The past two years have foisted upon each of us what I consider the most volatile business conditions since the repeal of prohibition. And like that era, there are similarities that we can draw on today with the reopening of businesses in the U.S in 2021.
The nearby slide is from the SVB Peer Group Database that agglomerates reviewed and audited financial statements of premium wineries.* Within, you can see repeating patterns during recessions that should partially indicate what happens next for the wine business this year.
When we experience a recession, sales growth rates fluctuate wildly with dramatic swings down when business conditions are difficult, and then equally dramatic swings up when conditions ease.
It is typical at the front of recessions that fearful consumers stop buying for a short time while they collect their thoughts. While doing so, consumers become savers instead of spenders. That is what happened with wine sales during the Tech Recession and the Great Recession.
With any of the demand shocks we've lived through, we've seen consumers holding tight to their money, pulling back on retail purchasing, which in turn cause wine retailers to slow their ordering. With lower wine sales, wholesalers slow their buying from wineries. Demand is still there, and when fear subsides consumers are back buying more which requires restocking the supply chain, driving up sales for a time.
If prior patterns hold to form, by the end of 2022, we will see the supply chain restocked which will remove those one-time sales. Sales growth will moderate and start to trend lower toward the mean. Certainly, the huge smoke-impacted short vintage of 2020 which will be in the market during 2022 will play a role in lower volumes. But the largest impact will be losing most of the one-time benefit of restocking.