On my third podcast, Snapshot of the Wine, Beer, & Spirits Marketplace in the United States my focus was, at first, to make sense of what is happening in this Coronavirus crisis in the wine, beer and spirits markets. This, however, became clear is that there are some initial points that have been published of record sales in March but the total picture of what is really happening is far from clear even now in May.
What has happened thus far is that producers have been executing virtual wine, beer and spirits tastings and seminars. And many DTC (Direct-to-Consumer) operations have been offering low cost shipping to their customers and some producers seeing a lift in sales from DTC.
But surprisingly there are some wine producer regions not offering low cost shipping. And prices at wine retailers that are open and grocery stores wine prices are pre-Coronavirus pricing. I don’t have April total numbers to see what the WBS (wine, beer, and spirits) market looks like in the US yet.
March is when most of the US was under Shelter-In-Place (SIP) and think of the driver of consumers–food, toilet paper, and wine, beer and spirits–for many consumers it was key to get everything that you could–it was almost a panic state.
But the story continues and with high unemployment it is easily questionable that the aggregate market for wine, beer and spirits cannot and will not remain to last years numbers and a decline can only be expected. The aggregate wine, beer and spirits market which is large and is valued at a total of $250.8 Billion.* I am doubtful that last years numbers will be retained–perhaps and maybe at a most conservative number decline by 10% or more –and this is just a guess–no one knows for certain.
The potential decline is only one concern amongst many.
Some wine businesses had a higher exposure to on-premise accounts–some wine businesses had a majority of their sales devoted to on-premise at a high percentage rate if not majority percentage of total sales. Nielsen reported that in 2018 77 million cases was consumed by the on-premise channel–while this is not the same as the off-premise number of 325 million cases it is still a large number. Any enterprise cannot turn on a dime and suddenly shift even 50% to DTC or off-premise. There is an inevitable loss in a yearly sales plan. It is not a question of only recovery but survival. Will the total market sell 408 million cases this year? Even with decreasing prices and consumers buying more bottles I do not think we will reach the 408 million number.
Many restaurants in the US and around the world sold prized wine collection to stay afloat. This is very sad as the prized wines cannot be replaced when this crisis is over. For a fine restaurant there was an equal pride in executing excellence in food as in their wine offering. When restaurants re-open with limited capacity; their wine receipts will be limited as well.
DTC is a very small channel; in 2018 (Nielsen) 6 million cases in this channel as compared with on-premise and off-premise channels.
Chipping away at the 77 million case on-premise number will be very difficult and some of this has already been consumed in two months (thought the slowest of the year – January and February). I do not think either DTC or off-premise will make up for this loss. And again restaurant wine receipts will be limited based on re-opening capacity restrictions.
The problem has been and still is the vast collection of ABC laws. It is estimated that there are 42,000 ABC (Alcohol Beverage Controls) laws on the books in the US. Alcoholic beverages are the most regulated product in the United States. While some state ABC’s have understood this crisis only a few exceptions here and there have been granted–such as take away cocktails. If you are an online WBS retailer it is a large set of licenses and requirements (e.g. distribution – you might have to possess several warehouses versus one to service a set number of state markets). While this virus may increase DTC there is still many obstacles to be overcome but there is room to grow even in this highly regulated channel.
One of the most popular wine price point range is $20-25 (Nielsen – March 2020). While this is not a large per bottle price point will this be the average price point going into the next quarter to year end? Will this range remain or decrease in the near or mid-term?
No one can predict what will happen as we are in a dynamical state. If there is an economic leveling (i.e. economic free fall we are in now stabilizes) then this price range will hold but if there are decreasing economic conditions than this price range may not hold.
Are all producers selling at pre-Coronavirus rate?
Are import wines selling more, the same or less prior to virus crisis?
If the WBS market is declining (both in terms of dollars and volume) in 2020 who is being affected–is it a category of producers, small producers, larger producer–who exactly is going to be affected or is already affected. What producers will be okay and who are suffering?
What WBS producers have already failed and who is struggling to survive?
The charts below illustrate tremendous…no dramatic growth in the US in a generation for wine, beer and spirits producers. The most dramatic was in spirits producers from 100 in 2005 to 1,835 in 2018–and that was clearly evident when one would browse spirit assortments in the off-premise setting in yesteryear – 4-5 gins and same with vodka, Tequila, rum and other spirits… today the plethora is exciting and more than 4-5 SKU per spirits category.
While 85-90% of US wine production is completed in California — it does not make the importance any less of producers outside of California. All 50 states have a winery, brewery and distillery–and there is an importance the community that wineries serve– especially small and independent wineries as they may not the biggest enterprises in their specific geographies but they nonetheless are contributors to their local economy.
And the same with brewers and spirits producers as they often entered into urban landscapes and small communities alike and everything in between. Brewpubs/craft breweries were a third places for many people; and they did not always have off or on-premise accounts or if they did it was not the number one cash generator.
All of the independent and smaller wineries, distilleries and breweries communitized (see below more information on the word “communitized”) where they based their operations.
Think of large beer producers who have been losing market share for a decade if not longer were departing from their market share and that was transferred to local producers (brewpub/microbreweries). The community where a WBS is located gained from building a closer relationship with their customer base, left an economic impression as they hired people, purchased supplies and services, leased space, purchased equipment, used utility services and gave to their community, etc. If we were under the larger brewery model the closest relationship someone might have with a large producer is a broadcast commercial or perhaps a sponsored event. The direct consumer touch is relationship and expanding the customer palate and introducing them to styles they might not have tasted before. Also and importantly the large brewing model was that there was little if any economic impact in each community they sold their product. The many producers today have become an integral of where they are located and they are geographical distributed throughout the US. “Communitized” means many things as it highlights a relationship that is highly valued and important and is local. Other businesses beyond WBS enterprise can also have communitizing affects such as coffee roasters, independent restaurants, and other small and independent businesses.
If a smaller WBS brand in a community had a dependency on on-premise during this crisis–what happened to their sales?
Many of these business can still be classified as a startup and no doubt have little to no owners equity and certain significant debt loads. Operating expenses, rents, debt servicing did not stop during this crisis for many if not all small businesses. And the level of support available is most likely spotty and only covering a small percentage of small businesses. Reporting on Shake Shack and Ruth’s Chris’s Steak House getting recovery support was well publicized and it was surprising to many (I know Shake Shack returning those dollars) that a well-known larger enterprise got funding but smaller one’s did not.
I fear that many WBS and other businesses will not survive this crisis–the communitzing affect of these business added to their local economy and the reverse will be punishing as well.
There is no clear answers beyond overwhelming Coronavirus testing and a vaccine.
There was not a national focus on how to respond to this pandemic and the patch work of what happens next as states open and others do not.
I hope that where there is a small business that partners and stakeholders will help to insure survival–landlords, service and product suppliers, and especially financial institution needs to play a part as well. It is in everyone’s interest that there is a “communitized” approach to insuring WBS and other small businesses survive.
Until the US has a more concerted Coronavirus approach there is a horizon of continuing problems of spikes and outbreaks? If you are a small business owner you should consider pandemic planning and if you live in an area with natural disasters (earthquake, hurricane, etc)–you should consider contingency business operation plans.
As mentioned previously here are graphs on number of wineries, breweries and distilleries at specific years:
As I said in my podcast and repeat here I do hope all business survive.
You can help by being a customer of a small business and also giving them a shout out on social media! I will be keeping a close eye on the industry and reporting back if there are some interesting analytics and trends.
James the Wine Guy
Demystifying Wine…One Bottle at a Time from all wine regions around the world.
*References for market numbers:
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