There is considerable uncertainty surrounding the extent and duration of the COVID-19 pandemic in health and economic terms. However, there are some clear trends emerging and what is certain is that businesses will need to be agile and responsive to survive and prosper in this environment.
Overall, demand for wine and wine consumption has held up in most markets around the world. The biggest impact has been on how consumers have purchased wine, with the shutdown of the on-premise channel (such as restaurants and pubs) and a shift to purchasing more wine online.
Those with a heavier reliance toward the domestic on-trade channel have, relatively, been harder hit due to the closure of all licensed venues in Australia on 22 March and their gradual and restricted reopening. This has also had flow-on effects for distributors and others in the supply chain.
While some of the changes from the COVID-19 pandemic may not last, it is anticipated that others will endure. The largest enduring change has been the increasing importance of online as a route to market. Already well developed in China, other markets including Australia and the USA need to expand their online channels to reach customers. The threat for smaller producers is that the online channel will be dominated by larger operators, as is the case with off premise retail.
While consumers have returned to grocery stores as lockdowns are lifted and some will resume their old shopping habits, a portion of overall grocery spend is likely to shift from physical to online channels on a permanent basis. While online retail has grown rapidly, this influx has placed pressure on supply and online delivery capacity.
In markets with a functioning ecommerce structure, the online channel has been a saviour for the consumption of wine (and alcoholic beverages more broadly) in all formats – brick-and-mortar/ecommerce grocery hybrids, marketplaces, dedicated alcohol ecommerce, shopper apps/on-demand as well as Direct to Consumer (DTC).
The importance of DTC to smaller wineries is demonstrated through insights gathered through Wine Australia’s DTC survey. In the domestic market, DTC, in 2018-19, accounted for an estimated 17 per cent of total Australian wine sales value, significantly over-indexing in value compared with its volume share of 3 per cent. The smaller the wine business, the larger the reliance on DTC for sales revenue. For wineries producing under 5000 cases, DTC represented more than half their revenue. There is a need to continue to exploit this channel. The average value per bottle in the DTC channel was found to be more than double the next highest value channel (see Figure 1 below).
Figure 1:
Source: Wine Australia
The online space has become increasingly competitive and consumers’ expectations around delivery speeds have been raised over time. However, according to a report published by Euromonitor International, Digital Consumer Survey 2020: Key Insights, cost outweighs speed in terms of delivery. The survey, conducted in March and April during the height of the pandemic, shows the most desired delivery feature among connected consumers is free delivery. For comparison, 70 per cent of consumers desired free delivery as opposed to 30 per cent desiring either next-day or same-day delivery.
Kantar Worldpanel research shows how retailers in China have reacted to the pandemic. In the 12 weeks to 12 June 2020, FMCG spending in China grew by 3.5 per cent compared with last year. Modern trade (including hypermarkets, supermarkets, and convenience stores) fell by 1.4 per over the same period while the smaller and mini supermarkets managed to grow by 10.7 per cent. Online commerce on the other hand, continued its rapid value growth, up 46.6 per cent during the period. This was even faster growth than last year. During the period, online sales accounted for 26 per cent of total FMCG spend in China.
While the online channel has been positive for retail, within the hospitality sector there are numerous accounts of operators changing their business model and going online to survive. Businesses have increasingly turned to the digital world to drive engagement and support the on-premise through new innovations using apps and social media platforms to conduct virtual hangouts and online wine tastings.
In the USA, Wine Australia’s partnership with one of the biggest online retailers, Wine.com, has proven successful. In May and June 2020, the value of Australian sales on Wine.com more than trebled compared to the same period in 2019.
Wine Australia will soon launch the 2020 DTC survey and we urge businesses to take the time to complete the survey as the more information we can gather the more insights we can provide about activities and the greater the reliability of our data.