I don't like it but...

it's true. I might have missed on a prediction that I made. 

Starting in January of this year, I began predicting that overall wine demand would grow through and into at least 2022. As the days passed, the better-than-expected situation with COVID vaccinations became clearer, so I held firm to my forecast and underscored it further in a March blog post. There were so many positives to support my faith in our industry's 2021 opportunity, how could I not be optimistic? 

The Wind's At Our Back

We are sitting with the highest GDP in decades. Fiscal and monetary stimulus from the government is being delivered in trainloads. Restaurant and tasting room sales are being added back to the calculus. Internet sales are at records. Frustrated and cooped-up consumers with exploding personal savings are desperate to spend it on experiences like travel and tourism. The jobs numbers are increasingly positive. And, the stock market is at record highs producing even more discretionary income.

But, I Underestimated the Impact of a Simple Fact

When looking at all of the positive factors noted above, I ignored the fact that still wine sales have been plagued by declining growth rates since 2017. Even before the Pandemic, growth was effectively zero for the category. The headwinds creating this demand issue haven't changed: 

1. Younger frugal consumers are consuming spirits over wine.
2. Aging consumers that drove the growth of wine sales are cutting back.
3. Alcohol is losing popularity in the face of a health movement that puts even moderate consumption in a position of being a questionable choice. 
4. In the 'better for you' contest, wine has lost its prior status as a beverage with health attributes due to our industry's inattention.
5. Spirits have adapted their marketing effectively for a new consumer, while the wine industry has not.

Even though I knew all the headwinds facing the wine industry and have extensively reported on them, I believed we would see a bounce from reopening - at minimum from existing wine consumers, if not from new consumers too.

In making my prediction of positive sales growth this year, I postulated if growth was zero at the start of 2021, growth should be something more than zero as we moved into a better economy, but thus far in 2021, that's not turning out.

The Most Important Chart So Far This Year

SipSource is a company that aggregates the wine and spirits distributors depletion data. That data is trended for both on and off-premise, removing much of the channel shifting impacts. So total depletions from distributors - at least on a volume basis are a good relative measure of trends over the prior twelve months. Sadly, it's not pretty.

Looking at the above slide, notice the growth rate in wine has been lower than in spirits. That has been the case for years and isn't surprising by now. But wine and spirits were at least trending in a parallel manner through January 2021. 

So while the lower nominal growth rate was disappointing to see versus spirits, there was nearly every reason to believe that the growth rate of both spirits and wine would move higher as we reopened, but that isn't happening as of the latest SipSource report in the nearby slide.

The rolling party I'd predicted earlier has started, and occasions to connect and mingle over wine have increased. The growth rate of spirits took off, but wine went in the opposite direction and started to give away market share, now trending into negative growth. 

I'm not the only analyst to notice this. Dale Stratton; a highly experienced alc. beverage professional who works with SipSource, started talking about this decoupling with me about sixty days ago and has publicly shared those concerns recently in his own speaking engagement. Industry vet Danny Brager and I have been sharing a few Zoom engagements lately, and I found that he arrived at the same conclusion from his research. Andrew Adams provided his thoughts on the same SipSource data set on June 25th in an article on Wine Business, and Jon Moramarco in his videocast in mid-June looked at a different data set and still came to the same conclusion: Wine is losing market share to spirits.

End of the Line for Wine's Category Share Growth in Alc. Bev?

Wine has been taking small share points from the beer category for decades, but we may be at a tipping point. Beer has been in a declining trend for decades but we may be joining them. 

If the wine industry can't show increasing growth with the winds that are at our back now, we will have a real issue going forward when business conditions normalize. But I'm not ready to lose hope. There is one other possible explanation for the present short-term surprise.

During reopening, the older consumers have been slower to come out of their bomb shelters, and rightly so given how deaths from COVID have skewed to the older population. So the divergence we see thus far with spirits gaining share, while wine rides in negative growth territory may be an indication of more youthful spirits-loving consumers starting the party, and more cautious boomer consumers taking a wait-and-see attitude. That trend could still reverse itself and maybe my earlier prediction of growth in 2021 will come out yet! One can hope.

By September we should know one way or the other, but make no mistake: Negative growth in this economy is going to be a difficult fact to face if indeed we don't claw our way back into positive growth during Q3. 

Someone will undoubtedly and correctly bring up the fact that premium wine is doing better than wine priced below $11. But just note - 'better' is a relative term. The demand problem we as an industry suffer crosses all price points.

If the summer ends like this, what should the industry do?

Original blog post: http://svbwine.blogspot.com/2021/07/wine-demand-is-turning-negative-defying.html