The growth of the US wine market was highlighted in Rabobank’s recent ‘Wine Quarterly Q3 2018’ report. Its dominance on the global stage cause many in the industry to view it as the most profitable and most attractive market for wine, making it exceptionally difficult to penetrate by small wineries and newcomers.
New paths to consumers
The industry has undergone several changes in terms of how wine makes its way to consumers. Wholesaler consolidation has had an effect on this, benefiting large suppliers and hurting smaller ones.
According to the report, "Each new round of consolidation creates opportunities for smaller wholesalers because many small suppliers have trouble getting support for their brands from the larger wholesaler networks."
But there is a new wholesaler model that helps small suppliers access the market. Liberation Distribution operates as a virtual wholesaler and connects brands with retailers and on-premise accounts in New York and California, making it easier for small suppliers to find a wholesaler.
In a recent study, WineDirect found that 89% of all online wine sales were made by the top 20% wineries, reinforcing the idea that the most successful direct-to-consumer brands also excel when prioritizing the ecommerce channel.
Stephen Rannekleiv, global strategist of beverages at Rabobank, said “Changes in technology, business models and market structure are disrupting the market and creating new sets of winners and losers among wholesalers, retailers and suppliers.”
“Responding quickly to these changes will determines who survives, who thrives, and who fades away.”
Grocery sales in general are moving to the ecommerce channel at a much slower pace than other categories of retail, but it has been picking up over the last year. When Amazon acquired Whole Foods in 2017 it inspired grocers to focus more on their ecommerce presence in defense against the ‘Amazon Effect.’
Rabobank reports that alcoholic beverages are falling behind in ecommerce, generating just 0.7% of online grocery sales. By comparison, alcohol is responsible for 4.7% of brick-and-mortar grocery sales, about six times the amount online.
Differing state regulations and unreliable age verifications can take much of the blame for this, though Rannekleiv maintains that “grocers have plenty of room for improvement in developing effective online marketing of alcohol brands.”
Rabobank estimates that retailers lost out on about $100m in alcohol sales in 2017 because of this. And if online grocery sales continue growing as projected while alcohol retailers underperform at the same rate, they could lose out on nearly $4bn per year in alcohol sales by 2022.
One exception to the alcohol ecommerce problem has been small, specialty retailers that have built up more online sales capabilities than their major grocery chain counterparts. They have been responsible for about 60% of all alcohol sold online, according to Rabobank, but are now facing shipping problems.
Earlier this year FedEx and UPS gave into state pressure to better enforce bans on shipments from out-of-state retailers by announcing they will no longer carry interstate shipments of wine. This could affect wine sales for 2018 and in the future.
By the numbers
In the first quarter of 2018, overall US wine exports increased by 9.4% in volume and 6.6% in value terms. Wine imports declined by 1% in volume during Q1 2018 when compared to Q1 2017.
Bottled wine imports were up by 4% in volume and sparkling wine volume was up 12%, though its growth rate is slowing. Vermouth saw substantial growth, 22% in volume and 224% in value, though it remains a small segment of the market.
Bulk wine pricing is high but stable around the globe, and the UK is still the world’s largest bulk wine buyer. It increased imports from the US, as did Belgium, Denmark, Germany and France.