The latest report from the International Organisation of Vine and Wine (OIV) makes for sobering reading: production is falling and prices are rising, at a time when consumption is also dropping.
The market of most concern to many wine producers is the US, which remains the largest market by value in the world; according to the report, wine consumption fell by 3% last year.
What the report didn’t capture is that wine isn’t the only alcoholic beverage whose consumption is declining. Last year, sales of beer in the US slumped to their lowest level since the 1990s.
But consumers are still shopping—so what are they buying instead?
One company who knows the market better than almost any other is NielsenIQ (NIQ), one of the world’s biggest and most significant research companies, with expertise in the beverage alcohol market.
‘We have coverage of retail sales data for the off-premise,” says Kaleigh Theriault. “Things like grocery stores, liquor stores, and convenience stores. And then we also measure the on-premise.”
Theriault is Associate Director of Beverage Alcohol Thought Leadership of the NIQ Beverage Alcohol Vertical, where she has an unusually good overview of the US alcohol market. And she says there are some fundamental shifts underway.
From the on- to the off-premise
Everything shifted from the on-premise to the off-premise when people were trapped at home during the pandemic. As soon as lockdowns lifted, everybody headed back out to bars and restaurants—and then came inflation.
“We do see consumers have pulled back a little bit in their on-premise purchasing,” says Theriault, “especially if prices have risen on menus as well, and they’re looking to put some of those occasions back into the off-primuse with some at-home consumption of beer, wine and spirits.”
As to what they’re drinking, Theriault says spirits-based ready-to-drinks (RTDs) are the winner. “Things like canned cocktails — a lot of the offerings they would normally want to get at a bar or restaurant.”
These cans have two things going for them. The first is the convenience, and the second is that they’re the sort of complex drinks that consumers might struggle to make for themselves.
Strugglers versus thrivers
Theriault says that after Covid, NIQ looked at how American consumers in general feel about their financial situation, and not just in relation to alcohol. In so doing, they identified two core groups: strugglers and thrivers.
“Strugglers are going to be those consumers that feel a bit uneasy about their financial situation. They’re concerned about the next several months and where their money’s coming from,” she says.
At the other end of the spectrum are the thrivers, who feel very confident about their financial situation.
“What we see is that those at the stronger end, feeling confident in their financial situation, are really the heavy buyers of beverage alcohol purchasing,” she says. “They’re the ones leaning into things like premiumisation,” or visiting the on-trade more.
"When it comes to beverage alcohol, I think consumers still view it as a treat for themselves, and they’re willing to treat themselves more than they might in other categories.”
The premiumisation trend also has plenty of life left in it, says Theriault, because people are showing signs of what the Wall Street Journal called the “split brain” approach to budgeting, where consumers cut back spending in some areas, while at the same time splurging on high-end items: “Think shopping for staples at the dollar store dressed in Gucci sneakers.”
“If we think about it in terms of your total store purchasing, you might be going to the store and buying private label paper towels, and not buying the name brand any more,” says Theriault. “But when it comes to beverage alcohol, you’re still going to buy within your repertoire and likely spend what you would on those premium products.”
In other words, there is a significant subset of consumers who remain prepared to splurge on restaurant and bar visits and order premium and super-premium products.
“Consumers definitely recognise the price increases that we’re seeing at the shelf across all categories,” says Theriault, “but when it comes to beverage alcohol, I think consumers still view it as a treat for themselves, and they’re willing to treat themselves more than they might in other categories.”
The drinking repertoire is widening
But while consumers may still be splashing out on alcohol, it’s also true that wine has been feeling the pinch. So where is all the money going?
Theriault says that by the end of 2023, it was clear that spending was up, but “cases are down across all of the categories in differing ways.”
The reason is simple: consumers have widened their drinking repertoires, so there are more beverage categories competing for the same dollars. Nothing has made as big an impact as the RTD category, which Theriault says includes beverages like hard seltzers, flavoured malt beverages, hard kombuchas and hard teas; the “hard” category in America simply means alcohol has been added. So a hard tea is a tea with alcohol.
There are more beverage categories competing for the same dollars.
Theriault says this category is having a huge impact on the more traditional wine, spirits and beer categories.
“A lot of our supplier partners are asking us: ‘when is my volume going to come back?’” she says, adding that RTDs will probably keep growing.
They don’t have the entire market to themselves, though. “Imports have been doing really well in the beer space. We’ve seen a shift to white wines within the wine category. And with spirits, we see whiskeys doing pretty well.”
The product cycle is shortening
It’s getting harder to catch and keep attention, regardless of the beverage sector.
“What we saw with hard seltzers about five years ago is that there were a number of initial flavours out there—you would see that lime and black cherry were popular—and then consumers wanted more,” she says. “Not long after that, we saw new flavour additions and those started to cycle in and out.” New flavours now appear every few months.
People no longer think of themselves as ‘wine drinkers’ or ‘beer drinkers’, and are moving more fluidly across categories.
This means that retailers are having to make tough decisions about what they’re going to include and what not, because there are so many new products. “RTDs have really driven that shortening of the product life cycle. Needing ‘the next big thing’ to fill the space is coming a lot sooner than it used to.”
It’s also changing the consumer mindset, leading people to want more novelty more often. Another effect is that people no longer think of themselves as ‘wine drinkers’ or ‘beer drinkers’, and are moving more fluidly across categories.
“We have data that shows how the overlap of beer, wine and spirits has just grown so much. That’s being driven by a lot of these ready-to-drink options,” says Theriault.
A drop in wine consumption
As the OIV’s latest report makes clear, wine consumption is in decline internationally; the big question is whether wine’s decline is temporary or permanent.
“It’s a combination of a few factors,” says Theriault, reiterating that inflation has had a big impact. Another factor is “this broader idea of moderation, where consumers are cutting back on their drinking a little bit and they’re trying to consume better products, but not necessarily more.”
She says that while wine used to be considered the healthier option, it’s lost some of that health halo. “So I do think that there are a variety of things happening around consumer spending.”
But, she says, there are still opportunities out there for the wine sector, including smaller formats, provided the packaging preserves the flavours properly.
“I do think there’s a really big opportunity for wine-based products, especially with the rise in consumers enjoying cocktails,” she says.
"There’s a really big opportunity for wine-based products, especially with the rise in consumers enjoying cocktails.”
Of course, that’s not news that most wine producers would welcome. Theriault recognises that, but says the wine industry needs to do a better job of demystifying its products.
“I think the wine varietals for many consumers are overwhelming and it helps having the little chart on the back saying it’s sweet versus dry, but that still doesn’t really tell you what the taste will be like,” she says, adding that wine has a much higher cost of trial than other products. “You might have to buy an entire 750ml bottle of wine versus being able to buy a single serving of beer.”
But on the upside, Theriault believes the market for non-alcohol wine is only going to get bigger, particularly towards the end of 2024, as the holiday season approaches. She acknowledges that there are still issues around getting the taste profile right, but says, it’s important for the industry to have people reaching for the same types of products, even if they don’t contain alcohol.
And the really bright spot is in white wine. “Over the past year, we’ve seen a shift back into the white wine space,” while sparkling wines continue to power ahead.
In the end, the news isn’t all bad. Consumers are still spending, wine is still popular, and the US economy continues to grow. For the foreseeable future, it remains the place to be.
This interview took place in March 2024, before the release of the OIV report.
