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I don't like it but...
it's true. I might have missed on a prediction that I made.
The Wind's At Our Back
We are sitting with the highest GDP in decades. Fiscal and monetary stimulus from the government is being delivered in trainloads. Restaurant and tasting room sales are being added back to the calculus. Internet sales are at records. Frustrated and cooped-up consumers with exploding personal savings are desperate to spend it on experiences like travel and tourism. The jobs numbers are increasingly positive. And, the stock market is at record highs producing even more discretionary income.
But, I Underestimated the Impact of a Simple Fact
When looking at all of the positive factors noted above, I ignored the fact that still wine sales have been plagued by declining growth rates since 2017. Even before the Pandemic, growth was effectively zero for the category. The headwinds creating this demand issue haven't changed:- Younger frugal consumers are consuming spirits over wine.
- Aging consumers that drove the growth of wine sales are cutting back.
- Alcohol is losing popularity in the face of a health movement that puts even moderate consumption in a position of being a questionable choice.
- In the 'better for you' contest, wine has lost its prior status as a beverage with health attributes due to our industry's inattention.
- Spirits have adapted their marketing effectively for a new consumer, while the wine industry has not.
Even though I knew all the headwinds facing the wine industry and have extensively reported on them, I believed we would see a bounce from reopening - at minimum from existing wine consumers, if not from new consumers too.
In making my prediction of positive sales growth this year, I postulated if growth was zero at the start of 2021, growth should be something more than zero as we moved into a better economy, but thus far in 2021, that's not turning out.
The Most Important Chart So Far This Year
SipSource is a company that aggregates the wine and spirits distributors depletion data. That data is trended for both on and off-premise, removing much of the channel shifting impacts. So total depletions from distributors - at least on a volume basis are a good relative measure of trends over the prior twelve months. Sadly, it's not pretty.
I'm not the only analyst to notice this. Dale Stratton; a highly experienced alc. beverage professional who works with SipSource, started talking about this decoupling with me about sixty days ago and has publicly shared those concerns recently in his own speaking engagement. Industry vet Danny Brager and I have been sharing a few Zoom engagements lately, and I found that he arrived at the same conclusion from his research. Andrew Adams provided his thoughts on the same SipSource data set on June 25th in an article on Wine Business, and Jon Moramarco in his videocast in mid-June looked at a different data set and still came to the same conclusion: Wine is losing market share to spirits.
End of the Line for Wine's Category Share Growth in Alc. Bev?
What's Your Opinion?
- Will still wine as a category end 2021 in negative growth territory,
- If the above is true, what should be done?
- Why are spirits showing such strong growth in the recovery already, and not wine?
"Ageing consumers...are cutting back"!
ReplyDeleteNOT
Because they have lost their taste for WINE!
Most are on Social Security & fixed retirement!
MORE LIKELY -since Jan. 20th, 2021!
They can NO LONGER afford the luxury of a glass of WINE!
Opinion of an 84 yr old "Ageing consumer"!
Anon - thanks for weighing in. I didn't attribute the 'why' in saying aging consumers are cutting back. Just that they are.
DeleteI believe it is a combination of both retirement, fewer numbers (death rate), and as you age you don't want to drink as much and or, it interferes with medicine at times. But your view is inclusive of my wider view.
Is it possible the this graph is only part of the story and one particular channel is missing?
ReplyDeleteDTC from premium wineries is still growing, and perhaps wine drinkers are bypassing the 3tier system more and more. That could explain at least some of why spirits are flying off the shelf, and wine is grocery store and restaurant wine is languishing.
Of course there could be others reasons, but didn't want to overlook this one.
Thanks Unk 9:19. Appreciate the note. DtC is indeed growing, as is online sales. But total DtC is something like 10% of total wine sales. Let's say that 10% is growing 10%. That would add one percent to the equation in total volume. So it might get this chart back close to zero growth if DtC were included. Not very reassuring.
DeleteGood points, thank you Rob.
DeleteRob, Jason from vinSUITE here, can you parse out the impact to Wholesale vs. DTC. My data shows that our clients are seeing a good boost so far this year (purely DTC data), with 10% growth over 2019. Can overall sales decline, but DTC still grow (and increase its share of the sales pie)?
ReplyDeleteThanks Jason. I'm hoping you are looking at current data that is past the April period end I am using. I would expect, based on discussions with our clients and prospects - that we should see an increase over 2019 in June.
DeleteNormally, June is more the front end of tourism season, while 2021 is more the start of everyone getting out. Our clients are generally booked out on weekends at this point, and mostly booked during the week. DtC should be a good point of growth for sure. See above for the total impact of DtC though in terms of growth rate. While its a gross estimate because I'm working from memory, it's close enough to say DtC growth won't erase the decline we are seeing in the category.
If I had to guess - and this is a longer topic, I would say that the growth in restaurants in wine is weak, compared to the growth in spirits.
Great stuff as always, Rob! This excellent trend information helps all of us in the industry plan for the future.
ReplyDeleteThanks for the Kudos Adam. Appreciate it!
ReplyDeleteTo your point on consumers turning to spirits. Two words: White Claw. It's marketing genius.
ReplyDeleteI’m not saying that’s the entire story but when is the last time you saw any wine company even come close. Thank you Orson Welles. https://youtu.be/PUunRgUkRjQ
Search Google for Cabernet Sauvignon and you’ll see ads for wine.com and Total Wine, not Mondavi or Silver Oak.
It didn’t help that tasting rooms were shut down for 15 months which virtually left no one to promote individual wine brands - except for the random grocery store clerk; ‘Um - this one has a pretty label.’
My prediction: the market will self-correct. There could be consolidation, bankruptcy, exits. But at the same time, there will be survivors who innovate. Some are already out there.
Finally, you can’t really blame someone for not changing something that’s been working. And in the wine business, when you do have to change, it may take two-to-three years (from grape to market).
Speaking as a veteran of the advertising agency world, there is no evidence (only anecdotes) that advertising specific brands boosts their unit volume or market share.
DeleteSee my updated (February 11, 2019 and March 3, 2021) comments here regarding Yellow Tail unit sales following their Super Bowl TV ads:
"Yellow Tail and Casella Wines" | The Wine Gourd (July 17, 2017)
URL: http://winegourd.blogspot.com/2017/07/yellow-tail-and-casella-wines.html
Thanks Calaban for the comments.
ReplyDeleteIMO, wine is losing the battle for the new consumer. White Claw is a component - they at least are addressing the health component with putting calories on labels, but until the last few years the wine industry was largely against putting labels on wine.
I think this chart probably comes down to channel shifting and that spirits are doing much better in restaurants versus wine.
Remember when you would go to a restaurant and get a wine list? Now that list is a Beverage List with craft beer, craft cocktails, and typically some non-alcoholic options that aren't soda pop. Much of the restaurant trade is not stocking up on wine that was worked down in the pandemic.
Wine is being squeezed out of the print space of restaurant menus. Price also plays a role in that as it's about 2x more expensive per serving at retail. When you mark that up at a restaurant, the gap between spirits and wine is even more obvious. I was in a restaurant last week where a glass of average quality wine was the same price as a really cool looking craft cocktail, and that makes a consumer pause.
We in the wine community want to believe the consumer will order wine with food. That's being tested today with craft cocktails. We want to believe young consumers will eventually buy wine like boomers did in their mid to late thirties - but the situation is different. When boomers pushed into wine, spirits and other alcohol beverage wasn't premiumized. Today, consumers of alcohol drink across categories, so in my opinion, we won't see the spike in wine consumption from the large millennial population - even if they all are wine consumers, because they are also consumers of everything else.
If the wine industry wants to recapture the 'better for you' message from the French Paradox/Mediterranean Diet' and remind people how truly natural wine is versus other options, we will need to have a national marketing organization.
Time is ticking.
Rob, first, I respect your ability and willingness to pivot. I know your intent is to always provide insights for the industry based on what is known. But I also appreciate that when you do have to point out less than stellar trends you are willing to participate in conversations and share ideas about solutions. In this case you are correct to point out that a NATIONAL coordinated effort is required to regain market share and growth for our wines. Budgets were tight when you first pointed out the market loss trend in 2017. Now we’re further behind the 8 ball with post Covid 🤞budgets being even more squeezed. Strong leadership is essential to navigate the choppy waters now. Thanks for climbing into the crow’s nest with your scope and reporting what’s ahead as truthfully and accurately as you do.
DeleteThanks for the kudos Katie. I try and offer researched, street-level intelligence. Anyone can offer research, but the benefit of living in the business as long as I have helps decipher the data. And... sometimes I'm right and other times I'm not. I'm always willing to hear another view because I might learn something.
DeleteWe have a way to go on this issue. I believe this data set will improve through the year still - so not willing to say my call on improved sales at the beginning of the year is wrong just yet. But the next few months will prove it out.
Either way, if this industry wants to get serious about reversing the long term trends that are upon us, we are going to have to recover our message and get market share from other categories. Losing market share isn't a path to success!
[Preceding comment deleted to augment the text for clarity.]
DeleteRob's willingness to question his publicized projections reminds me of this article from Inc. magazine:
"This Is the Number 1 Sign of High Intelligence, According to Jeff Bezos"
Subheadline: "This is what the Amazon founder looks for when he wants to know if someone is real smart."
URL: https://www.inc.com/jessica-stillman/this-is-number-1-sign-of-high-intelligence-according-to-jeff-bezos.html
Excerpt:
"Most of us, when we want to figure out if someone is smart, ask if the person is frequently right: Do they have correct knowledge about the world and their area of expertise? Do they come up with the right answers when faced with hard problems? Do their predictions turn out to be right?
"But Bezos's counterintuitive strategy isn't just to look at how often people are right. Instead, he also looks for people who can admit they are wrong and change their opinions often.
"Bezos has 'observed that the smartest people are constantly revising their understanding, reconsidering a problem they thought they'd already solved. They're open to new points of view, new information, new ideas, contradictions, and challenges to their own way of thinking,' [Basecamp founder Jason] Fried reports the Amazon boss saying.
"That willingness to consider new information goes hand in hand with a willingness to admit your old way of thinking was flawed. . . ."
"It's not just 19th-century philosophers who agree with Bezos. Modern science does too, although psychologists have a less poetic way of speaking about the flexibility of mind Bezos prizes. They call it intellectual humility. Studies of decision making show that people who are more willing to entertain the idea that they're wrong make markedly better choices. Being wrong, they understand, isn't a sign of stupidity. It's a sign of curiosity, openness to new information, and ultimately smarts.
"If famous essays, top CEOs, and the latest research aren't enough to convince you that to be smarter, you need to also be frequently wrong, you can also take it from the undoubtedly smart futurists at Palo Alto's Institute for the Future. According to Stanford professor Bob Sutton, they encapsulate this trait of highly intelligent folks this way: 'strong opinions, which are weakly held.'
"As the futurists explained to Sutton, weakly held (and therefore often changed) opinions are important because they mean you aren't 'too attached to what you believe,' which 'undermines your ability to "see" and "hear" evidence that clashes with your opinions.'
"So next time you're trying to determine if someone is actually super smart or simply bluffing, don't ask whether they're always right. Instead, ask when was the last time they changed their opinion. If they can't name lots of times they were wrong, they're probably not as smart as they want to appear."
At the risk of posting too long a comment, let me close with this.
One of the best guidance books I recommend to every employer and every client is from Stanford University professors Bob Sutton [quoted above] and Jeffrey Pfeffer titled "Hard Facts, Dangerous Half-Truths, and Total Nonsense: Profiting from Evidence-Based Management."
URL: https://www.gsb.stanford.edu/faculty-research/books/hard-facts-dangerous-half-truths
I concur: it's all about "intellectual humility."
Great article Rob and insightful comment about variety in restaurants squeezing wine out. I am struck by the number and variety of RTD's that have come out and are impacting off-premise. Way beyond White Claw, we're seeing them with beer, wine, and spirits. The port wine industry, one of the most traditional, has joined the stampede with a bevy of port tonico drinks about to come into the market. In my neighborhood, all of the wine stores are carrying them.
DeleteOur tastes, habits and needs are all in a state of flux and changing. It's a combination of the pandemic, political and social polarization, an aging society, short attention spans and future uncertainty all coming to a head. I think everyone is looking for options and easy (RTD's, cocktails, beer) is always going to look good versus complicated (wine).
Jon - RTD's are part of life now. If you include spiked seltzers in the calculation, it's a large part of volume now. Wine is once again, a smaller part but we are going to have to adjust how we handle a consumer working from home and appreciating the convenience of single serve. We are competing against a nice margarita in a can versus a 750ML bottle, in households that in both boomer and millennial cases are increasingly single person homes. I'd say spiked seltzers and RTDs are the new version of wine coolers from the 80's, but I think the size component is here to stay and not a fad.
DeleteThanks for the detailed data, savvy interpretation and personal candor. All I have is anecdotal: Over the Independence Day weekend my wife and I, who predate even the Boomers, were invited to a party by neighbors and their pals who all are twentysomethings, and closer to 20 than 30. We were the only ones to show up with a bottle of wine. White Claw was in the mix, along with a bottled margarita, a couple of craft beers, and some other stuff in cans that wasn't wine or wine-based, including something bought primarily on the basis of being gluten free. We had a great time.
ReplyDeleteMike- thanks for your comments. One of my friends who is a boomer had al no out the same comments to me this morning. The party was made of premium spirits, lots of canned RTDs, and a few bottles of wine, along with beer that just sat in an ice bucket. Yes its anecdotal, but the type keeps repeating.
DeleteThe objective data are also in evidence but hopefully the consumer starts moving to wine this summer and we see some changes.
Methinks some of the problem lies with the tribal elders.
ReplyDeleteJust what -- exactly? -- are they "teaching" in Monkton (MD):
"Drinking With Robert M. Parker Jr." | Wall Street Journal "On Wine" Column (Nov 9, 2012)
URL: https://www.wsj.com/articles/SB10001424052970203707604578095193009322644
Excerpt:
“He [Robert Parker] will probably end up donating a good portion of it [his 10,000 bottle wine cellar] to charity one day, as his daughter, Maia, is of drinking age but prefers tequila to wine.”
Bob - Ithinks that is a minor problem offset by the huge number of wine-loving boomers who patterned a love of wine for their Millennial children.
Delete[Preceding comment deleted to correct for a typo and augment text.]
Delete"Moonlighting" in wine retailing, I see the generational divide between more expensive wine and brown spirits, and less expensive beer and alcoholic seltzer product enthusiasts.
The first two categories are distinctly "Baby Boomer" and "Gen X" beverages. The last two categories are distinctly "Millennial" beverages.
Only a single digit percentage of Millennial store shoppers ever ask for advice on wine. Ever buy wine. (And when they do, it is inexpensive sparkling wine to make mimosas.)
It has always been the hope that Baby Boomers and Gen Xers will "pass down" their enthusiasm for wine to their scions. (Pass down their wine cellars.)
But is that actually happening . . . ?
Speaking also as someone who organizes wine cellars for collectors, and is occasionally tasked with selling them off, I don't see a lot of "passing down" of collections to the scions.
("Humble bragging": the most prestigious wine cellar I worked on was The Alfred Hitchcock Collection, purchased circa 1983 by an anonymous collector in Los Angeles. A few years ago, I was hired to develop a "master list" of the wines all these decades later. [Yes, it was voluminous. By private e-mail, I am "sharing" the list with Rob.]
The owner -- now in his mid-80s -- had a wife who only drank buttery, oaky California Chardonnays. And a son who rarely drank wine. The collection went to auction . . . with just a comparably small percentage of the wines retained by the owner.
And on that subject . . . we all must embrace Len Evans's "Theory of Capacity":
URL: https://www.nytimes.com/1993/03/10/garden/wine-talk-863393.html
"Candy is dandy, but liquor is quicker." ~~ Ogden Nash
ReplyDeleteAlcohol equivalents:
"In the United States, one 'standard' drink (or one alcoholic drink equivalent) contains roughly 14 grams of pure alcohol, which is found in: 12 ounces of regular beer, which is usually about 5% alcohol. 5 ounces of wine, which is typically about 12% alcohol. 1.5 ounces of distilled spirits, which is about 40% alcohol."
Source: "What Is A Standard Drink?" | National Institute on Alcohol Abuse and Alcoholism
URL: https://www.niaaa.nih.gov/alcohols-effects-health/overview-alcohol-consumption/what-standard-drink
Now consider the consumer's expense per drink.
A 12 ounce can or bottle of beer is one serving size.
A 750 ML bottle of wine is five serving sizes.
A 750 ML bottle of distilled spirits is 17 serving sizes.
We are in a recession with over 8 million Americans still out of work due to the coronavirus pandemic.
This is a pocket book issue for many.
As Rob (trained as an economist) might tell you, on the "indifference curve" each drink might be equally appealing to a consumer.
But each drink serving is not equally priced.
From the consumer's perspective on a budget, there is more "bang for the buck" with spirits.
Spirits (like beer) is a beverage manufactured on an industrial scale 52 weeks a year. Not beholden to a single calendar year's "one and done" growing season and harvest.
ReplyDeleteRob wrote:
"I don't like it but...
it's true. I might have missed on a prediction that I made."
Simple. Next time, invoke the "40 percent chance" rule.
~~ Bob
"A New 40% Rule for Grimmer Times" | Wall Street Journal Online (May 21, 2020)
URL: https://www.wsj.com/articles/a-new-40-rule-for-grimmer-times-11590069926
Excerpt:
"The 40% rule is a time-tried tactic employed by pundits making forecasts. If you say there is a 40% chance of something improbable happening and it does, you look great. And if it doesn’t, you never said the odds favored it. . . ."
Bob - I know you say that with a heavy dose of irony, but I prefer the transparent approach versus the talking heads who say they are "cautiously optimistic/pessimistic.'
DeleteMy thing is do the research, and take a shot. Be right or wrong and when wrong, since you've paid the tuition, dig into why you erred so you learn versus flushing the experience and tuition down a drain by hiding or deflecting. It doesn't always work, but that's been my approach.
All that said - note that I didn't admit I was for sure wrong here. So far I look to be, but I am still optimistic that the summer and holiday season will give us and improvement in 2021 when the final tally is taken.
I should have said I'm cautiously optimistic about that prediction. hahaha
On the subject of talking heads/pundits, I proffer this . . . with your indulgence on text length:
DeleteExcerpt from Fortune Magazine:
(February 6, 2006, Page 44)
“Ditch the 'Experts';
Grading pundits and prognosticators:
More famous = less accurate.”
URL: http://archive.fortune.com/magazines/fortune/fortune_archive/2006/02/06/8367977/index.htm
By Geoffrey Colvin
“Value Driven” Columnist
You have been a world-class sap for years. Why? For listening to the economic and political forecasts of experts. We in the media have been irresponsible fools for reporting those forecasts. And the experts themselves? Delusional egomaniacs--and maybe even con artists.
I didn't always think this way. But I've been reading a book that marshals powerful evidence to make this case. For all of us in the world of business, economics, and capital markets--a world that often turns on the judgments of experts--the question is whether we're brave enough to face these uncomfortable facts.
The book is Expert Political Judgment: How Good Is It? How Can We Know? by Philip E. Tetlock, a professor at the University of California at Berkeley. It summarizes the results of a truly amazing research project: Over seven years Tetlock got a wide range of experts and nonexperts to answer carefully constructed questions about the likelihood of specific future events. He ended up with a staggering 82,361 forecasts, expressed in quantifiable form and thus able to be analyzed deeply. His definition of "political judgment" included plenty of topics that you and I would call economic, such as government spending and national economic performance.
Tetlock then cranked all those numbers through every kind of statistical thresher, flail, and grinder you can imagine, and the result was clear: Experts don't actually exist. Specifically, experts were no better than nonexperts at predicting the future. They weren't even as good as computer programs that merely extrapolate the past. The best experts could not explain more than 20% of the variability in outcomes, but crude algorithms could explain 25% to 30%, and sophisticated algorithms could explain 47%. Consider what this means. On all sorts of questions you care about -- Where will the Dow be in two years? Will the federal deficit balloon as baby-boomers retire? -- your judgment is as good as the experts'. Not almost as good. Every bit as good.
Which is not to say that experts are no different from you and me. They're very different. For example, they're much more confident in their predictions than nonexperts are, though they obviously have no reason to be. For example, the members of the American Political Science Association predicted in August 2000 that a Gore victory was a slam dunk.
Experts can also give far more reasons for their predictions than nonexperts can. Their vast erudition lets them explain at daunting length why something will or won't happen. Not that all those reasons make the forecasts one bit better.
The question that screams out from the data is why the world keeps believing that "experts" exist at all. In large part, the answer is human nature. We desperately want to believe the world is not just a big game of dice, that things happen for good reasons and wise people can figure it all out. It may not be so; a school of researchers known as radical skeptics presents impressive evidence that the world is totally random, or at least that we humans are eternally unable to figure it out. But most of us can't bear to believe that, so we cling to the notion of experts.
. . .
And let me proffer this . . .
DeleteExcerpt from The Wall Street Journal Online
(April 30, 2008):
“Numbers Guy Interview: Leonard Mlodinow”
[Lecturer in randomness at Caltech. "Google" him. Impressive.]
URL: http://blogs.wsj.com/numbersguy/numbers-guy-interview-leonard-mlodinow-329/
By Carl Bialik
“The Numbers Guy” Blog
WSJ: You argue persuasively that much of what we consider a track record of expertise is really an accident of luck. Is there any true expertise, in your opinion? Are there any experts you trust?
Mr. Mlodinow: I believe there is true expertise in some endeavors, and not in others. There is obviously no such thing as expertise in predicting the results of coin tosses, but there is expertise in predicting the behavior of lasers. I feel that picking stocks or predicting Hollywood hits is more like the former. The process of building a company or making a film is more like the latter.
But there is a related question: Given that we are discussing an endeavor in which it is possible, how can you tell if someone has expertise? That is hard, because expertise plus bad luck can equal a failure, and lack of expertise plus good luck can equal success. The only way to tell the two apart is to observe the individual over a long time, which in statistics often means 100 or even 1,000 trials. This is obviously often not possible, so I recommend instead that we judge people by a thoughtful analysis of their intelligence, philosophy, work ethic, etc., rather than simply by their results.
. . .