The wine industry could be in for a big year in 2021 because ending the pandemic will unleash celebrations like we haven't seen since the end of World War II, a leading industry analyst said Wednesday.
In his annual State of the Wine Industry report, Silicon Valley Bank Executive Vice President Rob McMillan acknowledged the river of bad news to hit the industry in 2020, but says better times are ahead, at least in the short term.
|Wine's Bubble Yet to Burst|
|Wine Sales Defy Doom and Gloom|
|Hard Times Ahead for US Wine|
"Wine is recession-proof and maybe somewhat pandemic-resistant as well. People do want their wine," McMillan said.
McMillan said that while he doesn't expect people to fully re-emerge from lockdowns until the second part of 2021, when vaccines are widespread, people will begin celebrating to make up for lost time.
"Call up wedding sites and you'll find they're booked solid," McMillan said. "Ask the caterers: same thing. All these deferred, delayed events: they're going to come out this year. It's a rolling event. It's not like 1945 where you had a single spike, a specific date. The celebrations are going to be rolling."
Moreover, in some ways the disastrous summer of 2020 was actually good for the wine industry – though not for consumers. California, Oregon and Washington had so much bulk wine to sell at the beginning of 2020 that it was dragging down grape prices for farmers. But all three states are predicted to have had much smaller harvests, and the amount of available bulk wine has already dramatically decreased.
"The bad news is, I can't imagine a worse year to be a grower," McMillan said. "But the system was already so oversupplied that these effects are going to bring us back into balance."
For consumers, this isn't great. In 2019 there was so much bulk wine from quality regions that labels could pop up to sell, say, Napa Cabernet for $20. Now, the big supermarket wine producers are scrambling to buy up bulk wine to fulfill their orders. Don't expect wine retail prices to rise much in 2021 – that was another topic from McMillan's presentation – but don't expect those sudden deals from brands you hadn't previously seen either.
For farmers, after an awful year, prospects are brighter because they have leverage.
"Oregon was in mild oversupply coming into harvest," said Eric McLaughlin, CEO of Metis, a mergers and acquisition firm. "With the fires it has just completely flipped. Folks that were having a hard time in July and August contracting their fruit already have their fruit contracted for 2021, and often beyond. Now fruit availability is significantly under demand."
The only region in the country where a majority of wineries reported that their harvest was either average size or above was New York. Yields were down all over, not just on the entire West Coast – Texas and Virginia also apparently had much smaller harvests than expected.
There has been much talk about whether or not wine sales were up, down or about the same in 2020. McMillan said they were roughly the same but the data is hard to read because of "channel shifting"; people who once bought wine in restaurants instead stocked up at grocery stores when the pandemic hit, and then later began ordering wine online.
A survey showed that the average winery sold about 2 percent of its wine online in April 2020. By November, that was up to 10 percent. Wine club sales were down 5 percent, and tasting room sales were down 37 percent, but e-commerce sales were up 153 percent.
McMillan believes that shows a paradigm shift that will not shift back after the pandemic ends.
"I have an Instacart account now and I order my groceries online from Costco," McMillan said. "I'm not going to close this account when this pandemic ends. A big bonus is the number of people who have opened up online wine accounts. Digital investments are what I really want to encourage wineries to make. Consumers are proven to be out there looking to buy online. I think that great shift is one source of marginal growth for those that want to be successful."
McMillan said that wineries should celebrate with everyone else when the pandemic ends, but he doesn't think the sales bump will last forever.
"The underlying things that have been holding back [wine industry] growth haven't been corrected," McMillan told Wine-Searcher. "Neo-Prohibitionism. Reaching the consumer that is health conscious. The rotation of younger and older consumers. We've got to attract that young consumer. In nine years the youngest boomer crosses 66, retirement age. The salvation has to be that young consumer. The values that are important to the young consumer are transparency, social equity and health. Wineries have to reach out to people with what's important to them instead of continuing to do the Lifestyles of the Rich and Famous that worked on my generation."
But at the end of the day, in a tumultuous time, it is nice to have something to look forward to. As Prince might say, tomorrow we gonna party like it's 1945.
"The growth rate after the end of the war was somewhere between 30 and 50 percent," McMillan said. "When you look at what that group of people went through – a prior pandemic, World War I, the Dust Bowl, the Great Depression, World War II – we call it 'the greatest generation', but a lot of people didn't have an electric toaster. They had to figure out how to get by. And then they got to the end of the war and said: 'I'm going to relax and have a cocktail.' That went on for about a year. Then they got to work making babies.
"People are so tired of being in their houses. They're going to be out trying to shake this off."