The US wine market’s 20-year bull run is over. And after studying the recently released rash of statistics from Nielsen, the Silicon Valley Bank (SVB), the Wine Market Council and others, it seems the bull ring was never very big. While the size of the alcohol market has grown to $216bn in 2015, up from $150bn 10 years ago, wine’s share hasn’t gotten larger.
Between 2005 and 2015, wine held a constant 14.8% to 14.9% market share, according to Nielsen. Beer’s share declined by almost 5% over the same period, while spirits made the most gains. “To me, it simply looks like the number of wine drinkers has not grown a lot over the years,” says New York University economist Karl Storchmann. “But then there is also the (much larger) group of non-wine drinkers. It seems they have not been converted.”
Rocky road ahead
There are 234m adults in the US, up from 209m in 2005, according to the Census Bureau. Per capita consumption has risen in that time to 3.84 gallons (14 L) from 3.11 gallons. But more than 30% of the adult population doesn’t drink. And while wine is now available in many more places than it was 20 years ago, from box stores like Walmart to warehouse clubs and even drug stores, wine sales volume is down, particularly for wines costing under $8.00 a bottle. Those that sell for between $4.00 to $8.00 are down almost 2%; those that sell for $3.99 or less bottle are down more than 5%, according to Nielsen.
Such wines – typically large volume wines from California’s Central Valley – make up roughly 60% of the US market. They were the “gateway wine for the (baby) boomers,” SVB’s Rob McMillan explains.
But it’s “a market that is dead or dying,” he says, noting that imports now make up 27% of the market, or more than one in every four bottles. Premium producers shouldn’t feel safe either. “This is an area where the premium wine producers will feel the competitive pressures far more than they ever have in the past,” says McMillan, citing declining EU consumption, more New World styles, the continued strength of the US dollar, and marketing support as driving imported wine sales.
It was a message repeated at the Unified Wine & Grape Symposium in Sacramento, California – that imports had taken a bite of the market. Ten years ago, California was credited with producing 90% of the domestic wines sold in the US. It now accounts for less than 70%. And it’s everyday wines, or those under $9.00 a bottle, that are losing out to other beverages.
DtC comes out ahead
The news wasn’t all bad. The Direct-to-Consumer (DtC) method used by smaller wineries and wine clubs to get their wares into the customers’ glass handled more than 4.2m cases in 2015. That was about $2bn in value or between 4% to 6% of the market, according to ShipCompliant, with an average bottle price of $38.23. Direct sales are the lifeblood for small wineries, said Jon Fredrikson, of the wine consulting firm Gomberg, Fredrikson & Associates.
Americans in general are trading up, so that while the number of wine bottles sold is expected to decline, the price for individual bottles will rise. “Wine drinkers are trading up because of growing incomes,” NYU’s Storchmann said. “Note that over the last years, we have enjoyed a period of solid income growth.”
Danny Brager, The Nielsen Company’s vice president of beverage alcohol client services, told the Wine Market Council he expects “people to keep trading up…the average cost of a bottle of wine for the consumer is about $10.00 now. It was $8.00 a couple of years ago.” Nevertheless, he said raising prices in “a market that is as fragmented as our category, as competitive as our category, is a pretty risky thing to do.”
His warning comes after almost two-thirds of the wineries surveyed by SVB said they expected to increase prices this year. SVB found that wines selling above $10.00 may be able to hike prices by a maximum 8% - while those at the lower end of the market may need to discount to move their wares. Cheaper imported wines mean US consumers will not only have more Italian, French, Spanish and Portuguese wines to chose from, but also more from South Africa, Greece and Austria. And consumers are less loyal than previously; the Millennials, now at legal drinking age, are proving adventurous, spreading their money among wines, craft beers, ciders and cocktails. The result has been a sharp drop in restaurant wine sales. Both Brager and McMillan cited “pre-party” consumption by this frugal group as a prime reason for the fall. Simply put, more people are having drinks before they go out and then ordering a glass of wine instead of a bottle with dinner.
Both McMillan and Fredrikson also see further consolidation as larger wine producers buy up smaller brands and properties and the wholesale distribution network shrinks because of mergers. The top three wine companies produce or import about half the wines sold in the US and the top four wholesalers cover 60% of the market.
So it seems there is more fighting ahead in the bull ring.
