What Can You Expect from Wine in 2023?

Economists are uncertain if 2023 will deliver a full recession to the U.S. economy or simply a slowdown, thanks to stubborn inflation, rising interest rates and the continued impact of the war in Ukraine and the pandemic. A lot of household net worth has been wiped out in the past 12 months, between the stock market and sinking home prices, not to mention anyone who invested in cryptocurrency.

For the wine industry, economic pain has already hit. Several industry sources report slowing sales in the final quarter of 2022, and many industry analysts expect the first six months of 2023 to be worse.

“Economists are factoring in strong odds of a recession,” says Stephen Rannekleiv, Rabobank’s global strategist for the beverages sector. “A slowdown seems more and more likely. Some consumers are already pulling back on spending.”

The last time the economy looked this grim (aside from the early pandemic days) was just over a decade ago, during the global financial crisis. But economic downturns are like snowflakes—no two are the same. So what can wine consumers expect from this one?

Patagonia Recession or Busch Light?

U.S. wine consumption has declined an estimated 1 percent in 2022, according to IMPACT Databank, a sister publication of Wine Spectator. California wineries report that tasting room visits are down. Even rare wine sales are slowing—the Liv-Ex 100, a London-based index of the top collectible wines, declined for the first time in 18 months in July, then again in October and November.

An economic slowdown will hurt wine consumers in different ways because those consumers buy different wines. “The divergence between lower price and higher price has never been wider,” says Rob McMillan, executive vice president for Silicon Valley Bank and head of its wine division. “We really have two different wine industries now.”

“This shows some signs of being a Patagonia vest recession,” says Rannekleiv. “Tech workers are getting laid off right now. At the same time, sales of Busch Light are growing as blue collar workers earn higher pay but are also paying more for everything due to inflation.” Lower income households are grappling more with inflation, as rising prices surge faster than rising wages.

But the premium wine sector, which means wines priced at $15 a bottle and up, depends on higher income consumers. While there have been layoffs in tech and a few other sectors, employment is still pretty strong and wages are solid.

But, as Rannekliev points out, higher income consumers tend to spend based less on their wages and more on their net worth. For most moderate and high income households, that means their investments and their homes. The S&P500 is close to finishing its worst year since 2008, down more than 15 percent. The sharp rise in interest rates has led to falling home prices.

The biggest factors keeping the economy moving right now are low unemployment and all the money people saved during the recession. Consumers are spending a lot of that cash now as they deal with inflation, and economists estimate it will dry up about six months into 2023. All of that means cutting back on luxury items, even everyday luxuries like a decent bottle of wine.

The Good News? Wine Prices Are Not Rising

A year ago, many importers and retailers were warning that wine prices would rise dramatically in 2022, just like most other consumer goods. But, for the most part, that hasn’t happened.

That isn’t because winemakers are enjoying lower costs. Just about everything in wine production has gotten more expensive, thanks to supply chain issues. Paper for labels has gotten pricier. A fire at a glass factory in Argentina left many producers scrambling for bottles. Fuel costs have been higher, particularly diesel, which is crucial for transporting wine around the country and the globe.

But most premium wine producers haven’t raised prices by much, if at all. The reason?…


Source : https://www.winespectator.com/articles/what-can-you-expect-from-wine-in-2023

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