Wine Sales Defy Doom and Gloom
Two months into the Covid-19 economic crisis, the outlook for the wine industry is … surprisingly great.
That’s the biggest takeaway from an unusual mid-year State of the Industry update session hosted Thursday by Rob McMillan, one of California‘s leading wine industry analysts.
Wine sales are up by enough in the grocery and chain stores measured by Nielsen to offset the complete collapse of restaurant and tasting room sales. Retail wine sales by dollar value are up 30.7 percent during the pandemic, Nielsen reports, and sales are up 27.7 percent by volume, meaning that people are actually spending more per bottle on wine than they did before.
Nielsen senior vice president Danny Brager estimated that overall wine consumption from all channels is up 5 percent; McMillan thinks it’s closer to 10 percent.
“There’s going to be two sets of consumers: the constrained consumer, and the insulated consumer,” Brager said. “The insulated consumer has more money to spend because they’re not spending on trips and baseball season tickets and other things they might want to do right now. The constrained consumer, a lot of them are going to be younger.”
Targeting the young
Yet even younger consumers are drinking 35 percent more alcohol than pre-pandemic, said Max Heinemann, Nielsen wine and spirits client manager – though they are drinking more spirits and hard seltzer than wine.
“Unemployment has fallen hardest on people who can least afford it,” McMillan said. “They weren’t, before, your customer. That’s partly why, for smaller wineries, we’ve been able to offset the loss of tasting rooms.”
McMillan told Wine-Searcher after the online session that the pandemic has forced wineries to make some changes – especially selling more wine online – that they had needed to make for years, but had put off.
“I think the industry needs leadership right now,” said McMillan, executive vice president of Silicon Valley Bank’s wine division. “We have to talk about our fears. But we’ve also got to talk about the other side, the opportunities.”
Some of these opportunities are good news for consumers. McMillan said that the ongoing oversupply of grapes is allowing wineries to make cheaper wines, perhaps with different brand names than their main lineup, that will be more attractive to younger buyers.
The time to do that is now, McMillan said, because when states do allow winery tasting rooms to open, he expects the customers who visit to be much younger than the average age at tasting rooms pre-pandemic.
Heinemann said that early data shows that older Americans have been more reticent to go out when restaurants reopen, so don’t expect restaurant wine sales to rebound quickly. Pre-pandemic, more than half of the people who bought wine in restaurants were older than 55.
“But in the states that have opened, only 4 percent of consumers in restaurants are over 55,” Heinemann said.
Boomers won’t come to tasting rooms right away either, McMillan said, but Millennials will.
“Millennials are a large cohort,” McMillan said. “They’re in careers. The ones who were already college graduates, they probably held their jobs. Those are the ones that buy wine. Now the other side of that is, do we provide wine at a price that they will enjoy? With an oversupply of juice, we have an opportunity to provide wine at a good price. When they’re looking to come out of their holes, maybe they’re going to try wine tasting. You don’t have sports. You can’t even go to the beach right now. Where are you gonna go? You don’t want to get on a plane and go to Italy. In this one particular time, we can have an unbelievable amount of attention to wine country.”
Return of the family dinner
While tasting rooms should adapt to Millennials – especially by being more fun – McMillan said wineries need to reach out more often to their older customers.
“People who are sheltering in place have had to have family dinners,” McMillan said. “And guess what? They’ve wanted to have wine with it. Even if it’s a can of chili and a bottle of wine. We’ve established new habits in this country. Companies have figured out that working at home works. You’re going to have two-income couples where both people are home at 5pm, because they don’t commute. We actually have an opportunity we’re not going to see in our lifetime, with people dining at home. You’ve got to figure out how to get on people’s dining-room tables.”
To that end, many wineries have rapidly repurposed their tasting-room staffs into sales-outreach staffs, with phone sales making up 10 percent of the average winery’s total sales in the past two months, SVB reported. E-commerce accounted for less than 3 percent of the average winery’s sales before the pandemic; in just two months, that has increased to 16 percent.
The average bottle price of wines sold online is going down. Brager said that last year the average bottle sold online by Napa Valley wineries cost $69; this year, it’s $52. But he said that represents a lot of new customers who weren’t buying Napa wines online last year, and are looking for something cheaper.
“There’s going to be some nice deals in wine,” said Jeff Bitter, president of Allied Grape Growers. “We’re heading into a period where we could see some retraction, not on consumer interest in wine but in the price points they buy at. I think we’re going to end up in California offering some very nice wines at the price point they’re paying.”