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Post-pandemic wine consumption trends in the US market

Market Bulletin | Issue 313
14 May 2024
tagged with USA consumer trends
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The United States of America (US) is Australia's second largest export market by volume and value for the year ended March 2024.

Wine Intelligence[1] has also ranked the US as the most attractive wine market in the world for at least eight years in a row. The ranking is evaluated upon 50 key wine markets, based on a set of socio-economic factors (such as population, GDP, inflation) and wine market measures (such as domestic and imported wine volume, per capita consumption and market accessibility).

While several factors unique to this market have remained the same, such as the three-tier system, this Bulletin highlights the recent economic and wine market changes in the US, which are detailed in Wine Australia's recently-released 2024 US Wine Market Insights report.

Economic recovery from pandemic lows

Gross domestic product (GDP) is the monetary value of all goods and services produced within a country each year. GDP growth is a signifier of a strong economy, healthy unemployment rate and higher income for consumers.

The US has the largest GDP globally, according to data from the International Monetary Fund. However, it was not isolated from the economic impacts of COVID-19.

In 2020, the real GDP of the US declined by 2.2 per cent, almost as steep as the loss during the Global Financial Crisis in 2009 of 2.6 per cent, driven by large job losses and low consumer confidence during the pandemic (see Figure 1).

Fortunately, the economy started to recover in late 2020 and early 2021 with GDP increasing by 2.5 per cent in 2023, thanks to large stimulus packages from the Federal Government and vaccine rollouts.

Figure 1: Real GDP growth rate by year in the US 2001-2023

Source: US Department of Commerce

On the other hand, inflation increased from 2021 as low interest rates, global events relating to COVID-19 and supply chain constraints began to take an effect on consumer prices.

It was further exacerbated by the conflict in Ukraine, hitting 31-year highs in the US in 2022 at 9 per cent[2]. Pre-pandemic, inflation tended to sit between 1.5 and 2 per cent per year.

In response, the Federal Reserve had commenced a series of interest rate increases since the beginning of 2022which aided in bringing inflation down during the year.

However, inflation rose slightly in July 2023 to 3.2 per cent after eight months of decline. Despite this, the inflation rate has dropped significantly from its peak in 2022 and continues to trend downward into 2024, indicating a return to normalcy, post COVID-19.

Inventory build-up is forecast to rebalance in 2026

Figure 2, from the Silicon Valley Bank 2024 report, represents alcohol inventory, not specifically wine, but is useful to depict inventory build-up at the wholesale level.

From 2000 to 2019, wholesale alcohol inventory had been roughly 10 per cent of trailing twelve-month sales. When the pandemic occurred in 2020, consumers were not spending on travel or dining out.

The additional savings could be diverted to stay-at-home orders, more premium alcohol purchases and increased purchases from wine clubs. It is assumed that not all of this was consumed, and purchasers have additional stock of alcohol in their collection.

At the same time, there were supply chain disruptions leading to an uncertainty of supply to cope with the increased demand. Wholesalers and retailers also had elevated assumptions of future sales of higher-priced items resulting in increased inventory planning.

However, as depicted in Figure 2, the rise in inventory was not met with a commensurate rise in demand. From 2021 to 2023, consumers were feeling squeezed by high inflation and rising costs of food and beverages that exceeded increases in earnings. Consumers reacted by reducing purchases of luxury goods and services and were also likely to use their stocks of alcohol which had built up during the pandemic.

Figure 2: Wholesale alcohol inventory and sales

Source: US Census Bureau

At the end of 2023, inventories did start to decline through a reduction in shipments. It is expected that this trend will continue through to 2026 to rebalance inventory and sales.

Moderation and loss of share amongst younger consumers is leading to a decline in wine consumption

The growth of wine consumption in the US of the 1990s and 2000s, which has been closely tied to the Boomer generation hitting prime spending and wine consumption years[3], has tapered off in recent years.

Since 2015, the regular wine-drinking population has been gradually declining from 88 million adults to a pandemic low of 72 million in 2021. This was reversed in 2022 to 86 million adults. This may  have been due to Gen Z reaching legal drinking age and representing a small but growing share of the wine drinking population (see Figure 3). Although Boomers reached an average of 65 years in 2011 and have gradually retired, according to Wine Intelligence, in 2022, Boomers still make up the largest generation cohort of regular wine drinkers (41 per cent share). This is followed by Gen X and Millennials (27 per cent each) and lastly, Gen Z (4 per cent).

Figure 3: US LDA population trends (millions)

Source: bw166

However, the increase in regular wine drinkers has not translated to an increase in wine sales volumes.

One reason could be that for every Boomer that stops drinking wine, they are replaced by a younger consumer who is not as interested in wine. This is evidenced by the Harris Poll[4]: when asked which alcoholic beverage respondents were most likely to bring to share at a party, 58 per cent of consumers over the age of 65 years favoured wine whereas roughly only 30 per cent of consumers under 65 years favoured wine, and even less so for those between 21 – 34 years. Further evidence that drinking wine or alcohol beverages is falling out of favour among younger consumers is the Gallup poll conducted in 2023 to gather consumer views on health and alcohol.

The poll reported that more than half of consumers between 21 and  34 years viewed  consuming alcohol, even in moderation, as bad for your health, whereas just under 30 per cent of consumers over 55 years shared that view.

Secondly, wine drinkers are consuming less per occasion. Over the past five years, per capita consumption has declined by 2 per cent per year to 12.3 litres per person.

Moderation is the main driver of this, either due to health or financial reasons. Consumers under the age of 25 years are also increasingly spending less on alcohol as a share of their income since the 2000s[5].

Wine sales volume began to decline in 2019 and recorded a compound annual growth rate (CAGR) of -1 per cent over the past five years (see Figure 4).

The decline is driven by domestically-produced wine with a CAGR of -1.7 per cent from 2017 to 2022 whereas imported wine had a CAGR of 0.2 per cent.

Looking forward, volume CAGR is forecast to continue the same trajectory with a CAGR of -2 per cent, whereas value is forecast to stay relatively flat with a CAGR of 0.1 per cent for the next five years.

Figure 4: US total wine consumption

Source: Wine Intelligence

Sales of imported wine are outpacing domestic wine but also declined in 2023

Over the past 5 years, sales growth of imported wine in value has outpaced sales of domestically-produced wine (3 per cent growth per year versus 1 per cent)[6]. The drivers of this growth are French, Italian and New Zealand wines.

However, according to data from Trade Data Monitor, imported wine into the US peaked in 2022 and fell by 14 per cent in volume and 9 per cent in value in 2023. The decline in volume was driven by Italian, French and Chilean wines. By container type, the decline in bottled wine was driven by Italy and bulk wine from Chile.

Data from IWSR forecasts that growth in value will slow for both categories through to 2027 (2 per cent for imported wine and -1 per cent for domestic wine).

Nonetheless, in terms of market share, imported wine consumption increased from 27 per cent pre-COVID to 30 per cent in 2022 and is forecast to continue growing through to 2027 (Figure 5).

Figure 5: Imported versus local wine consumption

Source: Market Explorer

Silver lining in Australian bulk wine amid decline

By contrast, Australian wine sales had been experiencing a downward trend since early 2000s with a CAGR of -7 per cent in volume and value over the past 15 years. 

To put this into perspective, Australia’s market share in value reduced from 10 per cent in 2005 to 2 per cent in 2022.

Over the years, there has also been a shift in the ratio of unpackaged and packaged shipments. In 2005, Australian exports to the US comprised of 88 per cent packaged and 12 per cent unpackaged (to be packaged in market) whereas in 2023, unpackaged share increased to just under half of exported volume (see Figure 6). Economic and environmental factors are the driver of this trend as it is cheaper and more environmentally friendly to ship wine in bulk. 

Figure 6: Australian wine exports to the US

Source: Wine Australia

Taking a closer look at the trends during the pandemic, there was an increase in exports to the US in late 2020. This was due to a COVID-19-related surge in off-trade sales, where most Australian wine is sold, when the on-trade sector was heavily restricted. This trend reversed in 2021 when the on-trade reopened.

In 2022, Australian exports increased by 13 per cent in volume, driven by unpackaged wine as shipping challenges eased. In addition, the average price of unpackaged wine decreased by 20 per cent to $1.28 per litre. This may have induced importers to switch from other source countries due to more competitive Australian pricing. 

The decline in 2023 is driven by the easing of these unpackaged shipments, coupled with an overall reduction in demand.

How post-pandemic behavioural changes contribute to the on-premise struggle

According to Wines Vines Analytics, at its peak, the off-premise represented 90 per cent of volume share in 2020 due to COVID-19 restrictions (see Figure 7). 

From 2021 to 2023, wine consumers have been moving back towards the on-premise. The ratio appears to have shifted back to where it was in 2019 (16 per cent on-premise) but on-premise volumes remain low versus historical levels and restaurants are still struggling.

Figure 7: On-premise and off-premise sales volume

Source: bw166

Behavioural changes that have lingered post-pandemic are contributing to the challenging on-premises landscape.

One example is consumers continuing to purchase via e-commerce and wineries’ direct-to-consumers shipments due to convenience and cost-effectiveness. Consumers found they could enjoy much better wines with meals at home without the mark-ups, leading to an off-premise premiumisation trend.

This, coupled with smaller wine lists, and a decrease in the number of outlets due to closures, has created an incredibly tough environment for on-premise operators and suppliers.

Read the full US Wine Market Insights report.

[1]Wine Intelligence Global Compass 2023

[2]CPI - US Bureau of Labor Statistics

[3]Silicon Valley Bank report 2021

[4]The Harris Poll conducted in November 2021, Silicon Valley Bank report 2024

[5]BLS Consumer Expenditure Survey, Silicon Valley Bank report 2024

[6]IWSR data

This content is restricted to wine exporters and levy-payers. Some reports are available for purchase to non-levy payers/exporters.

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This content is restricted to wine exporters and levy-payers. Some reports are available for purchase to non-levy payers/exporters.