Premiumization Era Ends for Global Wine?

Since the end of 2023, alarms have been sounding in the global wine sector. A concerning trend has emerged: not only has the volume of trade been falling, but the value has also taken a significant hit. This decline marks a departure from a decade-long trend of value growth, except for two notable crises: the 2009 financial crisis and the COVID-19 pandemic. The recent decline has shaken confidence across the wine industry, raising questions about the future of the market.

During the peak of the COVID-19 crisis, the wine industry experienced a decline in global trade. Between February and May 2020, approximately 2.4 million hectolitres of wine trade were lost, while the market saw a more prolonged dip in value, from $35.4 billion in February 2020 to $32.9 billion by January 2021. Despite this initial downturn, the global wine market experienced a rapid recovery, particularly in value. By December 2020, the volume of wine exports had rebounded to pre-pandemic levels, and by January 2022, global wine exports reached 111.9 million hectolitres — an 8.6% increase from the lowest point of the crisis.

In terms of value, the recovery was slower but more intense. By May 2021, the global wine trade had recovered its pre-pandemic value and continued to grow until March 2023. From the lowest point of the crisis, the market expanded by 28.6%, amounting to nearly $6.9 billion in additional value. However, by mid-2023, the growth trend reversed. Both volume and value of global wine exports began to fall once again, with the latest figures from May 2023 indicating a global trade value of $39.7 billion.

This is particularly troubling for an industry that had long relied on the phenomenon of "premiumization"—selling less wine at higher prices. Since 2009, while the volume of global wine exports steadily declined, the increasing value of exports provided a silver lining. However, the fall in both volume and value seen in 2023 signals a potentially significant shift, leaving many to wonder if this is a temporary setback or a more profound change in the global wine trade.

The United States is the world's largest wine market by value, accounting for 17% of the global total, and the third largest by volume, at nearly 13%. This makes any significant shift in U.S. imports particularly consequential for the global wine trade. Since mid-2021, U.S. wine imports surged, but by mid-2023, the country experienced a sharp decline in its wine imports, contributing substantially to the global downturn.

While the U.S. market experienced the steepest drop, other key markets such as Germany, the United Kingdom, and China have also shown declines, although less dramatically. German imports have been falling steadily for over a decade, down from over 15 million hectolitres in 2017 to under 14 million hectolitres in 2023. Similarly, while the U.K. saw a brief rise in wine imports during the early part of the pandemic, it has since experienced a continuous, albeit gradual, decline. Meanwhile, China's wine imports have been dropping since 2018, adding to the overall global reduction in demand.

The Evolution of U.S. Wine Imports

The U.S. wine market provides a particularly striking example of the current turbulence in global wine trade. Between February 2020 and March 2021, U.S. wine imports fell by just 3.5%, with 43.3 million litres lost. However, the real impact of the pandemic was seen in the value of imports, which dropped by 19.4%, amounting to a loss of $1.22 billion. This decline was influenced by several factors, including the disruption of higher-priced on-trade channels and a greater decline in sales of sparkling wines compared to non-sparkling packaged wines. Prices also fell by 16.5%, from $5.11 per litre to $4.28.

Despite this downturn, U.S. wine imports saw an extraordinary recovery over the next two years. From March 2021 to March 2023, imports grew by over 229 million litres, reaching unprecedented levels of 14.35 million hectolitres. In monetary terms, the recovery was even more dramatic, with import values rising by $2.78 billion, from $5.11 billion at the height of the pandemic to $8.0 billion in March 2023. This remarkable growth in both volume and value was driven by rising demand and a 30% increase in average prices, reflecting broader inflationary pressures.

However, the sharp rise in imports eventually led to an abrupt correction in 2023, raising questions about the sustainability of the post-pandemic boom.

The Role of Over-Stocking in the U.S.

The decline in U.S. wine imports in 2023 can be partly attributed to over-stocking. Data from the first half of 2024 suggests that the sharp fall in imports has stabilized, with purchases hovering between 12.26 million and 12.28 million hectolitres. This points to the possibility that the decline in 2023 was a temporary correction after the excessive stockpiling that occurred between 2021 and 2023.

A closer analysis of the data reveals that if U.S. wine imports had followed pre-pandemic trends, the market would not have experienced such an extreme surplus. Instead, an estimated 2.16 million hectolitres of excess wine was accumulated during this period, leading to the subsequent sharp drop in imports. If this hypothesis is correct, U.S. wine imports may soon recover as the surplus diminishes. However, the recovery will depend not only on the depletion of this stock but also on the broader trends in U.S. wine consumption.

A Decline in U.S. Wine Consumption

While over-stocking explains much of the recent decline in U.S. wine imports, another troubling trend has emerged: a decrease in overall wine consumption. According to the Wine Institute, U.S. wine consumption dropped significantly in 2022 and 2023, from a historic high of 1.06 billion gallons (40 million hectolitres) in 2021 to 900 million gallons (34 million hectolitres) by 2023. Per capita consumption also fell, from 12 litres per person in 2021 to just 10.1 litres in 2023.

This decline in consumption may be a result of consumers working through the excess wine they had previously purchased, or it could signal a deeper shift in consumption habits. Increasing health consciousness, concerns about alcohol consumption, and economic factors may all be contributing to this trend, raising questions about the future of the U.S. wine market.

The sharp decline in U.S. wine imports in 2023 has had a significant impact on global wine trade. While much of this downturn appears to be linked to the accumulation of excess stock during the post-pandemic boom, the concurrent drop in wine consumption raises more profound concerns.

Short-term factors, such as over-stocking, are likely to be corrected in the coming months. However, longer-term trends, including declining wine consumption, suggest that the global wine trade may be entering a period of sustained uncertainty. The U.S. market, with its considerable influence on global wine dynamics, will be a key factor in determining the future of the industry. Monitoring these developments closely will be crucial for producers, distributors, and other stakeholders in the global wine trade.