Wine Intelligence ranks the United States of America (US) as the most attractive wine market in the world, offering plenty of opportunities for those willing to navigate its complex alcohol distribution system. Wine Australia’s Market Update: United States of America, released today, reports on the latest situation in the market, including economic forces, the alcoholic beverage landscape, wine consumption levels, and Australian export performance.
Economy emerging from COVID-19, but inflation dampens expectations
As with most economies during the COVID-19 pandemic, the US economy was greatly impacted due to restrictions on the movement of people in order to curb the spread of the disease. The decline in GDP during 2020 was even steeper than the loss during the Global Financial Crisis in 2009 (in fact it was the largest decline since WWII), driven by large job losses and low consumer confidence.
The economy started to recover in late 2020 and early 2021, primarily due to large stimulus packages courtesy of the federal government and the vaccine roll-out gaining momentum. Towards the end of 2021, this growth has slowed due to the rise of COVID-19’s Delta variant, strained supply due to transport delays, expended stimulus packages and sky-rocketing inflation.
Figure 1: Monthly 12-month inflation rate
Source: US Bureau of Labor Statistics
In October 2021, inflation hit 31-year highs in the US. Pre-pandemic, inflation tended to sit between 1.5 and 2 per cent per year; it has now reached 6.2 per cent. Contributing the most to the increase were the prices of housing, fuel, and food. The price increases were attributed to shortages of supply and labour, while demand soared. Global shipping bottlenecks contributed to the supply-side issues, while demand was fuelled by government stimulus checks.
Alcohol consumption is flat, but e-commerce sales have accelerated
Total Beverage Alcohol Servings and the Legal Drinking Age (LDA) population have been growing at the same approximate rate for the past 30 years (left hand chart in Figure 2), which means that the number of servings per adult in the US has been flat (right hand chart). Therefore, the only growth in alcohol consumption is coming from the increase in LDA population and this further intensifies the share fight between wine, beer, and spirits.
Figure 2: US total beverage alcohol trends
Source: bw166
Beer has an overwhelming share of the total alcohol market but has been in a steady decline. Wine, up until a few years ago was growing at around 2–3 per cent per annum, now this has slowed to about 1 per cent per annum – close to the LDA population growth.
RTD’s have done especially well thanks to the popularity of hard seltzers. However, there is evidence that this growth has slowed in 2021, due to the category maturing from a niche product to a widely accepted alcoholic option.
Although COVID-19 did loosen some alcohol distribution laws, such as the delivery of alcohol and the ability for restaurants to offer take-away alcohol, the structure of the market more or less remains the same. (Please read our previous Market Bulletin on the 3-tier system for more information.)
The relaxed laws around alcohol e-commerce during the pandemic helped grow online avenues such as direct-to-consumer sales by wineries unable to open their cellar doors and losing restaurant business, as well as more traditional online retailers, and brick-and-mortar stores widening their online availability. Wine has the largest online footprint of the alcohol categories – both by total sales and share of its off-trade sales (see Figure 3).
Figure 3: E-commerce sales by category
Source: IWSR
Growth in wine consumption is tapering off, but not for premium and imported wines
Per capita wine consumption had been in slow, steady growth until recently. Between 2010 and 2015, wine consumption per person in the US grew on average 2 per cent per year (from 9 litres per person to nearly 10 litres per person). In the past five years this growth rate has slowed to 0.3 per cent per year. To put these figures into context, Canada consumes around 12.2 litres per person per year, the United Kingdom, 18.3 litres per person, and Australia, 20.2 litres per person (IWSR).
In 2015–20, the volume of wine sales grew by 1 per cent per annum while value grew by 3 per cent. It is forecast that volume will start to decline, by 0.1 per cent per annum in the next 5 years, while value will grow at 2 per cent per year. The slowing of volume growth and continued growth in value due to consumers purchasing less, but better, is a common trend in established wine markets.
Imported wine is also driving growth in the US wine market and that growth accelerated in 2021. In late 2019, tariffs were imposed on certain French, Spanish, and German wines, and this served to dampen imports slightly during the pandemic. However, Italian wines, the number one imported source, were not affected by these tariffs and maintained a strong position. The tariffs were suspended in early 2021 and since then there has been a high level of imports flowing into the country. There have also been increases in bulk imports from the European countries (which were not affected by the tariffs), as well as a large increase in bulk wine imports from Canada – which are mostly used in spirits products.
Figure 4: US wine imports
Source: Global Trade Atlas
Australian premium wine is slowly recovering from post-GFC decline
Since 2012, the low point for average value of shipments to the US, Australian wine exports shipped at an average value above $10 per litre have been on a slow, upward trajectory. Between 2012 and 2021, the value of exports above $10 per litre has grown by 5 per cent per year on average. Also, in 2012 there were 693 products shipped at this price level, and in 2021 that number has nearly doubled to 1293.
Figure 5: Australian wine exports to the US above $10/litre
Source: Wine Australia
This segment is key to ensuring Australian wine’s continued success in the US as the premium price segments are driving growth in the market. In the year ended 26 September 2021, all wine sales below US$8 per bottle in the off-trade declined by 14 per cent while sales at US$11 or more per bottle declined by less than 1 per cent (IRI Worldwide). Australia holds an 11 per cent market share below US$8 per bottle but only 0.4 per cent at US$11 or more per bottle.
For more analysis, please read the full report.