2020 has not been easy for the wine world. To list off a few hurdles: a globe of bars shut down. A global pandemic. Climate change. California and Oregon facing the most destructive wildfire season in history.
“2020 is supposed to relate clarity; ideal sight. This year is anything but,” says Chris Towt, owner of Durell Vineyards and co-founder of VineSpring. “Locals in Sonoma and Napa joke, ‘what’s next, earthquakes and locusts?’ Unfortunately, neither is a far fetched thought.”
Total loss of wine sales for the year is predicted at $5.94 billion, according to the California Wine Institute. (On the bright side, at least e-commerce is thriving.)
So how are the players of the fine wine field regarding 2020?
“2020 has been an incredibly difficult year for fine wine,” says Jordan Salcito, founder of RAMONA and former sommelier at Momofuku and Eleven Madison Park. She cites tariffs as a big threat, while other industry members list off fires, new distribution channels and emerging regions as the cause of major plate shifts.
Let’s take a look at the numbers first: Globally, according to the IWSR total fine wine (USD $50+ a bottle for still wine and USD $100+ for Champagne) was up +0.8% in volume in 2019. Total value of wine in that price category was up +2.9% in 2019, with a forecasted CAGR 2019-2024 of +0.4%.
Looking to the future, still fine wine is forecasted to grow +0.2% compound annual growth rate volume 2019-2024. Sparkling fine wine specifically saw an expected CAGR growth between 2019 and 2024 of +0.9%. But the numbers aren’t indicative of the storm the industry is trying to ride out.
Liv-Ex noted that 50% of wine buyers are buying direct from producers, mainly due to price and provenance—going direct to vineyards takes out the middleman. 26% of buyers prefer buying from professional wine sellers, but they note that this method comes with risks and squeezes.
Interestingly, buying at auction was the least preferred channel of buying due to the high variance in prices and concerns about provenance, according to Liv-Ex.
A study from the global wine marketplace also revealed that 70% of buyers expect the number of DTC sales to increase in the next 5 years, creating more competition between brands.
Sommelier Zack Musick, the beverage director at Merriman’s Hawaii, noted that e-commerce and DTC is affecting restaurant prices—a tough blow given the pandemic’s crippling affect on the on-premise industry. “These tariffs, combined with a global pandemic, created a huge spike in online sales in various digital channels. Once people realized that they could skip the middleman and get the wine they want at a slightly more affordable price they stopped going to stores and stopped ordering as much wine from restaurants. I plan to see more people bringing in corkage than ever before.”
Towt argues that while some consumers are going direct, others are supporting their favorite restaurants. “As local governments relaxed the rules regarding alcohol sales, some restaurants pivoted quickly to making their wine cellars available to the public. Not only are customers buying more directly from the producer, but now locals could more easily buy from the restaurant down the street,” he says.
On the flipside to that though, many restaurants were forced to sell off deep cellars of rare wines to keep doors open. (A heartbreaking blow, as restaurants spend years curating and collecting wines.) Later this month, wine auction Zachys is auctioning off £3.2 million worth of wine from 3-Michelin star Florentine restaurant Enoteca Pinchiorri.
Andrew Pattison, the beverage director of Los Angeles’ Sushi Note, notes that with restaurants operating on limited budgets (or none at all), wine makers are looking to place limited allocations elsewhere. “Overall, demand is down in the on-premise sector, which will force winemakers to look to other more stable markets like Asia.”
Some off-premise retailers are finding a silver lining in this. “We don’t buy direct, but we’re getting some great deals on luxury wines since many hotels and restaurants haven’t been taking their allotments,” says Howie Rubin, the general manager of Bauer Wine & Spirits. “We’re quick to pounce on those opportunities to enhance our portfolio.”
Pattison notes that this has fine wine being purchased in never-before-seen places. “I recently saw wines from distributors that would normally never be caught dead in a supermarket in my local Whole Foods,” he describes. “This is a signal that Covid-19 has decreased on-premise sales to the point where companies are rethinking business strategies in order to remain competitive.”
“Like all markets, the fine wine sector is navigating an unknown path, with some of the longer-term effects of the pandemic still to be bedded in,” muses Tom Gearing, the CEO of wine investment heavy-hitter Cult Wines. “Clearly the pandemic has caused much distress in the overall hospitality sector worldwide of which we are part of that chain.”
“However, we have found, as an investment firm, that many investors have come to us because fine wine is a ‘safe haven’ in times of turbulence due to the correlation factors against the main equity markets,” Gearing says. “The whole alternative investment sector, of which fine wine is a leading asset class, is now being looked at by more people to balance their portfolios.”
In the next few weeks over a series of articles, I’ll be speaking with members of the fine wine industry on how 2020 is changing the landscape of luxury wines, from shifting tariffs to new distribution channels.