US Wine Market 2024 - Trends, Opportunities and Beyond

Introduction

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The US wine market is undergoing significant transformations as it grapples with changing consumer preferences, economic pressures, and demographic shifts. From the resurgence of certain varietals to the challenges of engaging younger consumers, the landscape is both complex and dynamic. For alcohol marketing leaders and brand owners, understanding these trends is crucial for strategic planning and capitalizing on new opportunities. This comprehensive analysis synthesizes key insights from recent industry reports and expert observations to provide a nuanced view of the current state of the US wine market and projections for the future.

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Market Overview

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In recent years, the US wine market has faced continued challenges, with forecasts predicting a decline in volume. The IWSR anticipates that US wine market volumes will decrease at a compound annual growth rate (CAGR) of -2% between 2022 and 2027. This represents an acceleration from the -1% CAGR observed from 2017 to 2022, with a notable -3% drop in volumes in 2022 alone.

The dominant still wine segment, accounting for 85% of market volumes, is projected to decline at a CAGR of -3% through 2027. While other segments like sparkling wine, fortified wine, and light aperitifs are expected to grow, they do so from much smaller bases and cannot compensate for the declines in still wine.

Despite an improvement in consumer sentiment in 2023 — marked by increased positivity about incomes and future prospects — economic pressures are leading consumers to prioritize essential spending. Marten Lodewijks, Director of Consulting – Americas at IWSR, notes that this positive shift has not translated into higher spending on wine. "Economic pressure is pushing many US consumers to re-evaluate their spending by prioritizing essentials," he explains.

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Consumer Spending Patterns

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Shifts in On-Premise Consumption

The on-premise sector has seen mixed results. Sales of wine in restaurants and bars have been flat or slightly positive, with a 5% growth in July year-on-year, supported by a 10% increase in average receipt values, according to CGA's BeverageTrak. Dave Parker, owner and CEO of Napa's Benchmark Wine Group, observes that "on-premise consumption is clearly up as consumers continue to return to restaurants."

However, this recovery has not reached pre-pandemic levels. Financial restraint is leading to lower typical spend on casual occasions. Adam Rogers, Research Director – North America at IWSR, points out that consumers are dialing back on casual drinking occasions and showing an increased preference for at-home consumption. "The shift to remote or hybrid working is also impacting channel recovery," he adds.

Direct-to-Consumer Trends

Direct-to-consumer (DTC) wine sales have experienced a decline in volume but an increase in the average bottle price. The 2024 Direct-to-Consumer Wine Shipping Mid-Year Report from SOVOS indicates an 11% drop in volume between January and June, while the value decreased by only 5%. The average bottle price hit $48.96, an increase of 6%.

The most significant spike in average bottle price was seen at the largest wineries (producing over 500,000 cases annually), which saw a 14% rise to $22.12 per bottle. Small wineries (producing fewer than 1,000 cases) experienced a 13% increase, reaching an average bottle price of $68.96.

Cathy Huyghe, co-founder of Enolytics, emphasizes the importance of DTC channels, especially for smaller wineries. "Distributors are focusing now on more volume brands, as opposed to brands at the premium price points," she notes. By leveraging data to tailor promotions and target specific customer segments, wineries can drive significant sales through DTC channels.

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Premiumization and Price Segments

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The Complex Landscape of Premiumization

Premiumization has been a key trend in the US wine market, but its ability to offset volume declines is waning. While there is growth in premium-and-above price tiers (wines priced between $15-$49.99), it is insufficient to counteract the strong declines in standard-and-below priced wines (less than $9.49 per bottle), which account for 62% of total market volumes.

"As Baby Boomers enter retirement with secure income levels, trading up is still prevalent within core wine consumers," says Adam Rogers. "However, growth in premium-and-above segments will not be able to offset losses in standard-and-below due to the latter's larger scale."

Price Point Dynamics

Des Echavarrie, owner and master sommelier at St. Helena's Scale Wine Group, observes a sales shift at specific price points. "Investment-grade wines in the $200-$400 range are holding strong," he notes. "Wines in the $20-$50 range are also doing well, but wines in the $100-$150 range are increasingly harder to market."

Dave Parker of Benchmark Wine Group echoes this sentiment, reporting that sales of "big-ticket collectible wines with price tags over $1,000" are up, while mid-tier price points are experiencing slower movement.

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Demographic Shifts in Wine Consumption

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An Aging Consumer Base

The wine-drinking population in the US is aging. Legal Drinking Age (LDA) Gen Z consumers account for only 7% of regular wine drinkers (RWDs), compared to 36% for Baby Boomers. Between 2019 and 2023, the proportion of RWDs aged 21-34 decreased from 29% to 23%, while those aged 55 and above rose from 38% to 43%.

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"This means that the demographic makeup of regular wine drinkers is aging," says Marten Lodewijks. "Older drinkers tend to be less involved in the wine category. Meanwhile, the LDA-34 group has a keener interest in the moderation trend and also a much wider repertoire than those aged 55+, leading to lower drinking frequency levels and volumes across the board."

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Millennial Engagement and Behavior

Millennials present both challenges and opportunities. They are the most involved age group in the wine category, with an improving financial outlook and a continued willingness to spend more on wine. According to IWSR consumer data:

• 44% of Millennial RWDs have a high involvement in the wine category, compared to 30% for RWDs as a whole.
• 57% of Millennial RWDs drink wine on two or more days a week, versus 46% of all RWDs.
• 73% enjoy trying new or different styles of wine regularly, compared to 58% of all RWDs.

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"Millennials are more adventurous and are more likely to consume wine in on-trade settings," says Richard Halstead, COO Consumer Insights at IWSR. "However, their wine consumption has also moderated, and their category loyalty has been insufficient to offset overall decline."

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Younger LDA consumers are also leading the trial of alternative packaging, with nearly a third of Millennials having purchased wine in small bottles, and 17% in cans. For producers keen to reach the Millennial consumer, offering products with bold flavors, adhering to socially conscious business practices, presenting convenient packaging choices, and targeting health-conscious consumers could help resonate with this market segment.

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Emerging Wine Varietals and Categories

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Shifting Preferences Toward New Varietals

Traditional best-selling varietals like Cabernet Sauvignon, Pinot Noir, and Chardonnay are experiencing negative value growth between -3% and -6%. In contrast, less common varietals are seeing growth:

• Cabernet Franc: Up 13%
• Fumé/Sauvignon Blanc: Up 2%
• Sangiovese: Up 11%

Sauvignon Blanc, in particular, is the only table wine varietal in the top 15 showing growth, with a 3.3% increase in off-trade sales, according to Nielsen data. Chris Schmid, Senior Vice President of Strategic Partnerships at Prestige Ledroit Distributing Co, notes that "sales of Sauvignon Blanc really stood out this year, with an increase in sales of 150%. It is the fastest-growing varietal in our portfolio."

Consumer Appeal

The rise of these varietals indicates a shift toward fresher, vibrant wines that appeal to a wide range of customers. Zach Poelma, Senior Vice President of Supplier Strategy and Insights at Southern Glazer's Wine & Spirits, expects Sauvignon Blanc to continue to "outpace the overall wine category, especially around the $10 price point."

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Sparkling Wine: Mixed Signals

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Decline in Champagne Sales

The sparkling wine category presents a complex picture. Champagne sales have dwindled for more than a year, with a -8.2% decline in 2023 and further declines this year. Champagne giant LVMH reported a 15% plummet in the first half of the year.

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"For the first time in five years, we have seen a pullback in growth of our French Champagne portfolio," says Des Echavarrie.

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Growth in Prosecco and Cava

Non-Champagne sparkling wines tell a different story:

• Prosecco: Showing steady, consistent performance. La Marca, a leading Prosecco brand, reports a 6.7% increase in dollar sales as of September, becoming the best-selling wine item by dollars in the country.
• Cava: Achieving explosive growth, indicating a shift in consumer preference toward more affordable sparkling options.

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"Prosecco is showing steady, consistent performance, and Cava has achieved explosive growth," confirms Chris Schmid. This trend reflects consumers' desire for affordable luxury and versatility in sparkling wine options.

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Changing Consumption Patterns

Sparkling wines are increasingly consumed beyond traditional celebratory occasions. Richard Halstead notes that "sparkling wines from Italy, the US, and elsewhere are increasingly migrating into a new positioning in the US. The category is becoming more legitimized as an alternative to still wine at meals."

Additionally, sparkling wines are finding a place as aperitif cocktail ingredients, broadening their appeal in markets where aperitif cocktails are in strong growth.

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Alternative Packaging and Innovation

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Embracing New Formats

Alternative packaging is gaining traction, particularly among younger consumers:

• Small Bottles: Nearly a third of Millennials have purchased wine in small bottles.
• Cans: 17% of Millennials have purchased wine in cans.

These formats offer convenience, portion control, and appeal to health-conscious consumers. They also present an opportunity for wineries to differentiate their products and attract new customer segments.

Marketing Opportunities

Wineries that innovate with packaging can meet the needs of modern consumers seeking convenience and sustainability. By offering alternative packaging options, brands can tap into the preferences of younger demographics who value portability and are open to trying new formats.

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Challenges and Opportunities in Distribution

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Distribution Constraints

The US wine market is heavily skewed toward domestic consumption, with 88% of wine produced in the US consumed domestically. This contrasts with countries like Italy (57%), France (56%), and Spain (38%), which have more developed export markets to offset domestic consumption slowdowns.

Distributors are focusing on volume brands, making it challenging for smaller wineries to secure orders. Cathy Huyghe notes that "distributors haven't placed an order from some wineries in six months or more."

Leveraging Direct-to-Consumer Channels

Small wineries are finding success by focusing on DTC sales and using data analytics to target specific customer segments. For example, a California winery ran a Labor Day promotion tailored to customer preferences, selling $36,000 worth of rosé and red wine in four days.

"By micro-segmenting their list of customers who purchased through different DTC channels, including online, tasting room, and wine club, they achieved significant sales," says Huyghe.

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Read more: Alcohol Sales Guide - How to Increase Alcohol Sales

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Strategic Recommendations for Brands and Marketers

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1. Target Engaged Millennials: Develop products and marketing campaigns that resonate with Millennials' preferences for bold flavors, sustainability, and convenience. Emphasize socially conscious business practices and health-conscious options.
2. Innovate with Alternative Packaging: Introduce innovative packaging options like small bottles and cans to attract younger consumers seeking convenience and novelty.
3. Capitalize on Emerging Varietals: Invest in promoting and expanding offerings of rising varietals like Sauvignon Blanc, Cabernet Franc, and Sangiovese to meet the evolving tastes of consumers.
4. Adapt to On-Premise Shifts: Collaborate with restaurants and bars to enhance wine offerings that cater to current consumer spending patterns and preferences, considering the impact of remote and hybrid working on consumption habits.
5. Enhance Direct-to-Consumer Engagement: Utilize data analytics to understand customer behavior and tailor promotions to specific segments, boosting DTC sales and mitigating reliance on traditional distribution channels.
6. Expand Export Markets: Explore opportunities to develop international markets to mitigate domestic consumption declines, learning from the export strategies of countries like Italy, France, and Spain.
7. Optimize Pricing Strategies: Recognize the challenges in mid-range pricing and adjust strategies to focus on high-performing segments (under $50 and over $200), where consumer spending is more robust.
8. Leverage Sparkling Wine Trends: Capitalize on the growth of Prosecco and Cava by offering competitive products and promoting them for everyday occasions, beyond traditional celebrations.
9. Build Strong Distributor Relationships: Strengthen partnerships with distributors by demonstrating market demand and offering compelling product portfolios to secure shelf space.
10. Educate and Engage Consumers: Provide educational resources and experiences to increase consumer involvement and appreciation, particularly among less engaged older demographics.

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Conclusion

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The US wine market is at a crossroads, facing challenges from declining volumes and shifting consumer behaviors. However, opportunities abound for brands willing to adapt and innovate. By focusing on engaged demographics like Millennials, embracing emerging varietals, leveraging alternative packaging, and enhancing direct-to-consumer strategies, wine producers and marketers can navigate the evolving landscape.

Understanding and responding to these trends is essential for sustaining growth and relevance in a competitive market. As economic pressures and demographic shifts continue to influence consumer choices, agile and informed strategies will be key to success in 2024 and beyond.