Our annual exercise in soothsaying suggests that the next 12 months will bring more investment and upheaval in e-commerce, alternative packaging formats, plus growth in the ‘wine seltzer’ category
2020 will be remembered for many things – including some unexpected silver linings. In a world of lockdowns and economic uncertainty, consumers took comfort in things they could easily access and that felt uplifting – speaking to friends, reading (or re-reading) books, cooking, participating in outdoor exercise and buying local. It was also a good year for some sectors of the wine industry with producers and importers quickly pivoting to more selling direct to consumers and via other online channels, and providing them a comforting reason to do so. It was also a devastating year for so many businesses associated with wine – restaurants, hotels, bars, catering and tourism.
Our view is that changing the calendar to 2021 will not immediately change the narrative, though we think that normal service may start to resume by the middle of the year, as vaccinations become more widespread and the medical community learn more about how to control the virus. More activities will become possible, including travel and eating out, and those in the tourism industries and the on-premise with the financial strength and smarts to remain solvent will have a great second half of 2021 as pent-up demand is released onto a smaller base of outlets. In some ways this will be great news for the wine sector, which supplies these industries and tends to sell more value-added product in hospitality settings. In other ways it will be less good: people will have more diverse opportunities to spend money than they do right now, and that diversion of spending away from food and wine to drink at home will take some of the sparkle out of the off-premise wine market.
On the whole, we see a mixed picture for wine in 2021. Economically, there will be hard times in many consumption markets, as countries take stock of the damage to government finances and the wider economy and tax rates rise to start to pay for yawning fiscal deficits. With less money in our pockets, and uncertainty over our future employment and wealth prospects, we are unlikely to want to splash out. On the other hand, wine has become a more central part of many consumers’ lives over the past 12 months. For some, it is a case of a habit restored; in others, it will be a new legacy of lockdown. In both cases, we think the habit of drinking, and caring, about wine, will persist for some time, or at least until our lives become so busy and crowded with other interests again.
What about specific trends? No year is easy to call ahead of time. As we noted last week, some of our 2019 predictions for 2020 came true more by luck than judgement. However, if 2020 has taught us anything, it is that fundamental trends in consumer behaviour don’t go away, they are just enhanced or suppressed by circumstances. So, if some of the wine market trends below seem familiar, this is entirely deliberate.
- Wine volumes will decline and spend per bottle will rise – though this may be largely due to rising alcohol taxes
If 2020 turned out to be an unexpectedly good year for some parts of the wine category, 2021 may see a reversion to the traditional picture of declining volumes and price per bottle inching up as consumers look to spend their ‘alcohol budget’ in more interesting and rewarding ways. Governments around the world will be actively looking for ways to plug the frightening gaps in their finances built up by the pandemic, and ‘sin taxes’ will be an easy target. Rising prices will be mitigated by excess stock from a number of production countries coming onto market in 2021.
- Alternative packaging formats will make serious inroads into the traditional glass bottle market
The glass bottle’s primacy in the wine world is not under threat – for the moment. However, around the edges of its dominance, alternative packaging formats are flourishing to cater to new needs, and there is a growing chorus of concern about the amount of carbon emitted to produce a glass bottle and ship it to market. 2020 was an unexpectedly good year for the bag-in-box format, as bulk purchase lent itself particularly well to the zeitgeist of pantry-filling and at-home drinking. Paradoxically, it was also a good year for wine in cans, which, in an ad-hoc 2020 where social plans could materialise and evaporate at a moment’s notice, offered the three Ps: portability, portion control and preservation. In 2021, the momentum in the bag-in-box and can markets will continue, with a spate of new product launches to deliver higher quality as well as more functional products.
- Wineries will forge more meaningful and lasting direct relationships with their consumer bases, but wine tourism will take a long time to recover
One of the silver linings of the pandemic was that it provided the opportunity, and the motivation, for wine producers and intermediaries to reach out and connect more strongly with their consumer bases. Many players had already been running e-commerce transaction platforms, but many were not well funded or loved. In 2020, the website and app sales channels became the heroes. Will it be the same in 2021? Perhaps not. The pickings won’t be as easy, as retailers and on-premise become unshackled from pandemic restrictions. However, the Covid era has provided strong momentum to businesses that have invested in their direct relationships with consumers – and 2021 offers an opportunity to consolidate this bridgehead. Meanwhile, in-person cellar door visitors will be limited to day-tripper locals for some time to come, and it will be late next year before we see the re-emergence of the classic out-of-town tourist trade.
- The surge in online retail usage will continue, and investment and growing competition will reshape the online channel and enhance delivery speed
We are learning to spend more time at home, and a day peppered with the arrival of several deliveries has come to seem normal. However, our newfound home-working existence does not appear to have curtailed our desire to have what we want immediately. The surge in online wine retail participation and sales volumes that was clearly observed in a number of markets will continue in 2021, boosted by significant investment and consolidation. The key offer for 2021 will not be range or pricing so much as immediacy: the traditional e-commerce model of order today, get it sometime next week, will be overtaken by operators who can fulfil today’s orders today. There may also be synergies with adjacent industries, such as high-end or speciality food production, to ease the logistical burden and costs of a fast delivery model.
- The ‘wine seltzer’ market will take off
The hard seltzer category was virtually unknown 5 years ago – today, it is the hottest thing in beverage alcohol. In the US, its home market, it has seen triple-digit percentage growth over the past 2 years and is predicted to triple again in size by 2023, according to analysis from the IWSR. This is all the more remarkable given that the product itself is simply a mildly flavoured sparkling water….a bit like a wine spritzer, though with more sweetness. Where, then, is the ‘wine seltzer’ market? Not far behind, we think. Some products already exist in this space, but we predict that 2021 will see a concerted effort by wine producers to ride the hard seltzer wave.