US Wine market to grow steadily, reaching $43 billion in 2022

09 August 2018

A new report on the US wine industry finds that the already sizeable market for the alcoholic beverage will continue to grow for the foreseeable future. Despite challenges like labor shortages and the shifting preferences of millennials, the US wine market is still on track to grow from $32 billion in 2017 to $43 billion in 2022.

Wine – from boxes of greasy red for a sorority smash to the finest vintage selected from an investment banker’s climate-controlled cellar – Americans love their wine. Alternately a method to get drunk or a way to signal one’s wealth and refinement, wine offers diverse avenues for gratification, be it for the town wino or the Manhattan sommelier.

A new report from management consultancy LEK Consulting has uncorked some of the trends affecting the US wine market, ranging from demographic shifts and packaging preferences to labor shortages and industry consolidation. LEK regularly provides cogent insights into various industries, including consumer & retail.

The US market for wine is already large, and expected to keep growing healthily. Last year, American consumers purchased $32 billion worth of wine. LEK projects that the market will grow steadily to reach $43 billion by 2022 – an annual growth of 6%. Furthermore, wine has proven to be somewhat recession proof: during the Great Recession, the growth rate for volume consumed slowed – but still remained positive – indicating the product’s low cyclicality. And while some analysts believe marijuana legalization could cut into wine sales, data from Colorado shows that wine consumption has stayed constant.US wine value consumption by priceAccording to the consultancy’s report, the ‘fine and premium’ category (over $10 per bottle) has been growing strongly, and isn’t expected to fizzle out any time soon. The segment has grown at rate of 8% since 2012, and currently accounts for over half (53%) of the market ($17 billion). The fine and premium segment is expected to keep expanding in the near term, accounting for $25 billion worth of sales in 2022 – 58% of a total $43 billion market.

The preferences of millennials are making an impact on the wine industry, as the generational cohort and Gen Xers increased their share of consumption by 8% - together accounting for a larger share than boomers. Millennials are projected to account for the largest share of wine consumption in the US by 2026.

Millennials have some unique preferences in comparison to older generations. For one thing, they have little category loyalty, but also have little interest in the lowest-price win segment – contributing to the strength of the fine and premium segments now and in the future. They are, however, value conscious, looking for a high quality wine at a reasonable price – which can still be over $10.

As consumers, they also seek out ‘new experiences’ which has led to the surging of trending wine varietals. Their current fixation is rosés, which grew a staggering 53% between June 2016 and June 2017. Previously, rosés had an annual volume growth of 0.3% between 2011 and 2016. Rather than chasing trends in varietals, LEK recommends that brands and wineries should focus on digital/experiential engagement and other innovative marketing strategies.US wine consumption by venueMillennials have also driven the growing trend of ‘drinking in’: with less willingness or ability to pay restaurant wine markups, millennials and consumers generally are drinking more wine at home. Off-premise wine consumption today makes up more than 80% of consumption – a higher proportion than off-premises consumption of beer or spirits.

Flowing somewhat from the higher degree of off-premises consumption, packaging preferences are shifting to embrace easier to transport bag-in-box wine. The trend is strong enough that even premium brands have started offering 1.5 and 3-liter boxes. According to the report, boxed cabernet, chardonnay, and pinot grigio sales grew more than 20% between 2015 and 2016.

Smaller and single-serve packages have also become more popular, with canned wine sales more than tripling between 2015 and 2017 (from a still-marginal base of less than 1% of total sales). LEK relates that the canned wine market is likely to remain small – limited by consumer perceptions and shorter shelf life.US wine DTC value consumptionThe report also reveals that smaller wineries are driving growth in direct-to-consumer (DTC) sales. DTC sales accounted for more than two-thirds of sales in 2016 for wineries producing fewer than 10,000 cases per year – a 6% jump since 2014. Meanwhile, large wineries (over 250,000 cases) pulled back on DTC sales – with the sales channel representing only 6% of sales in 2016 compared with 12% in 2014. Despite regulatory (interstate shipping prohibition) and logistical (heavy, risk of spoilage) challenges, LEK projects DTC to grow 11% annually, rising from $3.1 billion 2017 to $5.2 billion in 2022.

LEK’s wine trends report also finds that the industry has increasingly consolidated: "Last year, the top 14 suppliers controlled about 80% of the U.S. wine market by volume,” said LEK Managing Director and report author Rob Wilson. “Buying and M&A opportunities remain, however, as some 9,000 suppliers produced the remaining 20%."

M&A activity has remained strong, with 30 deals for domestic vineyards in 2016, and with acquisitions made by both large and small producers. More buying opportunities are expected to arise as small wineries decide to sell off in the face of a range of challenges: up to half of winery owners say they would consider selling in the next five years.

Labor shortages are also taking their toll on the industry, as recent immigration policies have depressed the flow of seasonal migrant labor from Mexico. Now, migrant labor is finding it too expensive or dangerous to cross the border, or has been lured away to alternate crops like legal marijuana – where the pay is better and the work is less physically exhausting. Additionally, the 2017 fires in in Northern California destroyed vast amounts of housing and displaced almost 100,000 people, including documented and undocumented workers. The resultant rise in cost of accommodation has forced many to leave the area.

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US grocery sector in store for further hard discounter expansion

01 April 2019

Hard discounters offer customers bulk food at low prices in an unassuming shopping environment. German firms Aldi and Lidl have considerable clout in Europe, and in recent years have globally expanded their store footprints. Aldi is well-positioned in the US, garnering high-level support from consumers, while Lidl, which entered in 2017, has quickly built a strong reputation. As the rollout of the discounters continues, local brands face stiff competition.

Competition among supermarkets has heated up in recent years as consumers increasingly sought out discounters and moved away from hyperstores. German discounters Aldi and Lidl in particular have asserted their dominance across global markets with the former opening of hundreds of new stores and the latter entering the US market in 2017.

New analysis by Bain & Company analyzes how far the rise of discounters has affected grocers in the US market. The report, titled "How US Grocers Are Standing Up to Europe’s Hard Discounters," is based on a survey of 17,400 consumers, among other data sources.

Hard discounters NPS

To better understand the impact of hard discounters Aldi and Lidl on the US market, the firm’s recent survey of consumers asked respondents about their grocery shopping habits using the Net Promoter Score function. The Net Promoter Score measures how likely it is that a consumer will recommend a product, service, or brand to friends and family. 

In terms of the regular grocery shopping trip, hard discounters have managed to top the market at 43 points, with supermarkets around seven points behind. Mass merchants have the lowest score in the category at around 20 points. For big stock-ups, hard discounters, with their large bulk offering and appeal, score 60 points – well above that of warehouse clubs (45) and supermarkets (38). The analysis shows that even for quick trips for a couple of items, hard discounters top the score at around 10, compared to six for supermarkets and negative scores for warehouse clubs and mass merchants. The only category in which the hard discounter segment performs relatively poorly is buying prepared foods for today – at 25 compared to 50 for warehouse clubs and 35 for supermarkets.

Aldi customer advocacy

Aldi, which has been in the US market since 1976, has resonated strongly with consumers, coming in the top three for NPS for consumer advocacy. The company has managed to increase its position on last year by nine points, arriving at 55 – 15 points behind the leader. Aldi was noted in particular for its delivery of “best everyday low prices” and “best value for the money.” Lidl, a relative newcomer to the market, has a middle-of-the-road score.

Consumer advocacy is crucial to success within grocery

The success of discounters generating high consumer advocacy scores, according to the Bain, mean they are likely to show strong performance in the future, The firm notes that promoters purchase more than twice as frequently as detractors, with 70% of promoters shopping two times a month or more compared to detractors at 32%. The firm also found that the average monthly amount spent among promoters is almost three times as high as detractors, at $111 against $39. Promoters additionally tend to be more loyal to their chosen company, netting 28% of the total wallet compared to 11% for detractors.

“Lidl and Aldi are just beginning to flex their competitive muscles,” Mikey Vu, a partner with Bain & Company’s Retail Practice and a coauthor of the report, said. “What we’re seeing is that US grocers can effectively stand up to these hard discounters, but that they need to remain vigilant and innovate in strategic areas to keep their edge.”