Wine – The Glass is Half Full

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.