The Covid pandemic resulted in a 10-fold increase in online sales at family wineries, Rob McMillan, evp and founder, Silicon Valley Bank Wine Division writes in his latest “State of the Industry” report, released yesterday.
The pandemic rewarded those wineries that “made the effort to collect and maintain good customer lists,” he says, adding that “phone sales, which didn’t
even register as a sales channel in 2019, became a meaningful source of revenue for many wineries that in 2020.
“Digital video sales strategies also flourished and have replaced a portion of the in-person experience. Wineries discovered how to take the experience on
the road, forever breaking the long-held belief that a winery experience could only take place at the winery.”
That’s not to say all is well, business-wise in wine country. With “boomers
accelerating their retirement due to COVID-19, the need to attract young consumers is more pressing than ever,” McMillan writes. “The successes of the past 25 years can’t be repeated without evolving the industry message and without an industry marketing organization coordinating that message
and providing a counterargument for anti-alcohol claims.” he adds.
Looking to the future, McMillan sees 2021 as a tale of two phases — in the first half, industry will continue to react and execute in a Covid-restricted enviornment. In the second half, the post-Covid world will see many changes, with more people working from home, consumers moving to suburbs, acceleration of online sales, which will take business from other channels.
He anticipates the surge in grocery sales to “unwind” in 2021 and restaurant sales to return when restrictions are lifted. “However, we won’t see a return to pre-COVID on-premise conditions for years — if ever. In the longer term, the permanent closures of restaurants will result in reduced selling opportunities on-premise.
“Restaurants will also incrementally move away from full-service seated
models to new revenue-generating strategies, particularly home delivery and curbside to-go models, neither of which favors alcohol sales, McMillan writes. “The expectation for many restaurants is that their wine inventories will be minimized and streamlined into smaller offerings.”
Here’s McMillan’s predictions:
- The US economy will continue to recover as vaccines and therapeutics gain traction.
• The pandemic experience will have owners thinking more about the strategy of focusing sales into narrow channels.
• The experience of repeated fires and smoke damage will prompt owners to consider the need to diversify supply sourcing.
• The high level of liquidity in the markets looking for a return will attract new investors who expect improving industry conditions and warmer M&A activity (which cooled during 2020).
• For the sake of scenario planning in hospitality businesses, we are predicting a 25% reopening by April 15, a 50% reopening by June 15, a 75% percent reopening by August 15 and full reopening by Oct 15.
• There will be a reversal of the COVID-induced channel shifting as we reopen.
o Overall wine sales will be sluggish until business restrictions are lifted, but wine sales will gather momentum through the year.
o Restaurants will come out of this damaged and will need new investment. Wine sales through the restaurant channels will not recover to pre-COVID
levels in 2021 and, more likely, for many years.
o Wineries with direct-to-consumer models will focus on COVID-era strategies in the front half of the year but finish 2021 with strong sales.
o Retailers with existing online sales strategies will have a strong year.
o As hospitality, cruise lines, airport and airlines, concerts, sports and the like rebuild, there will be strong demand from consumers and a bounce for
overall sales in 2021 that may not be sustainable past 2022. We think the consumer will celebrate in 2021 and make up for many postponed life events. - When 2020 totals are calculated, we are guessing California will have crushed 3.3 million tons, which would be the smallest harvest since 2011. The Pacific Northwest harvests in both Oregon and Washington will
also come in smaller than normal.
• Supply in the West is largely balanced going into 2021, but overall growth rates in sales will still be modest, and some acres of vines will still need to be removed in California and Washington in particular in order to
sustain the balance.
• Grape and bulk prices will stabilize at lower levels than we’ve seen in the past five years. Buyers will remain cautious on price.
• California vineyard prices in premium regions will remain lower than their prior high points, flattening in the best areas and softening in secondary regions.
• Retiring baby boomers seem to have a long tail and fortunately aren’t quick to run to pasture. They continue to buy wine at all price points, but their buying seems to be moderating, both on price and volume, as they
age. Online sales will be a growth channel for the boomer at home.
• The rotation to younger consumers is not an even trade on an economic basis, but the under-40 cohorts are where we will find growth in the next decade. In the next five years, 27.9 million Americans will cross normal
retirement age at 66, while 30.3 million will cross age 40. That is too much buying power to ignore.
• Millennials aren’t engaging wine as hoped. They lack financial capacity, having been slow to get into their careers after the financial crisis that started in 2007.
They have a current preference for premium spirits and craft beers, which have a better value per serving.
• Premiumization, a move to higher-priced wine, is nearing an apex but will continue in 2021 as deferred celebrations and reduced supply stall the
expected change.
You can read the entire report here.