Overall, wine has performed reasonably well in an increasingly competitive marketplace
Wine’s share of total consumer beverage alcohol spending was relatively steady throughout the 2010s despite stiff competition from spirits and hard seltzers. And the category appears to have gained market share during the pandemic in 2020, though this was partly due to channel shifting. Wine is less exposed to the on-premise channel than beer and spirits, so it was sheltered to some extent from the severe collapse in restaurant and bar spending when COVID-19 hit.
This assessment is based on Vintage Economics’ analysis of microdata from the Bureau of Labor Statistics’ Consumer Expenditures Survey, which collects daily spending diaries over a two-week period for approximately 6,000 households per year.
But wine has ceded substantial ground to spirits in the on-premise channel
The overall figures mask a distinct bifurcation in the category’s performance. Wine has performed well in the off-premise channels – but has been struggling in the on-premise for some time.
Wine’s on-premise penetration fell by about five percentage points during the 2010s, and the pandemic appears to have exacerbated the slump. In 2020, only about one in five households that purchased on-premise beverage alcohol during the prior week chose wine (either exclusively or in combination with other categories). Conversely, penetration in the off-premise channels rose to its highest level in at least a decade.
The spirits/other category (all alcoholic beverages except for wine and beer) gained substantial market share during the 2010s, and it surpassed beer to become the top on-premise choice in 2020. About six in ten households that bought alcohol on-premise drank at least some spirits. And despite a steep decline in penetration in 2020, beer is still a far more popular choice than wine when drinking out.
The demographic drivers of the on-premise decline
An aging population and growing racial ethnic diversity have contributed to the decline, as older buyers and racial ethnic minority consumers typically devote a smaller share of their wine expenditures to the on-premise channel. But shifting consumer preferences have played a more definitive role. Age- and race-specific penetration rates have declined across the board.
Moreover, wine has become more of a role player rather than a go to on-premise even with its core demographic: high-income and highly educated consumers. And penetration with Gen X and the millenials hasn’t increased as they’ve aged – a trend that signifies the slump will continue unless consumer behavior changes.
The move away from wine on-premise is partly a pricing issue. Wine is more expensive per serving than beer or spirits on average, and the increasing availability of online pricing information has raised awareness of the steep dollar markup on wine. But the growing popularity of cocktails in restaurants and bars isn’t just about price – and the industry will need to find a way to compete more effectively against spirits if it is to reverse this dynamic.
On-premise spending typically accounts for around a quarter of total consumer wine expenditures (though far lower in 2020) and a smaller share of volume and overall winery revenue due to the markup. Even so, the decay in penetration portends a rising headwind for wine demand if it persists.