US wine marketplace should rebalance grape supply, consumer demand in 2021, key survey says
The U.S. wine industry should strike a balance between supply and demand this year after an awful 2020, in which California is expected to have its smallest grape harvest since 2011, according to a closely watched annual survey released Wednesday by Silicon Valley Bank.
Last year, in its annual survey of wineries the bank’s wine division concluded that it would take from three to six years to rebalance the market, as a result of bumper crops of grapes in previous years and flat wine sales nationwide.
The closing of tastings rooms and restaurants during the coronavirus pandemic, along with wildfires last year that severely reduced the grape crop in Northern California as a result of smoke taint, has dramatically changed that projection. It dramatically shortened the time for the wine industry to absorb the glut of grapes and properly balance wine production with consumer demand.
“We are largely balanced across most regions and varietals as we start 2021,” according to the report based on a survey of 672 wineries nationwide. Most of the respondents are based in either Sonoma and Napa counties. As a state, California produces more than 80% of U.S. wines.
However, achieving such a balance doesn’t mean the future is bright. The report said “still, near-term prospects such as flat growth is projected.”
Rob McMillan, the author of the report and executive vice president of the bank’s wine division, said while balance will be good for the wine market, no-growth wine sales projections predicted for 2021 will make business challenging.
He predicted a sales rate growth of less than 1% when the 2020 tally is completed. In 2019, there was an estimated $75 billion value in U.S. retail sales of wine.
“The problem is that we are going into little growth rate,” McMillan said in an interview. “Looking at the end of November and going into December ... growth for that period, the holiday period, is pretty weak.”
One of the biggest changes for the wine sector over the past year has been pivoting to more online sales to make up for ground lost on consumers who would typically visit wineries or restaurants to buy wine. Many of those consumers have switched to digital wine orders.
The bank’s report noted that online sales for wineries were at 2% of overall revenue in April and jumped to 10% by November. Conversely, wholesale restaurant and related on-site wine consumption sales dropped from 15% to 11%, during the same period.
“That’s the gold mine,” McMillan said of online sales.
Given the new revenue from digital orders, wineries are likely to keep focusing on that sales channel in the future even after the pandemic fades, especially as online spikes for wine also have occurred at major retailers like Walmart and Total Wine.
“They are not going back to the way they were. It's going to be different,” McMillan said, regarding consumer preferences for wine buying.
You can reach Staff Writer Bill Swindell at 707-521-5223 or firstname.lastname@example.org. On Twitter @BillSwindell.