There's a party going on in the US, but wine is being left behind.
That's the gloomy conclusion reached by industry analyst Rob McMillan after analyzing distributor depletion data from the last year. Wine depletions went up and up from the time the pandemic started through November 2020. But they started to decline in December 2020 and began dropping sharply this spring, just as restaurants began widely reopening.
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McMillan does an annual State of the Industry report and he has talked about wine's longterm problems for years, notably with attracting young consumers. But this January he was unusually upbeat: we headlined the story Boom Times Ahead for US Wine Industry. However, now that there's 2021 actual data to analyze, McMillan says wine's anticipated Hot Vax Summer boom is not happening.
"Spirits are taking off in restaurants and wine is a laggard," said McMillan, executive vice president of Silicon Valley Bank's wine division. "There are a lot of reasons. Wine is twice as expensive as spirits per serving. The average consumer drinks across categories now. Only about 15 percent of consumers consider themselves just wine consumers. People drink White Claw, cocktails and wine. They choose whatever seems the most interesting."
Here's a brief explanation of "depletions" versus "sales". Depletions are when a retail store or restaurant orders wine from a distributor. Depletions don't indicate whether a wine will fly off a store's shelves or sit in a restaurant's cellar unsold for 10 years, but that doesn't really matter to wineries because they get paid after depletions. Depletions are great data for wine because nobody really measures restaurant wine sales, and most retail wine sales measurements focus on large stores and can overlook independent wine shops. As data, depletions don't account for direct sales from wineries, but they capture just about every other type of wine sale and thus paint a clearer picture of the market.
And that picture is not pretty. According to SipSource, wine depletions had a negative growth rate in March of this year and the trend accelerated in April, the last month data is available. The comparison to spirits depletions is striking. Like wine, spirits depletions rose from May 2020 through November 2020 – the graph lines of spirits and wine are parallel. They both dropped a bit in December 2020. But since then, the graphs have diverged, as spirits depletions keep going up every month while wine is on the way down.
Part of the reason is that restaurants are still suffering from the pandemic and are not placing big orders to refill their wine cellars. But McMillan says that restaurant diners simply have more options right now than ever, and that wine is often the least interesting-sounding part of the by-the-glass list.
"If you go back 20 years, when you went to a restaurant, the wine list was a book," McMillan told Wine-Searcher. "Today it's not that way. In restaurants you get a beverage paper. The amount of space that the wine gets is, let's call it a third. You have craft beers and craft cocktails and other things – could be hard seltzers, could be kombucha, could be canned cocktails, and artisan sodas. The nonalcoholic list used to just be soda. In restaurants today there's just not as much space for wine as a category."
McMillan said people in their 20s and early 30s simply aren't drinking as much wine as hoped, and he's not sure that restaurant wine prices are going to draw them in.
"The value proposition just isn't there when you get to the restaurant," McMillan said. "For $15 or $16, you can have a glass of Sauvignon Blanc, or you can have a craft cocktail with ingredients made in house. That's one of the reasons wine isn't doing well there."
Baby boomers are still a key segment of the wine market at a time when everyone hoped Millennials would be taking over (I see you, Gen X.) McMillan said that after the pantry-loading of wine early in the pandemic, subsequent events have driven them away from wine – paradoxically including the 36 percent rise in the S&P 500 stock index over the last 12 months.
"That population had to deal with the brunt of Covid," McMillan said, and obviously sick people are not wine-drinking people. "Two, a lot of employers decided to give packages to employees to retire early. A certain percentage decided to take that package. A third component is that the Fed kept [interest] rates lower longer than anyone thought. That's made retirement accounts swell and has given people second thoughts about returning to work. That advances the retirement case for the boomer and increases the importance of that younger consumer."
McMillan says the restaurant-wine problem is one that the wine industry must find a way to address if it wants to avoid becoming a niche with younger generations.
"Our wine industry has to get over its problem with marketing," McMillan said. "We need to start."