bw166 says wine shipments in the U.S. rose 4.6% last year. Another, equally reliable source, SipSource, reports a 6.2% decrease. Both could be correct, Rabobank notes in its latest Wine Quarterly, because they measure different things: bw166 tracks shipment from wineries to wholesalers as well as direct to consumer while SipSource tracks shipments to retailers. Rabobank’s conclusion: Wine was flat last year while distilled spirits surged.
Rabobank sees plenty of potential danger ahead: Everyone is hoping Covid is moving from a pandemic to an endemic disease, one that is always present, similar to the flu or measles, but is controlled largely through vaccination. But, the “Spanish flu” outbreak of 1918 had a true nasty resurgence in its third year, and it’s possible that new variants of Covid could cause further disruption this year.
Then there’s the economy. The stimulus is coming to an end, after doing its job of preventing the economy from going into the tank: Household wealth is higher than at the start of the pandemic, it appears consumer demand will be healthy, unemployment is nearing the historic lows achieved during the Trump Administration, and consumer spending on food and beverages is up double digits. But all is not perfect: Inflation is now at a 40-year high. If you believe the Washington prognosticators in the White House and the Fed (which we do not), it will all calm down later this year. Inflation leads to higher household incomes, but lower spendable cash, and that’s a threat.
Rabobank notes that on-premise “made an impressive comeback in 2021” and on-premie wine sales also recovered much of its pandemic losses. But — and it’s a big but– wine sales lagged behind the on-premise recovery as a whole. Rabobank expects wine to continue to recover on-premise but perhaps not to the 2019 level.
More concerning to wineries is what has happened on-premise: There’s been a shift to take-out/delivery, loss of business travel, loss of white tablecloth accounts, wine list reductions. Rabobank warns wine sales may not completely recover to 2019 levels.
Rabobank also sees the supply chain mess leading wineries, which initially avoided price increases, to take them. This will likely lead consumers to trade down, shift across brands, reduce consumption, shift to alternative categories, etc. Still, “we believe that for most wineries there is more risk from not taking price increases than from taking them.”
As if that isn’t enough, Rabobank notes that over the past five years, wine consumption has grown about 1% a year. But spirits shipments have consistently outperformed wine, the bank notes, and growth rates are accelerating. “While the wine industry generally struggles to attract younger consumers, spirits are aggressively capturing new occasions and effectively engaging a diverse consumer base across age groups.” What should be alarming to wine operators is that spirits gains are accelerating. Rabobank warns it’s likely to get worse before it gets better; the spirits industry is prioritizing direct-to-consumer and greater equivalency in taxation.