Ups and downs for wine in 2021

By: Allen R. Balik

The wine market represents an ever-shifting landscape and challenges over the past two years certainly brought this into focus. A December 22 Shanken News Daily (SND) on-line post states that, “2020 off-premise [retail sales not restaurants and bars] surge allowed the wine industry to increase its overall volumes for the 27th consecutive year, but this year the total market is projected to suffer its first decline since 1993, according to Impact Databank [a Shanken sister publication].”

This does not necessarily tell the complete story. The sparkling wine category (including Champagne that suffered severe volume cut-backs in 2020) is a bright light in the total wine market. Spirits, fueled by pre-mixed cocktails, registered a marginal increase in 2021, while both beer and wine showed decreases. Some of those decreases can be attributed to strong competition in the early months of 2021 from the relatively new hard seltzer category.

Yet, as the year progressed seltzer sales have tumbled resulting in the cut-backs and withdrawal of a few large players and cancellation of various test market programs by others. This may be a silver lining for both beer and wine, but especially for wine given its mutually strong female oriented demographic appeal with seltzers.

The effects of the pandemic on wine sales (and to some extent other alcoholic beverages) were staggering. The virtually complete closure of restaurants in 2020 dealt a devastating blow to on-premise sales while the compensating increase in at-home dining was a clear benefit to on-line, winery direct-to-consumer (DtC) and off-premise sales.

Combined, these retail distribution channels profited from the volume (bottles sold) and value (dollars spent) lost in the on-premise sector. The largest growth went to well-known brands in the low- to moderate-price categories and alternate packaging such as cans and multi-serve wine-in-a-box.

In 2021, on-premise business somewhat recovered but is still below 2019. The off-premise business this year decreased from its robust 2020 numbers with renewed competition from restaurant re-openings and shifting consumer tastes.

Champagne and other sparklers from outside that legendary appellation are a shining light in an otherwise flat and declining market. Sparkling wine demand increased rapidly in spring 2021 and continued throughout the year versus their drop in 2020. Reuters reported from Paris on December 20 that Champagne sales have rebounded from the pandemic’s related troubles and are now about 10 percent by value ahead of their 2019 peak.

However, regulatory impositions by Champagne authorities (Compté Champagne) reduced the permissible yields for 2020 in response to the pandemic’s initial collapse in demand. This move was to ensure Champagne’s value and stability in a shrinking market but acted in reverse when demand increased dramatically in 2021.

Champagne’s larger houses, with significant reserves from prior vintages, were able to withstand the mandated 2020 harvest reductions, but smaller producers with less wine in reserve were hurt. The overall result was a reduction in Champagne’s worldwide availability that may have impaired its potential to achieve even larger annual gains.

The growth in sparkling demand has proved an additional blessing to producers in other growing regions. In a December 16 on-line post, Wine Business News indicated Spain’s Cava sales have increased 16.45 percent in the first nine months of 2021. Similar successes have been reported from Prosecco and elsewhere breathing new life into growers and producers large and small from their dismal 2020 experience.

There’s also better news for domestic sparkling producers. In the December 15 SND on-line post, Juan Banaag quoted RNDC’s (the second largest U.S. alcohol beverage distributor) CEO/president Tom Cole as saying, “…we’re looking to build our American-made sparkling wine brands.” This will be a big boost to producers across the country and may encourage others to hop on the quality sparkling bandwagon.

Beyond the successes of the sparklers, lies a minefield of issues for others. Overall, worldwide alcohol consumption decreased by six percent in 2021 (December 16 The Drinks Business by Jessica Mason), primarily due to pandemic closures in the hospitality sector.

According to the December 17 Meininger’s Wine Business International, one-sixth of wine growers in France ceased their operations over the last decade. Average vineyard acreage increased due to property sales and transfers as larger growers gained in vineyard holdings, while smaller independent growers drastically decreased in number.

Climate change with its spring frosts, drought, fires and disease pressures contributed to France’s smallest harvest since 1957 with production cut by nearly one-third. Similar reductions were also seen in other European growing areas.

Napa’s 2020 crop yield was cut by almost half due to drought, fires and smoke taint. Yields in 2021 were better, but continuing drought resulted in smaller berries and lighter cluster weights resulting in a crop below expectations. Hopefully, this season’s more “normal” rainfall with bring on a brighter 2022.

In a different direction, Australia is facing a massive wine glut, partially induced by punishing import tariffs imposed by China, their largest export market, due to a massive trade dispute. South Africa is also suffering with large inventories and decreased consumption because of the government’s mandated prohibition of alcohol sales and distribution during multiple COVID shut downs.

Conventional wisdom says that when supplies are reduced, prices must increase. This may be true when tracking an individual brand or the supply from a specific growing area. Yet, as we saw with the banking collapse in the late 2000s and again with our recent “great recession,” as prices rise the wine-buying consumer tends to look for alternatives in a familiar and comfortable range.

W. Blake Gray in his December 23 Wine-Searcher “Popping Wine’s Price-Hike Myth” provided noteworthy opinions from industry marketing experts. They all agreed that the expected price increases from a supply reduction will not hit the wine market to the extent of other products including spirits.

In his article, Gray quoted Jon Moramarko, a well-known and highly respected beverage alcohol marketing professional. Moramarko astutely pointed out, “…[for whiskey], brand loyalty is the reason prices go up even though they don’t for wine. People who like Jim Beam will keep buying Jim Beam, whereas if you like Pinot Noir and Oregon goes beyond your budget, there’s always New Zealand and Chile.”

Many consumers tend to seek out their favorites while others, when purchasing wine, are open to exploring additional brands, growing areas, varieties and price points. This consumer flexibility should (by historical reference) keep the lid on overall wine pricing, despite supply shortages in the market.

In other stressed economic times, the term “trading down” has been applied when consumers made difficult buying decisions based on market conditions. However, with an unparalleled selection available throughout all sectors of the market, I see this as a consumer opportunity and a potential stabilizing factor.