Turning Headwinds into Tailwinds at DTCWS

Alex Koral
January 26, 2024

I had the pleasure and privilege of attending the 2024 Direct to Consumer (DTC) Wine Symposium (DTCWS) to speak on the past and future of the direct-to-consumer (DtC) shipping market. As an annual event, DTCWS provides our industry with a regular opportunity to reflect on market conditions and connect on ways we can all help build the DtC channel, which has become vital for so many wineries. 

Perhaps unsurprisingly, there was an undercurrent at DTCWS of what might be best called cautious pessimism. Reflecting the larger challenges that face the entire beverage alcohol industry, there were many questions and concerns raised by the audience about the strength of the market going forward.  

Indeed, as recent industry reports have indicated, in 2023 the beverage alcohol industry faced its worst year since 1991, with declining sales for all product types. Coupled with fears around the rise of neo-prohibitionism and developing technologies that promise major disruption for all businesses, there seems to be a real sense within the beverage alcohol industry—and especially in wine—that we are in for an extended period of headwinds. 

And yet, I couldn’t help feeling that while we certainly face no shortage of challenges affecting our market, there is still more than enough reason for optimism. If we recognize where our strengths are, where opportunities await and where the threats to our market lie, then we can push through this time of uncertainty and turn those headwinds into tailwinds. 

Where the challenges lie

The biggest concern currently facing the wine industry (and alcohol more broadly) is the apparent decline in sales in 2023. According to market data, wine distribution was down by nearly 9% in 2023.  

There are many different causes associated with this decline, from competition from other products to lack of market penetration among younger consumers to the increasingly vocal campaign that says that any alcohol consumption is unsafe. 

Certainly, the effect of each of these challenges is real and deleterious to wine sales. Consumers do seem very responsive to “new” products crowding shelves, like ready-to-drink (RTD) cocktails, hard seltzers and no/low-ABV beverages—RTDs were essentially the only alcoholic beverage type that saw growth in 2023. And between the scaremongering studies coming out of various international and governmental bodies and reports indicating all-time low alcohol use among younger people, the cause of neo-prohibitionism has never been as charged. 

Within the DtC wine shipping market, there is an extra challenge coming from within the industry itself, as rent-seeking businesses continue to trot out all manner of alleged and unproven horrors related to DtC shipping to convince lawmakers and regulators to snuff out DtC shipping.  

On their own, each of these concerns might be enough to depress the wine market, but together they work as some kind of perfect storm. 

Still, we should not—cannot—let pessimism for the future overwhelm us. Instead, we can recognize that these challenges are hardly new and that by confronting them face on, we can even turn them to our advantage and strengthen the wine industry for years to come. 

How we remain strong

We must realize the resilience of the wine industry. Wine has been consumed and been a central part of society for thousands of years and even a 9% decline in distribution does not signal imminent collapse. Indeed, while neo-Prohibitionism is on the rise, it is still a pale comparison to actual Prohibition and could still readily turn out to be little more than a fad.  

Similarly, the kvetching about Gen Z and how they don’t drink (and don’t drink wine) is overblown. For one, most of the Gen Z cohort are still under 21 years old, so it would be alarming if their rates of alcohol consumption were on equal level with older generations. And second, wine sales have always been lower among younger drinkers. As was noted at the DTC Wine Symposium, the gradual increase in wine consumption as one ages is nearly as constant as the sun rising in the east.  

That Gen Z does not drink wine as much as older generations is not a cause for panic—in fact, it could be a moment of opportunity if the wine industry can get ahead of the trends and tailor its messaging to the current consumer climate. This does mean confronting the health claims around alcohol. Not by trotting out old claims that wine is actually healthy but by pointing out the reasonable differences between overconsumption and how humanity has consumed wine since time immemorial. Saying that red wine may be beneficial to your heart is not going to change minds today but noting that a glass with dinner and friends is demonstrably unproblematic could. 

Further, wineries can take advantage of the drive for alternative beverages and offer their own takes on low- or non-alcoholic beverages. Especially for the wineries that thrive on visits to their tasting rooms, being more open to wine skeptics can be a way to bring in more tourists (and perhaps give them the chance to come around to trying some wine). While there should be some caution against simply jumping on the bandwagon of the latest trend, wineries that only offer the one thing are at risk of siloing themselves as consumers become more category agnostic. 

And of course, we should note the particular opportunity that comes with DtC shipping. As our upcoming Sovos ShipCompliant/WineBusiness Analytics 2024 Direct-to-Consumer Wine Report will show, the DtC shipping market remained resilient as the rest of the industry faced decline. For the smaller wineries that make up the bulk of the industry, DtC shipping enables ready access to consumers across the country, which would be impossible if the only option was working through the various states’ three-tier systems.  

The major threat to DtC shipping comes from retrenchment among the states and efforts to introduce new and impossible to manage regulations. But if we can continue to work as an industry to push back against the DtC naysayers, then there is every reason to believe that DtC shipping will continue to be an area where wineries can thrive in the face of other market challenges. 

Optimism is often a tough sell, even in rosier times. When the news says the world is falling apart around us, despair can be its own kind of comfort. But it would be wrong for the wine industry to give into pessimism. Wine is strong and our industry has weathered many storms throughout its history. By keeping our cool and recognizing where the current challenges are coming from and how we have overcome them in the past, we can change our tack and make today’s headwinds tomorrows tailwinds. 

Take Action

Interested in learning the latest information on growth trends, changes in price per bottle shipped, regional demand and varietal trends in the DtC wine world? On January 30, download the 2024 Direct-to-Consumer Wine Shipping Report.

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Author

Alex Koral

Alex Koral is Senior Regulatory Counsel for Sovos ShipCompliant in the company’s Boulder, Colorado office. He actively researches beverage alcohol regulations and market developments to inform development of Sovos’ ShipCompliant product and help educate the industry on compliance issues. Alex has been in the beverage alcohol arena since 2015, after receiving his J.D. from the University of Colorado Law School.
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