2020 was a year unparalleled in recent history, massively shifting consumer behaviours. This Market Bulletin examines the effects on the wine market in the United States of America (USA) including total wine sales by channel, shifting demographics, domestic category versus imports and, finally, how the Australian category has fared.
Total sales – did they rise or fall?
Usually, when looking at a wine market, it is rather easy to tell whether wine consumption has risen or fallen during a given year. However, since nothing about 2020 was straightforward, neither is total wine consumption in the USA. The topic has been up for much debate over the past 6 to 12 months with the extreme growth in off-trade sales balancing against several shutdowns in the on-trade. According to bw166, the total volume of still wines increased by 1.28 per cent in 2020 to roughly 343 million 9-litre case equivalents. However, total sales value is expected to be lower than previous years due to relatively higher prices in the on-trade (Silicon Valley Bank, State of the US Wine Industry Report 2021).
The American restaurant and bar sector, like in most other markets, has been one of the hardest hit industries during the pandemic. According to Nielsen CGA, total on-trade wine sales declined by 43 per cent in volume during the year ended October 2020 (report available here for Australian grape and wine sector levy-payers and exporters).
It will be a long road to recovery for the sector, with the National Restaurant Association reporting roughly one in six restaurants have closed for the long-term or permanently. Additionally, those that have re-opened are very cautious with their ordering, streamlining their wine lists and opting for brands with name recognition that will sell quickly (Wine Analytics Report, September 2020). This has affected American wineries, with a survey reporting that the on-trade share of winery sales dropped from 14.7 per cent in 2019 to 11 per cent in 2020 (Silicon Valley Bank).
On the other hand, off-trade sales have boomed, benefiting those brands more exposed to this channel. In the year ended December 2020, total wine sales in the USA off-trade grew by 13 per cent in value to US$17.8 billion and 10 per cent in volume to 170 million cases (IRI, report available here for levy-payers and exporters).
It is no secret that many in-person aspects of life have moved online in the past 12 months. Buying wine in the USA is no exception. The below chart (as shown in Silicon Valley Bank’s State of the US Wine Industry Report 2021) shows the surge in online sales from March 2020 and onwards.
Here are some examples of this trend in action:
- Wine.com reported 217 per cent growth in the first half of 2020
- Naked Wine reported sales growth of 65 per cent
- IWSR predicted 2020 year-end online alcohol sales would increase by 86 per cent to $5.6 billion, and
- Drizly reported that e-commerce penetration in the USA experienced 10 years’ worth of growth at the pre-COVID pace in just three months between March and May 2020.
(Source: Silicon Valley Bank)
Analysts predict that the online trend is here to stay, as consumers are unlikely to delete their online accounts completely once it becomes easier to access brick and mortar stores. We have now been in a COVID world for 12 months – the habits formed are becoming increasingly engrained in consumer behaviour.
Three tier system not unaffected
2020 also saw disruption in the three-tier system of alcohol sales in the USA. The diverging trend of more wineries and less distributors continued, with the number of distributors declining by 4 per cent in 2020 (Wine and Vines Analytics).
As the on-premise shut, distributors were left without on-trade accounts and receiving payments for already shipped orders was uncertain. Thankfully there has been some recovery in the on-trade and increased sales in the off-trade is balancing out that loss. According to SipSource, a provider of wholesale data, on-trade outlets used to receive 14.6 per cent of wholesale volume pre-COVID, and that fell to 11 per cent by June 2020.
E-commerce is forcing distributors to adapt, with companies such as Southern Glazers launching a business-to-consumer e-commerce team and the Wine & Spirits Wholesalers of America partnering with Drizly, an online alcohol delivery app.
Shifting towards a younger wine consumer
2020 saw Millennials step up their involvement with wine in the USA. Their share of consumption rose from 17 per cent in 2019 to 20.3 per cent in 2020. Meanwhile, the consumption share of the Boomer generation remained the largest but declined from 40.1 per cent in 2019 to 36.4 per cent in 2020. However, the concern for the American wine sector is that the Boomer generation makes up 70 per cent of the disposable income and 50 per cent of the wealth in the economy, and Millennials are yet to really engage with the premium end of the category (Silicon Valley Bank).
The other trend, highlighted by Wine Intelligence in their latest US Wine Landscapes 2021 report, is that regular wine drinkers (who consume wine at least once a month) are on the decline, while occasional wine drinkers (consume wine at least once a year) are on the rise. This indicates that new wine drinkers consume wine less frequently, which aligns with the fact that younger consumers are varying their drinking occasions between different forms of alcohol.
Domestic versus imported performance
In 2018, California had a record size winegrape crop of 4.28 million US tons. This, coupled with a gradual decline in the volume of consumption, led to an oversupply of domestic wine in 2019 and the start of 2020. However, the panic buying that took place with the advent of COVID-19, rectified this issue very quickly. Inventories quickly fell and smaller vintages have helped keep supply in balance.
With a domestic oversupply receding, and tariffs impacting on bottled still wine imports from France, Spain, Germany and the United Kingdom, imports of bulk wine increased by 9 per cent during the 2020 calendar year (Global Trade Atlas). The biggest contributors to this increase were Canada, Chile, and France. Total wine imports held steady, the increase in bulk imports balancing out the 3 per cent decline in bottled imports.
As previously stated, total off-trade consumption increased by 13 per cent in value during 2020, however, imported wines grew at a faster rate than domestic wines, 16 per cent and 12 per cent respectively. The source countries driving the growth in import off-trade sales are Italy, France, and New Zealand.
In the year ended December 2020, exports of Australian wine to the USA increased by 4 per cent in value to $434 million. Driving this increase were wines exported at an average Free on Board (FOB) value between $2.50 and $7.50 per litre; this segment of exports makes up 72 per cent of the value exported to the USA. While wines valued above $10 per litre FOB declined by 6 per cent for the year, the October–December quarter increased by 37 per cent for this segment, compared to the same quarter in the previous year.
Australian value in the off-trade increased by a similar rate, 5 per cent, to US$593 million. Much of the increase came from wines priced between US$4 and US$11 per bottle (up 4 per cent), while wines priced between US$15 and US$25 also increased, by 12 per cent (IRI).