By Andrew Adams, Editor, Wine Analytics Report
The winery direct shipping market has begun a new post-pandemic era as total shipments for the past year declined 1.6% by value and 10.3% by volume. While the declines are unprecedented in the more than 12 years Wines Vines Analytics and Sovos ShipCompliant have tracked the channel, they are not that surprising given the equally unprecedented 27% increase in total volume seen in 2020.
Released just prior to the global outbreak of COVID-19 and the ensuing lockdowns of March 2020, the annual report on shipment activity in 2019 described a “mature” market in which growth could be expected to be much more modest than in previous years. At the time, the dominant trend had been strong year-to-year growth thanks to the opening of new states to DtC wine shipping. Yet after Pennsylvania fully opened to shipments in 2018, there were no longer any major markets left to open and a period of robust year-to-year growth via legislation came to an end.
But like everything else, the pandemic changed the landscape for wineries. DtC shipments served as a vital lifeline for wineries through 2020 and into 2021 when total shipments enjoyed a 1.4% increase in volume on top of the record high set during the worst of the pandemic.
While the declines seen in the past year don’t suggest a general pullback from direct shipments by both wineries and consumers, the steep drop in December shipment volume, coupled with a 10% decline in value, indicate that inflationary pressures and economic worries crimped the key sales period. In 2021, wineries enjoyed a boon in DtC business from holiday gift-giving from individuals and companies, some of which organized virtual tastings as COVID-safe holiday parties, leading to a value increase of more than 14% in October and 17% in November that year. This past year, wineries reported holiday gifting appeared down and many wine club members paused some club shipments because they accumulated so much wine in 2020 and 2021.
Meanwhile, many wineries in Napa and Sonoma counties will need to be strategic in 2023 with how they allocate wine into the various sales channels because the past three harvests have been lighter than normal. Back in 2020, many had excess inventory because of the bumper crop of 2018.
Those factors will all remain in play during the coming year as the DtC channel begins to reflect the wider U.S. wine market. Sales growth will be a challenge and wineries will need to be even more aggressive in a market that is poised to have fewer consumers than in 2020 or 2021 because of a revived on-premise sector, less demand for lower-priced wines to be shipped direct and layoffs among white collar workers. Shipping and material costs aren’t likely to decline even if price increases moderate through 2023, further reducing margins on direct shipments.
Back to the new normal
As the DtC channel continues to normalize from the dramatic increases of 2020 and 2021, it is being driven by many of the trends that defined it long before the COVID-19 pandemic.
Cabernet Sauvignon reasserted its dominant position in the channel as the only key varietal to enjoy a significant increase in shipment value and a comparatively small decrease in volume.
The varietal accounted for 30% of total channel value in 2022 after increasing 6% to $1.26 billion for the year. By volume, Cabernet accounted for 17% of the total channel with 1.27 million cases, followed by Pinot Noir and Red Blends that both had a share of 14% after volume declines of 10% and 12%, respectively. Red blends saw a 2% increase in total value to $675 million.
While the popular varietals and wine types lead in DtC shipping just as in retail, the significant share of the “other” category in value and volume demonstrates the potential for consumers to acquire the alternative wines that may not be so easy to find in other channels. In 2022 the “other” category accounted for 15% of total channel value at $619 million (down 9% from 2021) while nearly a quarter of volume at 1.75 million cases (down 13% from 2021).
Just as seen in the total U.S. wine market, growth in DtC shipments has been bifurcated by price and the overall decline in volume is even more dramatic when segmenting by price. By value, total shipments of wines priced less than $50 fell 13% to $1.55 billion while the total value of wines priced more than $50 rose 7% to $2.59 billion.
The most expensive price tier of more than $200 grew by 32% to $664 million. By volume, wines priced more than $50 increased 1% to 2.11 million cases, while those priced less than $50 fell 14% to 5.37 million. Lower priced wines do account for a significantly higher share of volume with wines priced less than $50 accounting for 74% of all cases shipped and 70% in 2022. By dollars, wines priced more than $50 accounted for 58% of total channel volume in 2021 and that share grew to 63% in 2022. While the 166,927 cases of wines priced more than $200 accounted for just 2.2% of channel volume, they claimed 16% of total value.
While the past three years have brought both ups and downs in winery DtC shipments, 2023 is likely to see a return to market conditions that could be viewed as “normal” prior to the pandemic. Wineries need to be even more vigilant and strategic in finding new opportunities in the DtC market while also retaining the invaluable consumer relationships that generate consistent, high-margin direct sales.
—-
Andrew Adams is the editor of the Wine Analytics Report, which is published by Wines Vines Analytics. Adams grew up in the city of Sonoma, Calif., before graduating from the University of Oregon with a degree in journalism. In addition to working at daily newspapers for more than a decade, Adams worked in the cellar and lab at the former Starmont winery in Napa Valley and has been a regular contributor to Wine Business Monthly magazine since 2019.
