Direct-to-consumer has been one of the most resilient parts of the wine market.
By Jeff Siegel
The consensus is that Direct to Consumer sales will be one of wine’s few bright spots in 2024. Why that’s the case, though, isn’t quite as clear.
Most estimates, including the 2024 Silicon Valley Bank Report and experts at Sovos ShipCompliant, expect volume to decline this year but value to increase. More broadly, according to the Sovos 2024 study, DtC volume fell by 6.5% in 2023, but value increased 0.1%. The recently released VinoShipper 2024 report found much the same thing, with “an increase in the price per liter to a five year high” despite smaller bottle orders.
The SVB report predicts DtC sales will “grow modestly” in 2024, though there might be the same sort of split between value and volume. SVB report author Rob McMillan says that the upward trend should continue again in 2025.
All told, DtC was worth $4.1 billion in 2023, according to Sovos, which is about 5% of total U.S. wine sales.
“Direct-to-consumer has been one of the most resilient parts of the wine market,” says Alex Koral, regulatory general counsel for Sovos ShipCompliant, the beverage alcohol compliance business of global tax compliance technology solution and service provider Sovos. “It may not seem like a lot of progress, but we may be at the low point in terms of inventory. Reaching this bottom means there will be higher sales going forward.”
Qualified good news
In all, this is good news for the typical DtC producer, which hovers at about 50,000 cases, according to Sovos. These businesses have seen demand decline since the end of the pandemic and have likely lost retail and restaurant sales thanks to distributor consolidation over the past couple of years (where that consolidation has seen wholesalers shedding smaller wineries).
In addition, given DtC’s better margins, some savvy DtC producers might actually be better off financially, says Andrea Smalling, chief marketing officer for WineDirect, since those margins can be as much as one-third higher than those in the traditional three-tier model. In other words, it may take fewer customers to make more money.
There is also a sense that the relative good news in the DtC numbers — especially for the 2024 projection — has much to do with the typical DtC customer, who is among the most loyal and has more financial resources than most wine consumers. McMillan emphasized this point, noting that ever higher DtC prices don’t seem to deter those wine buyers. The Sovos study found that the average price per bottle shipped rose 7.1% last year, to $48.35.
Koral agreed that the DtC customer’s loyalty is also important; they’ve found a product they like using this channel, “artisan” or not, that they probably can’t find elsewhere. And they’re comfortable buying that product through DtC.
A variety of factors
Having said all this, it’s worth noting that DtC’s numbers are relatively good news compared to the rest of what’s going on in wine, given the 2023 overall numbers and the various projections that expect overall sales to decline again in 2024. And it’s important to realize, said those interviewed for this story, that the DtC market has been complicated by a variety of factors that make analysis that much more difficult:
- The COVID effect has significantly skewed percentage growth numbers. DtC sales shot up in 2020 during pandemic-related lockdowns, but then retreated in 2021 when consumers could return to buying in-person. What matters, say the analysts, is that DtC sales are mostly level with 2019 — the so-called “bottom” — so future sales figures have that base to work from.
- Increasing prices. Again, DtC value increased, but did it increase because consumers were “drinking better” or because prices were generally higher? Says the Sovos report: “This change in the average price of a bottle shipped DtC is lower than the increases seen in the past two years.” The VinoShipper report identified the same question: “Further data in the report indicates that consumers are spending more on higher priced wines, which could be a combination of the industry passing on inflationary costs and a possible shift in consumer preference towards higher-priced wines.”
- Important regional differences. California residents, who power the U.S. DtC market and account for more than one-quarter of all purchases, bought 14.4% less wine by volume in 2023 than they did in 2022, reports Sovos. That’s the largest year-over-year decline in shipments to the Golden State. On the other hand, Washington state (which has its own serious problems) saw its Cabernet Sauvignon sales increase 22.4% in volume and 34.2% in value year-over-year. The latter was more than three times higher than the average price per bottle shipped.
“In the end, this is about choice,” says Smalling, “and it looks like wine drinkers are still making this choice.”
The next question, then, is for how long?
Jeff Siegel is an award-winning wine writer, as well as the co-founder and former president of Drink Local Wine, the first locavore wine movement. He has taught wine, beer, spirits, and beverage management at El Centro College and the Cordon Bleu in Dallas. He has written seven books, including “The Wine Curmudgeon’s Guide to Cheap Wine.”