The Times (for wines) They Are a Changin’

“Come gather ’round people
Wherever you roam
And admit that the waters
Around you have grown
And accept it that soon
You’ll be drenched to the bone
If your time to you
Is worth savin’
Then you better start swimmin’
Or you’ll sink like a stone
For the times they are a changin’”
Bob Dylan

The wine oracle of Silicon Valley, Rob McMillan (EVP and founder of the Wine Division of Silicon Valley Bank released his annual “State of the Wine Industry 2018” report just a couple of days ago. To sum up his findings all you need do is refer to the Bob Dylan lyrics above. The wine times are indeed a changin’!

The report’s introductory statement is a warning:

“The US wine industry is at the tail end of its largest growth period in history.”
(Page 3)

Before anyone writes off this forecast, it’s good to note Rob and his group at SVB have been doing their annual analysis of the US wine industry since 1991. They are no Johnny-come-lately analysts by any means. Plus each report begins with an unvarnished look at how their prior year’s forecasts matched up with reality.

The 2018 report goes on to note “…in a more recent development, even premium wine growth is slowing.” (page 4) It is interesting for us to note this about the use here of ‘premium wine’ – “While there is no real definition of the term “premium wine,” we define it as wine above $10 per bottle.” (page 12)

And continues with:

“Successful wineries 10 years from now will be those that adapted to a different consumer with different values — a customer who uses the internet in increasingly complex and interactive ways, is frugal and has less discretionary income than their predecessors. Successful companies will be those that evolve retail strategies away from the winery location as the sole point of experience and find other, scalable means of delivering the experience — and the wine — to consumers where they live.” (page 4)

If this wording is too obtuse the report later states it more bluntly: “This means the winning sales strategies you are leveraging in the operating environment today will slowly prove fallible tomorrow.” (page 4)

Within the report are solid descriptions of the buying habits of the four generations currently influencing the wine market. They are the Millennials (ages 22-38), Gen Xers (39-50), Boomers (51-68), and Matures (69+). Thankfully I am not ‘mature’ yet, but as I have moved up the generational ladder I have come to understand the importance of accepting change in business as well as life in general.

So it is with the wine buying public. Here are a few ways Rob points out what’s trending here:

“The face of the US consumer is changing, as are the paths to market. Bain* estimates that online selling, which at one point was thought of as an anathema to the luxury experience entirely, is now an accepted channel and is expected to represent up to 25 percent of total sales by 2025.” (page 10) *Bain & Company’s annual Luxury Goods Market Study

“Younger consumers come to the table with shaper pencils, always looking for the best deal, and are more open to a world view.” (page 16)

“Our frugal younger consumers don’t want to pay restaurant wine markups, and retiring boomers are slowing both their spending and their alcohol consumption volume.” (page 18)

“The growth cohorts are Millennials and Gen Xers, but it’s still Baby Boomers and Gen Xers, not Millennials, who dominate premium wine sales.” (page 22)

“Representing 19 percent of current fine wine consumption is the millennial generation, whose outsized impact has been falsely prognosticated by the wine press for at least a decade.” (page 25)

“’Value’ is defined as quality divided by price, and value is the dominant component for consumer purchasing decisions. When it comes to fine wine, it’s really quality plus experience divided by price that defines value, where “experience” is a placeholder for a shopping experience or the way owning or consuming the product makes you feel about yourself.” (page 19)

As digital, ecommerce continues to grow everywhere, even in the wine industry, there are ample examples of ignoring change at your own risk, such as “Borders in particular is a case study for the wine industry of what not to do.” (page 35)

Rob further points out:

“Any of the information in isolation is not concerning, but we are noting declines in volume growth starting in 2014 from Wine Institute information, shipment declines from warehouses starting in August 2015, restaurant sales declines for an extended period now and sales growth declines from interim winery financial statements in 2017. While overall volume in dollars and cases is still growing, the growth rate for wine overall and even for premium wine started to slow in late 2015 by most available measures, which implies that there are underlying changes in demand. Understanding those trends is key to developing future strategies.” (page 15)

Since I’m not directly in the wine business beyond our own cellars, I guess my only advice to those who are is this: Be sure to read the whole report!

PS Perhaps even more is changing! It seems the Napa price wave may have peaked and could be ebbing given the recent outcome from Premier Napa Valley 2018. Average bottle price saw a drop of 25% from the past three years. Read about it here.