Red, rose and white wine top view in sunlight. Assorted wine in glass. Dark shadows
The last year has been quite a dozy for the wine and restaurant industry. The combination of the pandemic and the raging fires on the West Coast did incredible damage to both businesses. As we turn a corner in 2021 and get closer to a vaccine we all hope to see an up tick in employment and sales.
Rob McMillan, the Napa-based executive vice president and founder of the Silicon Valley Bank Wine Division, came out with his annual report today. He takes a look at past predictions and what lies ahead for both industries. Here are some of the highlights.
The Real Numbers
McMillan generally starts the report off with what he got wrong and right in terms of predictions the previous year. Given how 2020 finally shaped up some of his initial projections were off. One of the most interesting one was that, “We predicted a sales value growth range between three percent and seven percent for the premium wine segment and between minus two percent and zero percent for total wine sales. The total forecast was close, but the guess on the smaller premium wine segment was materially high. Sales growth in that segment will likely come in between minus five and minus ten percent.”
McMillan shares his predictions for the year ahead.
The closure of restaurants in many states fueled retail wine sales throughout the country. As a result McMillan said that “Restaurant sales will return in 2021 when restrictions are loosened, with locals leading the way in the tourist towns of Wine Country.” He went on to share the hope that, “For the sake of scenario planning in hospitality businesses, we are predicting we’ll have a 25 percent reopening by April 15, a 50 percent reopening by June 15, a 75 percent reopening by August 15 and full reopening by October 15.”
What Smart Wineries and Retailers Will Do
The past year’s shutdowns helped many wineries get their direct-to-consumer sales models up to date. As a result, “Wineries with direct-to-consumer models will focus on COVID-era strategies in the front half of the year but finish 2021 with strong sales.”
Smart wineries focused on a variety of Zoom tasting and phone sales “when tasting rooms had to limit visitors or shut down entirely. Once there is clear success with defeating the virus, consumers will act on pent-up demand to celebrate in groups, which will likely boost alcohol consumption in 2021.”
Success is likely to be in the cards as well for retailers with strong online sales strategies. They benefited in 2020 from the shelter-in-place orders, work-from-home trend and restaurant closures. As a result, “Wine was added back to the family dinner table, and consumers adapted to online shopping and at-home delivery.”
Lucky for retailers and wineries, “wine proved again that it is recession-resistant. While many stocked up on everyday wines at the supermarket, consumers also rapidly switched to online options, either because their selections weren’t available in grocery stores or because doorstep delivery was viewed as safer. Many consumers will continue online wine buying in a post-COVID world. So savvy wineries will want to continue to invest in sales channels other than the tasting room.”
A Few Challenges
Bringing new consumers into the fold remains key to the wine industry no matter when the pandemic comes to an end. “The challenge of recruiting younger, health-conscious, multicultural consumers into the wine category, combined with the aging of the older core wine consumer, remains.”
girl in bright clothes refuses junk food, alcohol and cigarettes, preferring a healthy lifestyle
McMillan also warns that adverse sales conditions last year have allowed anti-drinks groups to further galvanize their messages. “Anti-alcohol messaging continues to grow while guidelines from a variety of government and health organizations loosely apply science to influence consumption, taxes and regulations; for example, see the recent effort to change the USDA Dietary Guidelines.” This type of move “would have reduced the recommended number of daily drinks for men, and the renewed push to add cancer warnings to labels.”
The fires in fall also did a spectacular amount of damage to wineries on the West Coast. The report states that 2020, “was easily a record year for fire damage. More than four million acres in California have burned, more than in the prior four years combined, along with close to two million acres in Oregon and Washington.” As a result, “Almost 45 percent of the wine industry suffered some level of significant impact from fires and smoke. Without a doubt, the smoke and fire damage in 2020 will be remembered as the largest viticultural disaster since Prohibition.”
What the Future Holds
The current year should bring some welcome changes, he shares. “We expect 2021 will show positive year-over-year growth rates in off-premise accounts from January through the second week of March 2021, but there is little likelihood we will see positive growth rates from then onward given the 60 percent spike in sales in March of 2020 and substantial growth rates thereafter. That will be hard to repeat. At some point as business restrictions are lifted, we will see negative growth rates in off-premise as sales shift back to on-premise, direct-to-consumer and online sales.”
Wine corks Pattern. Various wooden wine corks as a Background. Food and drink concept
Consumer dining expectations will also be different. He suspects that communal dining in restaurants may not be very popular. He adds that many people also hope “city governments will continue the COVID trend of establishing dining districts where streets are closed, repurposing the space for tourism and dining.”
He also bets that restaurants will use some of the strategies that they implemented in 2020. These may include “apps focused on meals to go, walk-up service and curbside pickup.” Other restaurants have sold off their deep wine cellars and “will probably not return to the practice of maintaining extensive wine inventories.”
In short, the months ahead of us are likely to be full of surprises.
