Global wine sales have now declined for three years – and the causes are structural and transitory – but there are solutions.
Almost no major markets are in growth mode… and the US, for both domestic and foreign suppliers, has been declining since the middle of 2022.The result has been “an excess of supply in the US market… and hat in turn has left an excess, in supply, around the world.
In terms of the causes of this oversupply situation, it’s a fall-off in demand –as opposed to overproduction – that has created the excess.
Although the wine market grew during the pandemic in 2020 and 2021 as consumers stayed at home and drank more. At the same time there was an ongoing premiumization process and the high end was doing really well, some low-end volume was reducing.
But then in 2022, the trend changed and that was around the same time when we started seeing issues with inflation suggesting that some of the declines are likely related to inflation, with discretionary incomes for consumers under some pressure. Is consumer sentiment, back to the days of the global financial crisis or the worst of Covid.
Looking to UK Hospitality for examples of this impact, some of the consumption has shifted to smaller bottles, ie 37.5cl, such as our Aromo half bottles of Sauvignon Blanc and Cabernet Sauvignon
Some of the causes of wine’s decline are, transitory, although when it comes to an economic-driven trend, that as cost increases on wine, and the additional burden of higher duty, means inflation is going to be tricky.
At what point do wages really catch up with the level of inflation that consumers are seeing? If consumers incomes and budgets went back to what they were prior to Covid, then maybe we would point to this current decline in wine consumption and say it’s only temporary.
The challenges of rising costs of production for producers, and a real challenge in trying to pass through price increases to consumers, which puts wineries, importers and distributors in a difficult position of wanting to maintain profit margins and not lose profitability on a per unit basis. But at the same time, the more you take pricing up, the more volume you lose.
Much effort, over the past few years has gone into the premiumisation process and moving consumers up the pricing ladder – and all of that was geared towards Boomers and Gen Xers.
As a final point, for those in this for the long term, there are some challenges, but they are surmountable in time. They’ve been a lot of good years, but the wine industry has seen cycles before and is this a cycle that will have an end at some point.
