Over the past several weeks, two key industry reports have indicated the glass is half empty. First, from Silicon Valley Bank’s State of the Wine Industry Report 2023, one writer recapped, “Younger consumers are not reaching for wine in anything like the older consumers did.” Many other writers conveyed similar points. Second, the 2023 Direct to Consumer Shipping Report by Sovos/ShipCompliant and WinesVines Analytics, resulted in headlines like “DTC wine volume and values fell in 2022.” While the points are both technically correct, looking deeper into the data provides positive highlights for the wine industry.

Looking at the DTC report, not enough focus was placed on the bubble the industry saw in DTC shipments during the pandemic. The below chart shows a linear trend since 2009. The industry saw abnormally large increases in DTC shipments, well above the trend line, driven by the pandemic. While consumer spending declined in 2022, it merely reverted to the pre-pandemic trend.

A key chart from the Silicon Valley Bank report also dealt with direct-to-consumer sales by age. The stated highlight is the lower interest in wine among younger consumers. However, demographic dynamics are a significant driver of that as the US population has aged over the same time frame significant fact that has to be considered is the changing demographics during this period. Additionally, the Baby Boomer generation has been the driving force of the wine industry growth over the past several decades. The concentration of DTC shipments in the 60+ age band is merely a continuation of this trend.

Importantly, looking at overall spending by age group (rather than the share of spend), every age group has been increasing its DTC spending over time, including the younger age groups.

Refining the data even more, the below chart shows DTC spending per capita by age band over time. Importantly, the per capita spending of 21 to 30 years old has been increasing at a faster rate versus the 61 to 70 age band. The over-70 age bands have seen the highest increases primarily driven by increasing population sizes in these age bands.

Overall, the wine industry is likely in better shape than recent headlines might indicate. However, some headwinds need to be addressed in an evolving market – in particular, the economic situation faced by younger consumers, as exemplified in a recent Buzzfeed article:

• “Their Way Of Life Is No Longer Available”: People In Their 20s And 30s Are Sharing The Realities They Wish Their Parents Understood…. “I wish they understood how the definition of ‘success’ has changed. My folks lived on one teacher’s salary, bought a home and cars, raised three children, had no student loan debt, and retired at 65. That way of life is no longer available to future generations.”

Leveraging history as a guide, while the industry saw significant declines in the 1980s, – this decade introduced Wine Coolers and White Zinfandel, introductory products that ultimately brought the Baby Boomers into the industry, seeding the growth in the 1990s and beyond.

There are several steps the wine industry can take to help further entice consumers to the category:

• For young consumers, pricing is a limitation which is a problem for the Wine industry – in 2022 the average price of a serving of Wine at retail was $2.29,$1.38 for Beer, and $1.12 for Spirits. Wine need not lower prices but needs to communicate value better.
• With Spirits the growth driver of the industry over the past five years, another option is to create new products to compete with these key drivers: Tequila and RTDs. This is easier to say than do but would be akin to the introductory offerings of the 1980s, Wine Coolers and White Zinfandel, that helped trigger the success of the 1990s.
• A third option is to focus on the link that drove wine beginning in the 1990s – wine was a meal accompaniment. In the 1990s, this meant more traditional varietals wines that paired well with European cuisine. Today, pairings need to appeal to the more diverse younger demographic with similarly diverse food tastes, likely requiring a different varietal focus.

The wine glass is indeed half full. The industry only needs to find ways to fill it further.

The first look at the US Beverage Alcohol market using bw166’s proprietary methodology shows that the Beverage Alcohol Servings Index dropped from 127.37 to 127.20. Total servings of Beverage Alcohol (generally 12 ounces of Beer, 5 ounces of Wine, and 1 ½ ounces of Spirits) entering the market fell by -0.13% in 2022. Generally, the index has averaged growth of 1.2% a year over the past two decades. In 2021 the growth was +3.3%, attributable to market disruption caused by the pandemic and supply chain issues.

Servings in relation to the Legal Drinking Age population are measured by Serving Index per LDA, which dropped from 103.7 in 2021 to 102.6. Effectively the number of servings entering the market per LDA dropped by -1.1%. The Servings Index per LDA has averaged 102.7 over the past twenty years, so the index has returned to the norm.

Three key factors have disrupted the Beverage Alcohol market since 2019. The first was tariffs on certain wine and Spirits products from Europe, which dropped imports of the impacted products. The second was the pandemic which caused significant channel shifts from the On-Premise to the Off-Premise and subsequent shifts that benefitted major brands in key retailers. The third impact was supply chain disruptions that altered normal ordering patterns in the market.

The bw166 analytics rely on tax-paid shipment data and customs data to track the total US Beverage Alcohol market by volume. These sources provide a view of 100% of the market, unlike other data sources, which only provide a view of a portion of the market that cannot be extrapolated to the total market. Historically over many decades, these trends have tracked other measures of consumption by +/- 0.5%. Over the past three years, the discrepancy has increased to an estimate of +/- 1.5%, driven by the factors mentioned above.

Beer entering distribution declined -2.5% to 204 million barrels, driven by domestic declines offset by import growth. Another factor driving the Beer market was the change in the Hard Seltzer market. Consumer spending on Beer increased to $135 Billion, +6.5%, driven by a channel shift back to the On-Premise.

Spirits entering distribution increased +7.0% to 289 million 9L cases, driven by imports, RTDs, Tequila, and domestic Whisky. The growth of these categories was offset by declines in Vodka and Rum. Consumer spending on Spirits increased to $101 Billion, +13.0%, driven by a channel shift back to the On-Premise. The Spirits volumes include Spirits-based RTDs but not malt-based beverages with Spirits branding.

Wine entering distribution declined -3.8% to 453 million 9L cases, driven by declines in flavored wine beverages that were competing with hard seltzers and Vermouth, which saw an increase during the pandemic by home mixologists. Traditional still wines were up +0.7%, and Sparkling Wines were up +3.5%. Consumer spending on Wine increased to $84 Billion, +4.5%, driven by a channel shift back to the On-Premise.

The Beverage Alcohol industry tends to assess performance based on trends versus the prior year. Our view of the market is that overall trends were almost back to normal by the month of October 2021. By this date, many of the tariff issues, channel shift issues, and supply chain disruptions had normalized. The meaning of this is that rolling twelve-month comparisons should give a true comparison for twelve months ending September 2023. Until then, there will continue to be noise in the data from these three major disruptions.

Sourcing and Updates of the bw166 methodology:

The bw166 analysis relies on TTB and state beverage alcohol tax data, US Bureau of Economic Analysis, Customs import data, Census Bureau Analysis, Bureau of Labor Statistics data, Financial reports of public companies, Syndicated data such as retail scan data, and constant monitoring of industry news and reports.

For the calculation of Servings, Beer is estimated at 12 ounces per serving. Spirits have been updated to use 1 ½ ounces for most Spirits products, 3 ounces for cordials, and 6 ounces for RTDs. Wine has used 5 ounces per serving except for Flavored Wine beverages, which use 12 ounces per serving.

The reports have expanded the use of State tax data. With this expanded data, the December TBA Overview includes a 5-year retrospective of state-level Beer, Spirits, and Wine information from 2017 to 2021.

Total Beverage Alcohol:

• Total beverage alcohol imports (including bulk and packaged) grew +11% by value over the last twelve months and grew +5% by value over the last three months. 39% of all imported beverage alcohol by value came from Mexico over the last twelve months.

• Total beverage alcohol exports (including bulk and packaged) grew +30% by value over the last twelve months and grew +1% by value over the last three months. 29% of all exported beverage alcohol by value went to Canada over the last twelve months.

Each of the bw166 Import and Export Reports (for Beer, Spirits, and Wine) enables tracking Beverage Alcohol imports and exports monthly for volume, value in USD, and value in local currency for all major trading countries.

Beer:

• Imported beer grew +2% by volume and +5% by value over the last twelve months. Over the last three months, imports declined by 0% by volume and grew +2% by value. 81% of imported beer by value comes from Mexico.
• Exported beer grew +3% by volume and +30% by value over the last twelve months. Over the last three months, exports declined -20% by volume and 11% by value. 19% of exported beer by value goes to Chile.

For more details regarding imported and exported beer across all countries, subscribe to the bw166 Beer – Imports and Exports report.

Spirits:

• Imported packaged spirits for the last twelve months grew +10% by volume and grew +22% by value. Over the last three months, volumes grew +2% and grew +10% by value.
• Imported bulk spirits for the last twelve months grew +7% by volume and grew +17% by value. Over the last three months, volumes grew +8% and grew +28% by value.
• 41% of all imported packaged spirits by value arrived from Mexico while 32% of all imported bulk spirits by value arrived from Brazil.
• Exported packaged spirits for the last twelve months grew +39% by volume and grew +32% by value. Over the last three months, volumes grew +44% and grew +24% by value.
• Exported bulk spirits for the last twelve months grew +14% by volume and grew +45% by value. Over the last three months, volumes grew +11% and declined -3% by value.
• 15% of all exported packaged spirits by value is destined for Canada while 36% of all exported bulk spirits by value is destined for Canada.

For more details regarding imported and exported spirits including detailed category breakdowns across all countries, subscribe to the bw166 Spirits – Imports and Exports report.

Wine:

• Imported packaged wine for the last twelve months declined by 13% by volume and grew by +0% by value. Over the last three months, volumes declined -14% and declined -2% by value.
• Imported bulk wine for the last twelve months grew +10% by volume and grew +3% by value. Over the last three months, volumes grew +5% and declined -2% by value.
• 36% of all imported packaged wine by value arrived from France, while 21% of all imported bulk wine by value arrived from Chile.
• Exported packaged wine for the last twelve months grew +0% by volume and grew +3% by value. Over the last three months, volumes declined -10% and declined -6% by value.
• Exported bulk wine for the last twelve months declined -30% by volume and declined -29% by value. Over the last three months, volumes declined -25% and declined -23% by value.
• 37% of all exported packaged wine by value is destined for Canada, while 59% of all exported bulk wine by value is destined for the United Kingdom.

For more details regarding imported and exported wine, including detailed category breakdowns across all countries, subscribe to the bw166 Wine – Imports and Exports report.

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GFA Webinar Series with Jon Moramarco on January 10, 2023 @ 9:00am PDT

Join Jon Moramarco, a partner in and the Editor of the Gomberg Fredrikson Report; and the Managing Partner of bw166, for the Q4 GFA Webinar.

 The key topics that will be addressed are: 

1. A first look at total 2022 market performance
2. Economic trends
3. Overall beverage alcohol
4. Wine trends
5. By wine segment
6. Domestic and imports
7. International wine trends
8. Implications for 2023

Registration for this webinar is limited — reserve your seat today.