The Way Forward: A Summary of Three Industry Reports for 2021

Several industry reports have come out in the first half of the year—and, as we expected, they had a lot to say. The wildfires and pandemic really changed the way that wineries did business, but that has also opened up a lot of new opportunities for wineries both large and small.

Here are some of the main points we took away from these reports. 

2021 Direct to Consumer Wine Shipping Report

In January and February of 2020, DtC shipment data followed the expected trajectory set by the previous year. Of course, by the beginning of March, those trends meant nothing as the world reacted to the global pandemic. Record-breaking changes were the name of the game in the DTC shipping channel. Here are the most significant take-aways:

1. Volume. Year-over-year volume increased by an unprecedented 27% to $3.7 billion. For comparison, the prior 9 years saw an average growth of only 10.5% in shipments. 
2. Price. 2020 saw the largest average per bottle price drop in a decade to $36.83. That’s down 9.5% from 2019. New, younger buyers meant a demand for lower-priced wine. Shipments of bottles under $30 went up by 41.6%, while those over $100 went down by 2%.
3. Value. Despite the huge jump in volume, pricing prevented an equal jump in value. Value of shipments increased, but by only 14.9%.

The report made the following points in forecasting 2021 and beyond:

1. Prices will stay low as the economy is still uncertain, and people are bouncing back from layoffs and furloughs. 
2. Changes in purchasing habits, including online and DTC sales, will increase competition in the wine and spirits space. New state laws allowing DTC shipments will help.
3. Millennials are less likely to visit tasting rooms and more likely to work from home. As they dominate the market, DTC will be here to stay.
4. Online wine sales will continue to increase over the next 5 years due to:
   1. Customers discovering the convenience and abundance of DTC choices.
   2. Remote work leads to an increase in online purchases in general.
   3. Wineries investing more in their online presence and the DTC sales channel.

SVB State of the Wine Industry Report 2021

A prediction in last year’s Silicon Valley Bank State of the Wine Industry report advised “The winners [of] tomorrow will be intrepid and willing to try new approaches that change the status quo.” Little did they know just how true that would be. The pandemic and the wildfires forced the “otherwise reluctant-to-change” wine industry to adapt and pivot.

The start of 2020 saw wineries facing an oversupply that normally could have taken years to deal with. Instead, about a third of wineries had better sales than the prior year. Internet sales deserve much of the credit. Some wineries saw e-commerce grow from less than 1% to more than 10% of their total sales. 

Wineries that kept good customer databases had an advantage, too as tasting rooms closed, staff moved to virtual tastings and phone sales. Subscription clubs lost some members due to the economy, but the average order increased for those who stayed. And although club memberships normally originated in tasting rooms, wineries discovered that they could find plenty of new members through online signups.

DTC shipments and online sales are expected to remain strong, although SVB thinks once everything opens up the growth in that sector will slow a bit. Overall, they expect all of the delayed and rescheduled celebrations to provide a boost in sales. 

Unlike Sovos, SVB sees millennials as a challenge. They point out that many have experienced a delay to getting settled in their careers. Their financial capabilities may not be as healthy as typical wine consumers, plus the demographic tends to prefer premium spirits and craft beers. 

The events of 2020 have accelerated some of the trends that the wine industry has resisted over the past decades. Wineries would be wise to continue to move in the direction of e-commerce and DTC sales so they can attract a younger audience, and be ready for the next crisis, whatever that may be.

Avalara “Recapping recent significant changes in alcohol DTC legislation”

Avalara summarized recent changes in alcohol DTC legislation. A handful of states have new laws that will affect shipments from west coast wineries and craft beverage producers. Here are some examples that affect those that use fulfillment houses such as Copper Peak Logistics.

• Alabama. Fulfillment houses may now ship DTC to Alabama residents, but they must obtain a license for each warehouse that they ship from.
• Florida. If a winery, wine retailer, or marketplace exceeds $100,000 in annual sales, they need to register to collect and remit sales tax on shipments to Florida.
• Tennessee. The state was set to ban DTC shipments, but has reached a compromise. Fulfillment houses must obtain a license, and the wine must be produced exclusively for that fulfillment house’s use. But the shipping limit has gone from 3 to 6 cases direct-to-consumer per year.
• Wyoming. Wyoming has increased its DTC limit from 4 cases to 12 cases per year.

The following pieces of legislation are under consideration, but have not been signed into law yet:

• Louisiana. The state may do away with the law that restricts wine sales to either be from a Louisiana wholesaler, or DtC, but not both.

Overall, the pandemic has changed a lot of legislation around alcohol sales, expanding the availability of “cocktails-to-go” and other pickup, delivery, and shipment options. All of this is good news as in many cases it is likely to change legislation for DtC as well.

As the industry continues to grow and change, providing both hurdles and opportunities, please do not hesitate to reach out if you have any challenges with the fulfillment end of things, we’d be pleased to talk to you.