Slice of pie: The changing face of US drinks retail

Following the news that drinks delivery service Drizly will be dissolved by Uber this month, Roger Morris investigates the changing retail landscape for drinks in the United States. 

IN THE English fairy tale, Henny Penny – recast in the US as Chicken Little – is whacked on the head by a falling acorn and immediately starts shouting: “The sky is falling!”

This tale is brought to mind by the fact that the US retail wine market has recently slipped into decline after decades of gains in value and volume and, while perhaps not claiming that the sky is falling, many trade observers have voiced concern that it’s the the beginning of a slide down a slippery slope. Some have argued that the wine industry must collectively take immediate action to reverse it.

More upbeat observers might embrace a different story – one in which a young Sir Isaac Newton similarly gets whacked on the noggin, not by an acorn this time, but by an apple. Newton’s somewhat more moderate reaction – that the situation calls for some thoughtful gravity but is not in itself catastrophic – might provide a better example to follow. While the decline in US wine sales is a little disconcerting, the fall-off is largely a market correction – one that could even lead to long-term gains.

There can be no denying that the US retail wine landscape is in a state of flux.

While 2023 final year estimates vary slightly, total wine sales by volume in the US fell by around 2% in 2023 after experiencing a similar decline in 2022.

Sales by value were less grim, however, and premium wine sales are even predicted to increase in the current financial year.

Jeff Zacharia, president of Zachys Fine Wine, has the unusual perspective of heading up a large bricks-and-mortar New York retail store, which is also a major ecommerce merchant and one of the world’s largest wine auction houses.

“There is still a strong interest in fine wine,” he tells db, “and new consumers are coming in all the time.”

At the same time, younger consumers continue to drink across wine, beer and spirits categories – which is fine with US retailers, as most sell all three.

The same youth movement is being reported at ground level by bricks-and-mortar retailers.

“I’ve been seeing more young people in the store since Covid,” says Frank Pagliaro, owner of FranksWine in Wilmington, Delaware, who cultivated that age group with open-air wine events when pandemic regulations restricted access.

“We have a much younger customer base than before,” agrees Robert Jernigan, president of the Retail Liquor Association of Oklahoma, who has also noted a tendency of younger drinkers to move up the value chain in the last 12 months. “I see younger consumers trading up from Cupcake Vineyards and other grocery store wines to the likes of Lobetia Cabernet Sauvignon Organic from Spain, and Folly of the Beast Pinot Noir from California; both on shelf for around $13.”

Younger consumers are less likely to read reviews by traditional wine publications and critics. Instead, they are more likely to buy based on recommendations on social media.

Jernigan references last year ’s trend for young consumers posting videos of themselves on TikTok drinking an inexpensive American sweet wine called Taylor Port (not to be confused with Fladgate’s Taylor ’s Port). For weeks afterwards, “you couldn’t find a bottle anywhere in Oklahoma”, he says.

NEO-PROHIBITION

Fabrizio Germano, general manager of Millesima USA, the New York City retail branch of the Bordeaux exporter, calls Millennials “curious, attentive and very open to learn about the wine world”, while noting that they also pay more attention to health warnings.

A spate of neo-Prohibition campaigns aimed at lessening alcohol consumption is ruffling feathers among wine producers and merchants.

In the Wine Opinions survey, more than half of those in the 21- to 39- year-old age category said they took part in Dry January or Sober October in 2023. “The non-alcohol and low-alcohol wine segment is getting bigger,” says Pagliaro, who has a section of his store devoted to the category, “and the wines are getting better – not like the crap we used to see.”

Many trade observers are extremely concerned by the rise in health-related campaigns designed to severely restrict alcohol consumption in the US, or to recommend total abstinence, increasingly calling it a return to Prohibition, the dry period in America between 1920 and 1933 when most wine, beer and spirits sales were outlawed.

“I think the biggest threat [to wine consumption] is the growing neo-Prohibitionist movement and its potential to affect the USDA Dietary Guidelines for adult consumption, which are due to be reviewed in 2025,” says Gino Colangelo, whose communications firm, Colangelo & Partners, commissioned the recent Wine Opinions survey.

“There’s speculation that the current guidelines – two drinks per day for men and one drink per day for women – may be revised to two drinks per week for all adults, following the recent change in Canada.”

Rather than being sitting ducks, Colangelo says he is working with others in the industry to develop a wine advocacy initiative that would touch on health concerns. He also notes that the Wine Market Council and WineAmerica have initiated social media projects to enhance the image of wine drinking in the US.

Meanwhile, online retail wine sales continue to be robust. While the US maintains a nationally mandated three-tier system of producer-wholesaler-retailer, its 50 different states and many local governments can choose whether their producers and retailers are permitted to ship wines directly to consumers, whether from a local bricks-and-mortar store, a distant winery exploring the direct-to-consumer (D2C) space, or a national retailer with no local presence.

Zacharia of Zachys Fine Wine says that a growing trend at his New York store is for customers to order wine online and then pick it up in person. “Obviously, this changes how the store’s personnel operates,” he says. “Some of our staff need to be dedicated to taking telephone and online orders, fulfilling and packing the merchandise, and meeting with the customer for pickup.”

Local delivery of wines from retail stores is also alive and well, in spite of the news that Drizly’s alcohol delivery business will be folded into its parent company, Uber, this spring.

Having acquired Drizly for $1.1 billion in 2021, Uber ’s head of delivery, Pierre-Dimitri Gore-Coty, confirmed last month that the alcohol delivery service will be absorbed into its Uber Eats platform due to “overlaps” between the two.

The announcement came as a shock to many in the trade, given the tremendous success that Drizly enjoyed during the Covid-19 pandemic, when its sales skyrocketed by 350% (between 2019 and 2020) due to consumers being locked down and unable to go out to buy booze.

Uber plans to axe the Drizly service, close its Boston headquarters and merge it with its Uber Eats arm in the coming months, with more than 150 jobs thought to be at risk.

Drizly’s business model when it launched was to partner with “thousands of retailers and suppliers to help them reach new customers, tap into key market and customer insights, and diversify their business to grow sales”. And this it did with gusto.

Responding to the news that the company will soon close, senior Drizly brand director Liz Paquette wrote on LinkedIn: “There’s one thing I know for sure: we did the damn thing. We built a brand that people love. I am so proud.”

Drizly’s demise appears to be a result of recent consolidations within the rapid delivery sector, rather than being a business failure. “Drizly was just a redundancy for Uber,” Dale Stratton of wholesaler group WSWA says, “and other delivery services such as Gopuff continue to do well.”

One of the largest national retailers in the US is the online-only Benchmark Wine Group, based in California, that also specialises in back-vintage wines. The group has entirely eschewed bricks-and-mortar stores in favour of ecommerce.

“For any large retailer who wants to keep growing, getting online is becoming more of a must,” says Benchmark founder and CEO David Parker. He is also the board chairman of NAWR – the National Association of Wine Retailers – which is currently doing battle with the WSWA, which contends that direct-to-consumer shipping violates the three-tier mandate.

For those retailers offering both in-person and online experiences, the ecommerce side of the business tends to account for around one-quarter of total sales.

Dan Williams, buyer for Hi-Time Wine Cellar in southern California, says its online business averages 12-15% of total sales. “But from what other retailers and distributors tell me, this is well below normal,” he says.

Mike Fisch of major New Jersey retailer Gary’s Wine and Marketplace tells db that about 20% of its sales are online, and he expects that to hold steady.

INVENTORY LEVELS

“When interest rates went up, retailers started carrying less and less inventory,” says WSWA’s Stratton. There is also a hangover of surplus stock left over from the Covid-19 pandemic, say major companies which export to the US, which means US retailers are less inclined to take on more stock.

When Pernod Ricard revealed its latest set of results in February, it flagged that sales in the Americas, which account for 28% of the French company’s total business, declined by 7% in the last six months of 2023.

Similarly, exports of all French wines and spirits to the US plummeted by 22% in 2023, according to a report by the French Association of Wine and Spirits Exporters (FEVS). Sparkling wine exports to the US were hit harder than still wines, with fizz seeing a 16% value drop, which the French organisation partially attributed to US retailers having a surplus of stock left over from the Covid-19 period.

It was worse still for spirits, which saw export values to the US fall by a worrying 37%.

“Wine consumers are not as brand-conscious as spirits and beer drinkers. If you run out of the wine brand they’ve been buying, they’ll just go to the next Chardonnay under US$15,” offers Stratton by way of explanation.

Throughout the pandemic, many restaurants and bars were either closed for long periods or remained open, but with fewer customers. Some auctioned off, or sold at discounts, much of their cellars. They have not rushed to fully restock. Many premises have also reduced the number of wines they serve by the glass.

Zacharia spies a silver lining. “While interest rates have been a factor, many retailers are using the opportunity to manage their inventories more efficiently than before,” he says. Even though WSWA’s wholesalers have been carrying the inventory, retailers aren’t buying, says Stratton. “But because stores are holding less inventory, we are seeing fewer sales and markdowns,” he adds.

At the fine wine end of the spectrum, sales are going great guns, with specialist wine stores in major US cities following the example of other luxury goods providers by upgrading their selling environment and offering bespoke services, such as invitation-only events and special tasting facilities.

Sotheby’s has for some time had its own retail wine shop in its US headquarters on New York’s Upper East Side, and it was recently joined by Millesima, which opened its new facility two blocks away.

Spread over 5,200 square feet, the new Millesima store provides its clientele with white glove service, as well as offering wine futures and other fine wine services.

“Millesima’s new flagship would like to become a wine library – a place where wine lovers gather to discuss and learn about wine and its world,” the store’s manager Fabrizio Germano tells db.

“We are preparing a compelling events plan with public tastings, private tastings and high-end tastings with the collaboration of our distributors and producers.”

Although perhaps not as elegant as the new Millesima, outside New York there are other retailers who cultivate luxury buyers. For example, Wally’s in Los Angeles lures customers with its lavish selections of caviars and cheeses, as well as offering clients the ability to sell their rare wines on consignment. Anfora Wine Merchants in Oak Park, Illinois, holds elegant popup dinners with wine producers such as Barolo’s Ettore Germano.

Most retailers and suppliers report that the boom in no- and low-alcohol wines continues, and orange wines and natural wines have not yet run their popularity cycles. Years ago, organic wines were a hard sell, but today many US customers seek them out.

In fact, retailers report that their organic wines have become so popular they no longer section them off in one designated area. Older industry observers remember the 1990s, when only “old people” drank cocktails, to the point where some Bourbon producers mothballed their distilleries and sold off stock.

Will US wine sales also roar back in a few years’ time? Or will the gap between customers who see wine as an occasional purchase and those who view it as a desirable luxury item continue to grow? Many European firms have survived such upand-down cycles for centuries, though American investors have tended to reward business growth more than quality of earnings. At any rate, changing customer preferences is something US retailers can handle.