United States, Review of the 2021 Wine Market

SVB has been making public forecasts in this report for 21 years. The 2020 report was a challenge for Silicon Valley Bank (SVB), as it was released six weeks before the pandemic started. Obviously, their predictions didn’t consider a worldwide plague! But coming into the 2021 report, SVB bounced back, making bold predictions about the year ahead, including pandemic impacts. Some of these predictions turned out to be remarkably prescient, others still offer promise to be correct in direction if not in specific numbers, and a very small number might have been slightly askew.

READ MORE Pandemic-related shifts in alcohol sales

Anticipating that the country would gain control over COVID and that the hospitality sector would reopen, last year SVB led with the following observation:
“The post-COVID world won’t be the same one we left in early 2020. There will be many permanent changes we will need to consider, such as the shift to working from home, the increasing relocation of consumers to the suburbs and the acceleration of consumer online sales, which will take sales away from other channels.”

These relocated consumers have changed their buying patterns. The country will more than likely never fully go back to the traditional office or completely recover the amount of business travel, which impacts both restaurant and airline wine sales. There have also been enduring changes to online sales, with more consumers using online as an option to purchase virtually anything instead of walking into a shop in a metropolitan city.

What they got right

• Restaurants, SVB predicted, would come out of the lockdown damaged and need new investment. They believed that wine sales through restaurants would not recover to pre-COVID levels in 2021 and that it might take several years.
• SVB thought wineries with DTC models would focus on new COVID-era strategies in the front half of the year but, upon the reopening of the hospitality sector, would finish 2021 with strong sales.
• They predicted that when restaurants reopened, their wine inventories would be minimized and streamlined into smaller wine lists and the investment in long wine lists might be limited going forward.
• SVB thought M&A activity would take off due to low interest rates and the high level of liquidity looking for a return.
• With respect to supply in the West, SVB believed the industry had remarkably transitioned in one year frombeing acutely oversupplied to being largely in balance for most grape supplies in most regions.
• SVB thought that grape and bulk prices would stabilize at lower levels than we’ve seen on average over the prior five years and that buyers would remain cautious.
• They believed retiring baby boomers would continue to buy wine at all price points but that their buying patterns would moderate with lockdowns and population decline.
• In an understated view, SVB said that millennials weren’t engaging in wine as hoped, continuing to show a preference for premium spirits and craft beers, which have a better value per serving. They should have included spiked seltzers and ready-to-drink cocktails (RTDs) in that observation, but it’s a true statement that will have greater impact over the next decade unless the industry changes the way it markets to younger consumers.

What they got partially right

• In terms of sales growth, SVB said that wine sales would start off sluggishly until business restrictions were lifted but that sales would gather momentum through the year and end on a modestly positive note. They were correct that growth started off sluggish, but there was a distinct difference in performance for wineries producing wines under $11 versus more expensive wines, with the premium and luxury sectors showing growth above 10 percent for the first time in years. But overall, sales of wine on volume appear to have come in lower than 2020.
• SVB thought that the consumer would celebrate in 2021 and make up for many postponed life events. That was largely true, but wine didn’t participate in reopening as much as spirits did.

READ MORE UK, Warning against a new Contraction of the Wine market

What they got wrong

• SVB missed our call on premiumization. They have felt that the premiumization trend in its present form, which includes higher volumes and growing sales in higher- priced wines, was nearing an apex. While we could argue this was close to correct, it’s become clear over the past year that for now premiumization is continuing but as a tradeoff, with lower total volumes offsetting higher sales at higher price points. The reality was that COVID continued to accelerate premiumization, and while total volumes of wine sold are dropping, survey respondents in the premium wine segment said they increased the volume sold at higher prices in 2021.
• In their worst miss last year, SVB said that overall pricing should hold in both off- and on-premise sales, as well as in the DTC channels, as demand for alcohol and special occasions went through a spurt of temporary growth. In fact, there were price increases in the direct channel, price decreases in off-premise sales and price increases in on-premise sales. Outside of good improvement in the premium wine space, wine sales did not have a growth spurt.