries couldn’t pivot to retail sales immediately. Moving additional volume from restaurants into the retail channel isn’t something you do in one meeting, especially if people aren’t looking to stock new wines. “There's a shortlist of brands that can actually make that pivot to off-premise,” JaM Cellars co-founder and chief executive John Anthony Truchard said, “Because there’s already demand for the brands.”
That said, there were allocations of smaller on-premise lines that eventually made it into retail, offering an opportunity for consumers to try wines they might not otherwise have been able to afford or might not have had access to.
“There may be some long-term silver linings, because wine changed sales outlets from on-premise and more expensive places to off-premise and clubs and other areas,” Alex Ryan, CEO at Duckhorn Wine Company, said. “It’s a series of puts and takes. We're probably still adding up the puts and takes to see what really occurred.”
Continue reading "Outlook and Trends: What We Can Learn from 2020," starting on page 16 in the February 2021' Wine Business Monthly.