Each year the wine industry pours over one of the important analyses issued in the United States. Silicon Valley Bank State of the US Wine Industry Report which is written by Ron McMillan, executive vice president and founder of the bank’s wine division. The 2023 report, which is free to download, included an interesting historical breakdown of direct-to-consumer (DTC) wine sales over recent decades. According to the report, 2022 was the second consecutive year of negative growth for the U.S. wine industry. This trend started around 2010, interrupted only by 2020, which by all measures was an unusual year.
Another respected publication, Direct-to-Consumer Wine Shipping Report from Sovos ShipCompliant and Wines Vines Analytics, provides another layer of understanding. “2022 winery DtC shipments represented 12.0% of total off-premise sales value of domestic wines in the United States,” according to the report. Data indicates the volume of wine shipped in 2022 decreased by 3.0%-14.2% from 2021 figures, depending on the region. “After the all-time high of $4.2 billion in value that the DtC shipping channel experienced in 2021, the declines seen in 2022 were not that surprising,” said Andrew Adams, Wine Analytics Report editor at Wines Vines Analytics in a press release. “Consumers were spending much more time in restaurants and bars as the on-premise sector rallied.”
McMillan dials in on the topic of DTC, which hasn’t always been situated as it is today. The report provides winery owners with a resource in making decisions on how best to sell their wine this year and beyond.
The post-prohibition period from the 1930s to the 1970s was the start of winery tours and tastings, though with a much more laid-back approach than we’ve come to expect today. Similar to the cellar door function at play in some other countries, it was built on a sip-to-sample that hopefully lead to a purchase. McMillan called this phase “the winery equivalent of the roadside fruit stand.” Beringer Vineyards was the first to offer tours and tastings to rouse interest from new customers.
“In the late 1980s, with the economy coming off two recessions, total wine sales were declining due to both neo-prohibitionism and the aging out of the mature generation,” writes McMillan. Readers of the full report will note similar adversities lurking in 2023. More than half of winery owner respondents have negative sentiments about the economy; there is an increase in abstinence from wine; and people 60+ are the only segment that’s experiencing growth. But in the 1980s, some winery owners saw that DTC sales represented a way for them to control reach, though in small amounts. This was the birth of the wine club and subscription model, challenged from the start by interstate shipping limitations and shipping costs. So here we see the sprouting hospitality industry, built to welcome consumers on-site to purchase wine from the source.
The task of shipping wine legally continued to be a problem in the 1990s. In the tasting room, demand for wine facilitated a shift from free tastings to fee-based tastings. And this widespread thirst needed to be satisfied through all means available. “In 1994, the median boomer hit age 35, which was a magical year,” writes McMillan. “US wine sales took off, and distributors found themselves knocking on the doors of even the smallest wineries to meet consumer demand.” By the early 2000s, supply and demand balanced out, tipping the scales away from nascent DTC enthusiasm. But two things paved the way for change: the internet and the Supreme Court’s Granholm decision which opened up the possibility for nationwide shipment of wine.
According to McMillan’s report, “DTC sales now make up almost 70 percent of sales for the average small premium winery.” We know this decade’s part of the story well. When pandemic-related lockdowns kept people out of the tasting room, wineries relied on e-commerce sales, with many investing in marketing communications and digital sales systems.
“One thing I hope we’ve learned through the pandemic is that there is a risk in focusing too much on any one channel,” writes McMillan. “The average winery today receives 30 percent of its total revenue from tasting room sales and 24 percent of sales from the wine club.” He points out that more than half of sales come from people who have found the winery and visited the tasting room.
The sales landscape is noisier than ever, with computer and phone screens overwhelmed by emails, texts, social media motivations, and more. This continues to be the challenge for wineries today. McMillan has for several years advocated that family wineries need to take the show “on the road” and he lays out some practices in the report that he believes will help wineries stretch into new direct markets. Like most decisions we are all making in 2023, there’s no promise of guarantee, but wineries that embrace DTC in an authentic yet data-driven way will find new ways to reach consumers and in turn, hopefully sell more wine.