A hoped-for rapid return of U.S. consumers to pre-pandemic levels of ordering wine and other beverage alcohol at restaurants, bars, nightclubs, hotels and similar venues may be faltering.

It’s the likely result of some of the worst price inflation in decades on a wide variety of goods, according to new data.

Establishments where libations are imbibed on the premises are a key market for North Coast wineries. They were forced to quickly shift sales away from dining when gathering places were shuttered by public-health restrictions in California and other key wine markets nationwide.

While Florida and Texas eased restaurant dining controls in the second half of 2020, California, Illinois and New York kept limits in place, in some cases well into the first half of last year.

So industry analysts have become concerned as consumer research and beverage industry sales metrics in recent months seemed to be pointing to diners’ thinking twice about dining out or cutting back on beverages when they get there.

One of the most closely watched gauges of how well wine is performing in the on-premises sales channel is SipSource.

This data service by distributor trade group Wine & Spirits Wholesalers of America tracks how quickly or slowly those beverages are moving from distributor inventory to where they’re sold for on- or off-premises consumption, a metric called depletions. As such, this data can point to what’s selling and not.

SipSource’s channel-shifting index has been tracking for the past two and a half years how purchases of wine and spirits by on-premises-consumption venues — also including transportation companies such as airlines and cruise ships — compare with pre-pandemic levels. From the beginning of the pandemic restrictions in March 2020, the share of depletions of wine and spirits to on-premises venues plummeted, bottoming out in February 2021 at 42% and 47%, respectively, of pre-pandemic levels.

But in early 2021 as vaccines started to roll out, restrictions started lifting and diners began returning, distributor sales to on-premises establishments gradually rebounded, faster for spirits than wine.

And in the three months ending in May of this year, wine and spirits on-premises depletions had returned to pre-pandemic levels, at 97% for wine and 101% for spirits.

Then came a “hiccup” in the SipSource data, according to beverage industry analyst Danny Brager.

The on-premises index backed away from full recovery to pre-pandemic levels, falling to 90% for wine in June–August and 95% for spirits, according to the latest data.

“I don't think it's COVID-related as much as (it is because of) inflation and what people do when their wallets are stretched,” said Brager, an analyst for SipSource and a consumer-trends consultant for Napa-based Azur Associates. “One of the first things they do is look for ways to save money, and one of those is going out to eat less often. And if they’re out sitting in restaurants and bars, they may order one drink instead of two.”

That shift in the on-premises beverage alcohol depletion data is echoed in a recent survey of U.S. adults by market-research firm Morning Consult.

Conducted the first week of June, it found that 84% of people asked were adjusting to overall price inflation by dining out less often; 76% were going to bars less frequently;and over two-thirds were cutting back purchases of high-priced items such as meat (72%) and alcohol (68%).

“Consumers across demographics are cutting back at restaurants to save, but millennials and higher-income consumers are among the most likely to be making this change,” Morning Consult experts wrote in follow-up analysis in early August. “These two groups spend the most at restaurants, so they have bigger dining-out budgets to trim — and more savings to gain — than other demographics.”

This follows with the latest National Restaurant Association figures.

“Fifty-two percent of Gen Xers and 48% of baby boomers say they are not eating on premises at restaurants as often as they would like,” wrote Bruce Grindy, the trade group’s chief economist, about the early September survey results. “On the off-premises side, Gen Xers (39%) are the most likely to say they are not ordering takeout or delivery from restaurants as often as they would like.”

Spending at bars and restaurants in August was $86.2 billion, basically flat on an inflation-adjusted basis from July and down 1.4% from the peak in May, the trade group reported.

While annual growth for all items in the U.S. consumer price index rose 8.3% annually in August, grocery food prices were up 13.4% and at restaurants up 8%, according to the Bureau of Labor Statistics. But prices for alcohol overall were up just 4.3% from a year before.

The lower inflation rate for beverage alcohol suggests that producers are less likely to raise prices as are restaurants, though also being squeezed by higher costs for labor and key supplies, Brager said.

But rising labor costs at on-premises venues, namely hotels and concert halls, are helping Sonoma-based Free Flow Wines recover from the big pandemic hit. It supplies and retrieves stainless-steel kegs for dozens of vintners’ by-the-glass programs, according to Rich Bouwer, CEO.

He said the business is back to 90% of pre-pandemic levels, much of it from new accounts, as 7% of the on-premises venues it served closed in the pandemic.

“Four years ago, we were not seeing as many hotels pouring wine on tap, but now they are looking at doing more with less staff,” Bouwer said. He noted potential labor saving for restaurants from tap pours versus opening and sealing bottles, as well as waste from spoiled unsold wine bottles.

“We’re under pressure from cocktails and other beverages, and wine needs to pay attention to its price points,” Bouwer said, noting that the allure of specialty cocktails can sway younger adults if the price is roughly equivalent to a glass of wine.

Jeff Quackenbush covers wine, construction and real estate. Before coming to the Business Journal in 1999, he wrote for Bay City News Service in San Francisco. Reach him at jquackenbush@busjrnl.com or 707-521-4256.