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

09 August 2018 5 min. read
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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.