Are you ready to party? As in, hey we’re vaccinated, restaurants are open again, let’s-go-out-to-eat-and-why-not-splurge-on-a-bottle-of-champagne-happy-days-are-here-again celebration?
Silicon Valley Bank thinks so. In its annual report on the state of the U.S. wine industry, released Jan. 13, the bank predicts an increase in wine sales and consumption as the nation emerges from covid-19 restrictions on public gathering and restaurant dining.
Admittedly, they’re not going out on a ledge here — this prediction doesn’t require data to back it up. After a year of doom drinking in our bubbles while binge-watching cable news or British dramas on Netflix and munching sourdough discard crackers, we’re ready for an old-fashioned bender.
Not that we haven’t been drinking wine over the past 10 months. While restaurant wine sales took a hit that will resonate for years, sales overall benefited from the pandemic’s disproportionate impact on lower-income wage earners.
“Since wine is a beverage that tends to attract higher-income consumers, the net result was surprising strength in the grocery channel for higher-priced wines, and at the same time, we saw renewed interest in sales of lower-priced wine from shoppers looking for value,” the report says.
The outlook is not entirely rosy. “As hospitality, cruise lines, airport and airlines, concerts, sports and the like rebuild, there will be strong consumer demand and a bounce in overall sales that will gain momentum in 2021, but may not be sustainable into 2022,” the report says. Prices should remain steady, and consumers may continue to buy more expensive wine this year, as every day outside our homes becomes a special occasion. But in the long haul we’ll be more value-conscious. Again, not a great leap. Market tremors caused by the pandemic ultimately will not counter long-term trends that have shown lower demand for wine as consumers become more health conscious and a nascent anti-alcohol movement gains prominence.
But the report has interesting insights into how the pandemic has changed the way we purchase wine, perhaps permanently. Wineries and retailers who had already invested in e-commerce and direct-to-consumer shipping were able to adapt to the abrupt change in the market, and we consumers have become more comfortable with buying wine online and having it delivered to our door. “Online sales could easily be responsible for 20 percent of total sales before 2030,” the report said.
“Those wineries that evolved in 2020 were creative in their sales channels and recognize the permanent societal changes that will impact the industry forever will be successful in meeting the anticipated demand post-vaccine and beyond,” said Rob McMillan, author of the report and the bank’s chief wine analyst.
The growth in online sales will remain uneven. The U.S. Supreme Court on Jan. 11 declined to review a lower-court ruling upholding Michigan’s ban on out-of-state retailers shipping wine to Michigan residents. Advocates of direct shipping had hoped the court would overturn the ban, similar to a 2005 ruling overturning Michigan’s ban on out-of-state wineries shipping to state residents. The court’s refusal to hear the case leaves a murky patchwork of laws making it easier for us to buy wines online from wineries than from retailers. Who benefits? Wholesalers. Who loses? Consumers, who would like to buy wines unavailable locally from out-of-state retailers.
Wildfires on the West Coast reduced the 2020 harvest. Coupled with the pandemic-related boost in sales, this helped alleviate market pressure caused by oversupply of wine and reduced consumer demand. This, too, could be temporary, the report said, especially if the 2021 harvest is bountiful. This paradoxical logic would have winemakers hoping for a poor harvest, though certainly not a catastrophic one like 2020.
For several years, the bank’s annual report has watched the aging of the baby boomer generation — wine’s main customer base — with dread. In 2020, the pandemic made some boomers think of retiring earlier, reducing their wine purchases and drinking from their cellars, the report said. While Gen X is poised to become the major wine-buying age cohort this year, the real hope is that millennials will turn from hard seltzer and, well, grow up and buy more wine.
This year’s report sees hope in millennials’ buying habits. “The millennial cohort is the largest growth opportunity for the US wine industry but has just started to show interest in the wine category,” McMillan writes. “This is the cohort that needs to be excited about wine in order for the industry to see anything close to the growth rates experienced in the 20-year period from 1994 through 2014.”
The problem, he goes on to say, is that the wine industry is still marketing itself to the boomers. More on that next week.