Through past recessions, total beverage alcohol consumption has remained steady, and wine has come through relatively unscathed as its best consumers are typically insulated against economic downturns. During a June 29 webinar, market analyst and former winery executive Jon Moramarco pointed out two areas where wine could be vulnerable if the economy were to slip into a recession this year.
The most recent recession was followed by about a decade of low interest rates. That has changed quickly and most likely to the dismay of a young couple who might have entered into a contract on their first home earlier this year only to see interest rates rise dramatically by the time the sale closes. That hypothetical couple is typically the type of consumer wine has counted on bringing into the fold to keep total sales growing and retain market share.
Experiencing rapid inflation with a recession could well keep those younger consumers from trying wine or even trading up their wine purchases. “I think that could be a bit of a challenge for the wine industry because we’re trying to attract more young consumers,” Moramarco said.
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Meanwhile, if the number and scale of tech layoffs increase, Moramarco, who is the editor and partner of the Gomberg Fredrikson Report and managing partner of the research firm bw166, said many of the consumers who may have been insulated from economic pain in the past could instead have to change their lifestyles and spending at the expense of wine. “That is a place where we could be hurt.”
If inflation can be brought under control, Moramarco is optimistic for the rest of the year but he added that widespread social and political disruptions such as the ongoing war in Ukraine and supply chain challenges make it nearly impossible to know for sure. “It’s really hard to say how this is going to shake out,” he said. “There are so many moving pieces.”
According to data by bw166 and Gomberg Fredrikson, the compound annual growth rate for wine in the 12 months ended May since 2019 came to 3.7%. This compared to 6% for spirits and 1.2% for beer. Imports enjoyed impressive growth in 2021 yet Moramarco said that appears to have been more a reaction to the pandemic and supply chain issues as the growth has since flattened and imports likely may end this year down compared to last.
Over the next six months, Moramarco expects wine sales to essentially stay flat, either declining or increasing 1%, while beer could see a decline of 2% to 1% and spirits are expected to keep growing albeit at a reduced rate of 1% to 3%.
Sparkling wine continues to be the exception, with imports up 12% in the first four months of this year compared to 2021, and grocery store sales value seeing an increase of 21% in the first five months of the year compared to the same period in 2019. “It seems to be the one category that’s growing well,” Moramarco said adding that sales are strong across the board from Prosecco to domestics. “I think partly that is because sparkling wine sells almost like spirits rather than table wine.”
Despite ongoing cost increases and many wineries openly discussing price increases, Moramarco said any changes on a SKU-by-SKU basis haven’t appeared to have taken effect. That may be because any price increases set on products earlier this year still haven’t made their way to store shelves.
Economic uncertainties aside, Moramarco sees the market balancing out for the rest of the year. “We’re not seeing much growth in the market but likewise we’re not seeing a lot of declines in the market,” he said. “For better or worse it’s going to be a little slower and it always goes back to market share.”
