How did the Australian domestic market weather the disruptions of 2019–20?

The first half of 2020 has brought with it many disruptions to the wine sector. The influence of COVID-19 lockdowns, social restrictions and panic-buying has now largely stabilised and so we’ll take a longer-term look at how the domestic wine market performed in the financial year 2019–20, to see if some of the short-term changes from the past few months had a significant influence on the whole year.

Did wine sales increase?

The first stages of lockdown across Australia saw an initial rush of panic-buying and the total closure of the on-premise (restaurant and bars). There were big reported increases in wine sales in the retail off-trade. As we reported earlier this year, in the week ending 22 March 2020, wine sales in the liquor retail off-trade increased by 39 per cent compared with the same week 12 months before, according to IRI MarketEdge scan data.

However, the size of this increase has not been sustained. Overall wine sales in the retail off-trade increased by 9 per cent in volume in the June quarter and by just 3 per cent when measured across the whole 2019–20 financial year. The positive growth rate is significant, as it reverses a trend of declining volumes over the past two years, but it is not enough to replace volumes lost in the on-trade over the three months of lockdown in most states and territories. The on-premise is estimated to account for 20 per cent of wine sales volume normally. Therefore a 25 per cent estimated loss in the on-premise (due to a 3-month complete lockdown) would equate approximately to a 5 per cent overall loss to the market, more than off-setting the 3 per cent increase in the off-trade.

Another channel where wine sales are expected to have increased in 2019–20 is direct-to-consumer – particularly online sales from wineries’ websites. Figures are not yet available to measure this effect; the annual Wine Australia Direct-to-Consumer survey^[1] is currently collecting information from wineries and will be published in October. Anecdotal feedback suggests that while online sales are up, competition has greatly increased in this channel and margins reduced for businesses that traditionally rely on direct sales. Cellar door sales were negatively affected by lockdowns, but some are reporting strong rebounds with new practices such as a requirement for bookings and seated tastings leading to increased sales.

Did people drink more often?

With the highly publicised short-term increase in retail alcohol sales came some concern expressed in the media that Australians had increased their overall alcohol consumption in response to the pandemic and associated restrictions. A study conducted by the Alcohol and Drug Foundation reported that 12 per cent of people in Australia drank more alcohol during lockdown. However, counteracting that, 20 per cent of respondents in the study reported decreasing their drinking and a further 4 per cent stopped drinking altogether, making it very unlikely that overall consumption increased.

Wine Intelligence collected data^[2] shortly after the start of the first lockdown, which showed that there had been an increase before lockdown in the proportion of Australian regular wine drinkers that reported drinking most days/every day, compared with the previous 12 months, leading to an increase in the average consumption frequency year-on-year. However, during lockdown, there was a slight reduction in the overall average consumption (see Figure 1).

Figure 1: Wine consumption frequency among Australian regular wine drinkers

^{(source: Wine Intelligence)}

The overall reduction in average consumption frequency during lockdown was a result of a reduction in wine consumption frequency among Gen Z consumers, partly offset by an increase among Gen X regular wine drinkers.

Results are not yet available for the rest of the year, but based on the above, it is likely that there will have been a slight increase in average number of occasions in which regular wine drinkers drink wine in 2019–20, but it is clear that lockdown did not contribute to any overall increase in consumption frequency^[3].

Did Australians drink more local wine?

In its recently released Global Trends 2020 Report, IWSR identified six key macro trends that are driving and shaping the global alcohol market and assessed the impact that COVID-19 will have on these trends. One of the trends is Sophistication and Premiumisation: the search for authenticity and status. IWSR predicts, as part of the COVID-19 impact on this trend, that local products will increase in popularity, accelerated by travel restrictions and closed borders during the pandemic.

IRI MarketEdge reported that Australian wine’s share of total domestic retail off-trade wine sales increased by 1.5 percentage points during March 2020, supporting this prediction of a move to ‘buy local’. However, this has not persisted across the longer term. In the year ended June 2020, imported wine sales in the off-trade grew by 7 per cent in volume, compared with 3 per cent for domestic sales, and increased its share of total off-trade wine sales from 12 per cent to 13 per cent.

Did consumers drink cheaper wines?

In the early days of the pandemic in Australia, there was evidence of ‘trading down’ in the off-trade wine retail market, while Wine Intelligence found that Australian regular wine drinkers generally reduced their spend per bottle of wine during lockdown, compared with their pre-coronavirus behaviour (Figure 2).

Figure 2: Off-premise index change in spend on wine during March 2020

^{(source: Wine Intelligence)}

However, this is another change/observed effect that appears to have been short-lived. Across the 2019–20 financial year, value of wine sales in the off-trade increased by 6 per cent and average value by 3 per cent, while all price segments above $10 per bottle grew overall^[4] (see Figure 3). Cask sales declined by 2 per cent in volume, while bottled wine grew by 5 per cent.

Figure 3: Change in off-trade retail sales 2019–20 by price segment

^{(source: IRI MarketEdge)}

Something to celebrate?

Wine Intelligence found that regular wine drinkers in Australia said that they were buying less Champagne and other sparkling wines during the lockdown in March (see Figure 4).

Figure 4: Changes in purchase quantity of different drink categories during lockdown

^{(source: Wine Intelligence)}

However, figures from IRI MarketEdge show that total sparkling wine sales in the off-trade in Australia grew by 8 per cent in value and 3 per cent in volume in 2019–20. This was slightly higher than the growth for still wine, and the greater increase in value compared with volume shows a premiumisation trend – ie ‘trading up’. Prosecco and sparkling rosé were the main drivers of the overall growth, which is good news for Australian Prosecco, which made up 80 per cent of the volume and 77 per cent of the value of total Prosecco in the off-trade.

Underlying trends outweigh short-term COVID-19 effects

In summary, despite the significant short-term disruptions to the market, the 2019–20 financial year saw a continuation of the trends that have defined the past few years in the off-trade: premiumisation, an increase in the share of imported wine and very moderate (if any) volume growth.