Drink More Wine. Help to Grow the World Economy

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Drink more wine

The year was 2020, and I, among others, spent US$326.6 billion on wine. Thanks to the pandemic, we wine drinkers are finding solace by drinking more wine, pushing revenue to a projected US $434.6 billion by 2027, representing an increase of 4.3 percent between 2020-2027.

  1. The US represents a wine market estimated at US$88 billion (2020) while China (the world’s second largest economy) is forecast to reach US$93.5 billion by 2027.
  2. Japan and Canada are predicted to grow at 1.3 percent and 3.1 percent respectively between 2020-2027.
  3. Germany is likely to grow by approximately 2.2 percent during this time period.

Dessert wines (i.e., Sauternes/France; Tokaji Aszú/Hungary; Muscat/Italy) are a growing category in the USA, Canada, Japan, China and Europe and expected to grow 2.8 percent. These regional markets represent a market size of US$43 billion (2020) and likely to grow to US US$53 billion by the end of 2027 (businesswire.com).

While some wineries had to close because of the pandemic, approximately one-third managed to have better sales than the previous year. The larger producers rallied and improved their skill set to get wine into bottles, onto shelves, and into the hands of consumers.

Lessons Learned

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Sales and distribution challenges were plentiful: Premium and luxury producers no longer had restaurant and hotel dining portals, tasting rooms were closed, and large producers were short on product to redirect to grocery and drugstores. The west coast experienced fires that started in California and spread through Southern Oregon destroying hundreds of thousands of tons of grapes in these states.

The bad news was balanced by good news with the average family winery recording internet sales increases from less than 1 percent of sales to more than 10 percent of total sales. Wineries with good customer relations were getting calls for product and phone sales became an important source of revenue almost overnight with digital video sales replacing many in-personal experiences.

The ongoing industry-wide issues did not disappear. The anti-alcohol movement continued, health-minded young consumers continued to sit on the sidelines, and an absence of investment in digital sales continued to require attention. There are also the concerns with surging prices of dry materials, paucity of supplies across-the-board, price and delivery time increases for glass bottles, wooden crates, boxes and pallets.

Some suppliers are asking customers to switch from wood to cardboard; however, there is pressure on paper and cardboard when it comes to deadlines and pricing. In some cases, raw materials have increased by 50 percent. Glass manufacturers slowed the pace of production in 2020, and they are not anticipating a strong recovery any time soon. With boomers retiring in large numbers because of Covid, the need to enlist younger men and women into becoming wine consumers has become critical. 

Crystal Ball Gazing

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There is a bright future for the wine industry, however, the realities of a morphing marketplace must be addressed. From 2020 and going forward, more people will be working from home, consumers will be relocating to suburbs and these growing trends mean that online purchases will be taking consumers away from other existing channels. Restaurant sales will return as restrictions become less stringent with locals supporting dining out; however, the wait for the return of tourists will take patience. Restaurants are likely to redesign service, moving away from the full-service seated model to new revenue generating strategies especially home delivery and curbside to-go models; however, these formats do not encourage alcohol sales resulting in many restaurants reducing wine inventories and streamlining offerings.

Restaurants

Small independent restaurants were hit the hardest and they have been a primary point of sale for wine produced by small family wineries. The winning restaurants were drive-thru, curbside pickup and / or app-based ordering and home delivery (i.e., pizzerias, delis, food trucks, fast food and coffee shops). The largest restaurant closure rates were in states with high urban rents (California, Nevada, Hawaii) and according to Yelp, 61 percent of restaurant closures will be permanent; however, new capital is likely to come from entrepreneurs who will begin start-ups and, over a 4–5-year period, gradually replace many of the permanently closed properties.

There is hope that city governments will continue to allow street closures/expansions for outdoor dining although Mintel research noted (September 2020) that nearly 60 percent of diners were uncomfortable dining outdoors. To encourage indoor dining, restaurants have spent huge amounts of money to install air purifications systems. Whether advanced filtration systems will encourage a diner to come back to a cheek-by-jowl eating experience is yet to be determined. In the interim, the industry is focused on meals-to-go, walk-up service, and curbside pickup.

Business Travel

Business travelers have been a large profit center for hotels, airlines and restaurants in major cities and wine sales in these sectors will unlikely see growth without this market. In the projected 2+ year recovery period, business trips are likely to be shorter and smaller with large industry trade events coming later.

Cost of Service

According to Nielsen, it costs $1.02 for a 12-ounce serving of beer off premise, $0.88 for a 1.45- ounce serving of spirits and $1.51 for a 5-ounce pour of wine. This means wine is 72 percent more expensive to serve and explains why the lower price per serving is a clear part of the success story of spirits. With fewer and/or smaller fine dining and busy bar options, and an increase in takeaway, it is likely that alcohol beverage lists will also be slimmed down and simplified.

Alternative Packaging

The growth rate of 750-milliliter bottles has dropped along with smaller package sizes including 375-milliliter bottles, Tetra Packs, cans and 500-milliliter bottles. The smaller sizes were growing in popularity pre-covid and may pick up acceptance going forward.

If the 750-milliliter bottle is no long popular – what is growing? Larger formats – everything over the 1.5-liter category especially the 2 or 3-liter group which is capturing premium bag-in-a-box with a growth of 50+ percent.

The value play is focusing on reducing packaging costs. As boomers retire, they will join millennials as frugal consumers and change consumption and spending; however, it is hard to drink good wine and switch to a lesser quality experience…it is the premium 3-liter package that meets this need. Younger consumers who are frugal may find the 3-liter premium box a good purchase and for a young family staying at home for lunch and dinner, the premium box may be a right answer.

Varietals

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Chardonnay continues to be the most popular varietal; however, its growth rate continues to be a negative 2.7 decline; merlot shows the worst decline – at almost 10 percent. The bloom is off rose with a growth rate slightly below zero.

Red blends made a comeback in 2020 after a decline in 2019 and showed a 3.9 percent growth. Sweeter, specialty wines show impressive growth especially with agave-based wines (wines made from fermented blue agave; fortified by blending with blanco tequila) that blur the wine/spirits categories and play off the popularity of tequila and margaritas showing growth of 100 percent. Agave wine is lower in alcohol than tequila and plays to a health-minded consumer looking for fewer calories. The product also draws in Hispanic consumers who are accustomed to the product which has been sold in Mexico. Continuing in popularity are prosecco, sangria and sauvignon blanc.

Market Segments

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Baby boomers (70 percent of the disposable income and 50+ percent of wealth in the US) continue to be the largest consumers of wine. Currently only one percentage point separates their consumption from Gen X (born early-to-mid-1960s through late 1970s to early 1980s) so they cannot be considered the dominant group. Millennials (born between 1981 and 1996) are the largest growth opportunity for the US wine industry who have just started to show interest in the wine category. This is the group that needs to become excited about wine in order for the industry to see any growth rates experienced in the 20-year period from 1994 through 2014.

Millennials are not active in the premium wine category although they are energetic in the purchase of luxury goods; approximately 20 percent of this group consume wine although 33 percent purchase luxury goods. Research suggests that the millennials are slow to jump into the premium wine purchase arena because of an early preference for craft beer and spirits, questions about health issues linked to alcohol consumption and a delay in establishing careers, families and wealth as compared to earlier generations.

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The wine industry should note that young consumers want more from the brands they support. While status seeking boomers need to show-off their wealth and success, the millennials prefer to be informed about soils, harvest dates, pH, the winemaker and a wine score – so they can sound knowledgeable among friends and colleagues without being considered a “show off.”

Wineries interested in capturing the young market segment should focus their marketing activities on issues such as social justice, equity and diversity, recycling water, avoiding the use of glyphosate, getting LEED Certification, using biodynamic and organic farming methods. At this time, almost none of this information appears in sales, public relations or marketing campaigns or on winery websites.

More Than Terroir

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In the next decade, the wine industry will morph into something new. There will be continued growth with Chinese consumers including new wineries (i.e., Silver Heights Vineyard/Ningxia Hui Autonomous Region; Grace Vineyard/Shanxi Provence; Chateau Changyu AFIP Global/Miyun District, Beijing), and increased consumption.

Climate change and the adoption of technology by growers, winemakers and retailers will impact on the way we buy and drink wine. Climate change is creating new wine regions at latitudes once considered to be unsuitable for making wine. Sweden, Norway and the Netherlands are starting to develop world-class wines because of the warming trends.

From a technology perspective, drones and robots will increase their presence in the vineyard. The new technology is improving the growing process with sensors in the ground leading to advances in soil management and helping grape growers determine the best time to water vines. Flying drones are checking for signs of disease and drought and robots, with scissor-like hands are roving the vineyard to prune vines.

More and more winemakers are starting sustainable farming methods with some using solar power in the wineries and others adapting logistical supply chains in the search for more eco-sustainable solutions that will minimize overall carbon footprint.

As the wine drinker becomes globalized, they do not care about appellation or fermentation or other characteristics that distinguish a wine. They are looking for easy approachable wines that taste good. In many cases, wine brands are becoming similar to traditional supermarket brands and that means wine labels are going to be more fun, innovative and important.

To address the problem of wine counterfeits, technology is creating a blockchain-based authentication and trust system. The blockchain technology is a decentralized, distributed ledger that records the provenance of a digital asset that permanent and unassailable, making it perfect as a way to authenticate a particularly rare bottle of fine wine (i.e., Chai Wine Vault).

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“Either give me more wine or leave me alone.” ― Rumi

© Dr. Elinor Garely. This copyright article, including photos, may not be reproduced without written permission from the author.

About the author

Avatar of Dr. Elinor Garely - special to eTN and editor in chief, wines.travel

Dr. Elinor Garely - special to eTN and editor in chief, wines.travel

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