We’ve recently received some news that came as something of a shock to the Xtrawine team. Between March 2019 and March 2020, world wine shipments fell. This is the first decrease that we’ve seen since 2014 and puts an end to nearly six years of consistent growth for the global industry.
This isn’t an issue that we can blame on the pandemic either. After all, most countries didn’t even enter into lockdown states until March 2020. This decrease happened prior to the full spread of coronavirus, which means the pandemic didn’t have an effect at this point.
However, it will in the future.
In this article, we’re going to look at some of the factors that may have led to this decrease in wine purchasing. While by no means a comprehensive analysis of all of the reasons why it happened, perhaps the information shared here can provide some insight into the challenge that the industry now faces.
US Direct-to-Consumer Sales Experienced Slower Growth
The good news over in the United States is that direct-to-consumer sales are still on the rise. These are sales of wine made directly to somebody who will drink it, rather than sales made to a vendor or merchant.
The bad news is that this growth appears to have slowed markedly in the period mentioned.
The Direct-to-Consumer Shipping Report analyses the shipments of 10,000 wineries every single year. For the 2019/20 period, it found that shipments grew by 7.4%, equating to a total of $3.2 billion in revenue.
That sounds like an excellent result on the surface.
However, this figure is the culmination of a slowdown in growth that has been happening since 2016. Back in that year, the same report noted that wine sales directly to the consumer increased by 18.5%. Two years later, the report noted 11.6% growth, with the 7.4% being the most recent thing. As you can see, this is a consistent decline in growth that presents a danger of slipping into a full decline, especially given the effects of the pandemic.
So, why is this happening? And what insight can it give us to the global decrease that we’ve seen in 2019/20.
The answer lies in the reason that the report gives for this slowdown. It notes that no new channels for distribution we’re opened during the reporting period. In other words, the American wine industry made no new inroads in any domestic states.
The market has reached near-full maturity. As such, growth will inevitably slow down as there’s nowhere new to go.
We wonder if this is the case on a global level. In recent years, we’ve seen expansion of the global wine industry into places like China, India, and Russia. But perhaps those markets have hit a peak (albeit a temporary one) or have slowed down in growth. Perhaps the overall decline comes after an extended growth period and this is just the market adjusting to added maturity.
It’s difficult to tell at this stage but it will be interesting to see what happens in the future.
The Champagne Conundrum
From declining growth, we go to a wine that’s experiencing a full decline.
Champagne has always been seen as a luxury wine and it has held global status as one of the most popular wines for decades. But in 2019, we’ve seen what may be the biggest decline in Champagne sales in recent memory.
The industry has always used a symbolic benchmark of 300 million bottles to measure Champagne sales. When sales are above 300 million bottles, this segment of the industry’s doing well. When it drops below, there’s cause for concern.
In 2019, sales of Champagne dropped to 297.4 million bottles. Not only is this below the benchmark, but it also gives us the steepest decline in Champagne sales since 2009. That’s the last time we fell below the 300 million bottle mark. And if you recall, 2009 saw the world dealing with the aftermath of the Global Financial Crisis.
In other words, Champagne sales fell to economic crisis levels last year!
Of course, Champagne alone hasn’t contributed to the global decline that we’ve seen in 2019/20. However, this serves as an indicator that even the most powerful of wine brands can see declines when you least expect it.
Harsh Weather Rises
Another factor in the decline may be the effects of difficult weather on production, which has had a particular effect on the French and Italian wine industries.
In 2017, we saw global wine production drop by 8% compared to 2016, reaching a total of 246.7 million hectolitres. Italy was one of the countries to experience a large decline, with a 23% reduction during that year.
Wines produced in 2017 are likely entering the market now. But as these production figures show, there’s simply less wine to go around than before. As a result, global sales decrease because of lower supply.
This is an issue that requires immediate attention, as the effects of weather on production has serious ramifications. With climate change a constant issue, it’s possible that we may see further decreases in harvests.
On the plus side, decreases due to low supply would at least mean that there isn’t a demand issue. People still want to buy wine and it’s possible that demand is actually growing, even as supply runs lower.
What Does the Future Hold?
This is the key question and it’s almost impossible to answer right now.
The pandemic has completely changed the industry and how it operates, at least for the short-term. We’re sure that a further decrease in global sales and production is on the horizon. However, that data has an external factor influencing it that’s beyond anything that we could have imagined.
Would we have seen another decline in 2020/21 without the pandemic?
We will never know. And it may not be until next year or beyond when we finally see if the decline of 2019/20 is something that carries over in the years to come.