By Nicki Bourlioufas
Wine sales in full-service US restaurants and bars will not return to 2019 levels until after 2022, creating huge financial pressures for wine suppliers, according to Rabobank’s Quarterly Wine Report for the second quarter.
Covid-19 containment measures in the US, such as lockdown orders and social distancing, have pummelled on-premise wine sales. Over March and April 2020 combined, total sales in US foodservice and drinking establishment channels fell an estimated US$47 billion from a year earlier, as COVID-19 restrictions were imposed.
Rabobank senior wine analyst Hayden Higgins said total sales for US food service and drinking establishments for the first four months of 2020 were down an estimated US$68 billion, or 22%.
“For wine sales, the percentage drop in the on-premise channel will be even higher, given these are more heavily reliant on full-service bars and restaurants, which performed even more poorly than limited-service restaurants,” he said.
“The on-premise channel typically accounts for less than 20% of annual wine sales in the US, but it’s extremely important, particularly for small, premium wine brands which sell a greater proportion of their product into restaurants and bars.”
Digital sales to become more important
Stephen Rannekleiv, Global Strategist – Beverages with Robobank, said premium wineries will need to find new ways to engage US consumers as the COVID-19 pandemic hits hard. Digital strategies will become an increasingly critical component of success, but must go beyond traditional direct-to-consumer models to engage the consumer across channels, according to the second quarter Rabobank report, titled ‘COVID -19 and the US premium wine market Part 1’.
“Many of the wineries we’ve spoken with agree that e-commerce must be an increasingly important part of their strategy moving forward, but even those willing to make the investment have a myriad of questions about how to proceed,” says Rannekleiv. Those questions revolve around how to create the e-commerce platform (buy or build), and how this new structure should fit in the organisation.
Australian wineries lose out
While the US on-premise wine sales channel was comparatively small in volume terms for Australian wine exporters. Margins were relatively high. Australian wine export figures reflected the premiumisation trend for wine in the US. While exports of Australian wine to the US for the year ended March 2020 were down 11% by volume, they were only 2% lower by FOB value in Australian dollar terms – suggesting product was directed at the premium market, Mr Higgins said.
And despite the drop in total Australian wine export volumes to the US, Mr Higgins said Wine Australia reported that the average price per litre rose to the highest levels since August 2009.
For Australian wine exporters, Mr Higgins said, considering how e-commerce at the retail level and connecting to the US consumer would evolve – and how distribution partners were preparing for this – should be a core component of discussions about exports to the US and other markets.
“These questions include how they think about e-commerce within the organisation, whether they should buy or build an e-commerce team and where it should sit within the organisation.”
Mr Higgins said the US alcoholic beverage market’s three-tier system was particularly challenging for smaller wine brands.
“The US alcoholic beverage market operates under a three-tier system made up of manufacturers in the first tier, a second tier comprised of importers, distributors or wholesalers who purchase the product from the manufacturer, and a third tier of retailers,” he said.
“Under this system, producers are unable to sell directly to US consumers. It’s therefore essential brands work closely with their US distributors – who are in regular dialogue with retailers – so they can better understand changes in the way US consumers are purchasing wine.”
Mr Higgins said Tsingtao, the Chinese beer company, provided one recent example of a beverages company that has used e-commerce to increase sales.
“Tsingtao used lockdown measures in China as an opportunity to further create a network of ‘community distributors’ – essentially social media influencers working on commission – that has been extremely successful by a number of measures.”