Tag Archives: Rob McMillan

SVB wine forecast 2018

SVB wine forecast 2018SVB wine forecast 2018: This will be a good year for the U.S. wine business. But what the wine business does next could determine the health and success of wine in the U.S.

The first thing that Rob McMillan said at yesterday’s videocast for the SVB 2018 wine industry report was a warning. How seriously the ostriches in the wine business take his prediction could determine the fate of the U.S. wine business over the next decade.

“I look at the horizon, what’s going to happen,” said McMillan, Silicon Valley Bank executive vice president and the founder of its wine division. “Some people would say that’s a negative way to look at it, because business is good, and 2018 will be a good year. But what’s on the horizon?”

And the answer to that question, as I have written many times, may not be what the wine business wants to hear. It has focused on short-term growth, premiumization, consolidation, and wringing out profits at the expense of value and quality. And guess what McMillan said consumers, including and especially Millennials, are looking for in the wake of those developments?

“Value,” he said, “even at premium prices. It’s what I call the frugal hedonist.”

Where have we heard this before?

In other words, unless the wine business once again embraces value, trouble is looming. Here are some of the numbers in the SVB wine forecast 2018 that led to this perspective:

• Sales growth in the U.S., measured by volume, has been flat since 2013. This has not happened since the early 1990s.

• The high-powered growth rate for wine costing more than $9, which has been the highlight of premiumization, is starting to slow. This is especially true for wines between $9 and $15, which has been among the fastest growing price ranges.

• The bank’s clients, many coming from California’s top wine regions, have seen sales stall after a string of 10 percent annual bumps almost since the end of the recession. This is especially worrying, said McMillan, and nothing like this has happened since the early 1990s.

• Consolidation among distributors, which has been on hyper-drive for the past 18 months, seems to have hurt retail sales, funneling more business toward the biggest retailers.

• Traffic to tasting rooms in Napa, Sonoma, and Washington state has declined. Which, frankly, is inconceivable to anyone who came of age drinking California wine.

Finally, one bit of good news: Drink local seems to have become an established part of wine, said Mary Jo Dale, the marketing director, Americas, for Vinventions/Nomacorc, and one of the videocast’s panelists.

Winecast 31: Rob McMillan, Silicon Valley Bank

Rob McMillanSometime in the next several years, the pricing sweet spot for wine will be $15 to $25 a bottle, compared to $12 to $15 today.

Rob McMillan, the executive vice president and founder of Silicon Valley Bank in Napa, may know more about wine pricing — what will happen and why — than anyone else in the world. And he doesn’t see that cheap wine has much of a future.

Sometime in the next several years, the pricing sweet spot for wine will be $15 to $25 a bottle; today, it’s about $12 to $15 a bottle. In this, McMillan sees the increase as the next step in premiumization, the process he has identified as the gradual increase in the cost that wine drinkers are willing to pay for what they consider a quality bottle.

We talked about premiumization, as well as how difficult it is forecast wine prices given the lack of quality information — what McMillan calls the same sort of self-interest that the tobacco companies displayed when they were discussing the relationship between cigarettes and cancer.

Also, he said, don’t expect to see wine price increases in 2018. There are enough grapes in the world so that supply will be steady, while demand looks to be about what it has always been. In this, it will be easier to start a new brand at a higher price than to raise prices for and existing brand.

Finally, we had an intriguing discussion about Barefoot, the $7 wine that accounts for as much as five percent of U.S. wine sales, and how it fits into premiumization.

Click here to download or stream the podcast, which is about 21 minutes long and takes up 6 1/2 megabytes. The sound quality is good; we recorded it using Google Voice.

SVB wine industry report 2017

SVB wine industry reportDoes the SVB wine industry report show the next stage in the evolution of the U.S. wine business?

Are we watching the next phase in the evolution of the U.S. wine business? Perhaps, if Rob McMillan is spot on with his analysis in the annual SVB wine industry report.

As he usually is.

“Why is growth slowing?” McMillan asked during the report’s webcast on Wednesday. “It’s changing consumer demographics and patterns.”

In this, the Baby Boomers – who have fueled the unprecedented growth in the U.S. wine business over the past four decades – are officially on the wane. Though they still control some 40 percent of the U.S. market, their clout is being passed to the two younger generations. Both Gen X and Millennials are showing market share increases, and their 50 percent total has passed the Boomers (though, in wonderful irony, the vaunted Millenials drink about half as much wine as the Gen Xers). That’s the chart at the top of the post; click on it to make it bigger.

And they don’t drink the same things that their parents and grandparents do, focusing on red blends and, surprisingly, sauvignon blanc, as opposed to the traditional varietals. The red blends, which I’ve written about extensively, were the subject of much discussion and consternation during the webcast; no one was quite sure whether these younger wine drinkers would stay with red blends or switch to the traditional varietals.

The report also outlined:

• The continued bifurcation of the U.S. wine market, with the annual decline in sales for wines costing less than $9 and growth in wine costing more than $12. The study expects significant growth in U.S. wine costing more than $15.

• Increasing costs for U.S. producers – land, certainly, but also labor. How this will affect the business remains unclear, although it is one of the factors driving the bifurcation. Producers with more expensive wines can better afford to deal with higher costs.

• Increased competition for wine from craft beer and legal marijuana, and especially among younger drinkers.

• The increasing popularity of low-priced imports, and not just because of the stronger dollar. For example, there is little $10 California rose, mostly because of higher costs, but lots and lots of $10 French and Spanish rose.

Hanging over the entire discussion during the webcast was where Big Wine fits into California’s future. The report expects winery mergers to continue (and the chart in on page 39 detailing winery mergers was as depressing as it was lengthy), but didn’t go much further than that. The webcast’s participants, including several comments from the audience, seemed to imply that Big Wine would define trends in style and that it was up to smaller producers to fill in the areas that were too small or too expensive for Big Wine to worry about. Which is also depressing — letting multi-national companies decided what wine would be made.

Wine prices 2017: Premiumization is here to stay

premiumizationBut premiumization isn’t necessarily killing great $10 wine, which makes the Wine Curmudgeon happy

Premiumization, where consumers buy more expensive wine, is here to stay, and may even be part of more significant changes in the wine business. But that doesn’t necessarily mean wine prices are going up.

Confused? So was I, until a chat this week with Rob McMillan of Silicon Valley Bank, who probably knows more about the subject than anyone in the world. His take: That premiumization is a natural development in the evolution of the wine business, and that it’s going on not just here, but everywhere people drink wine. It’s a fundamental shift in the way we buy wine, something that seems to happen every generation.

Today, some of us are buying more expensive wine, fewer of us are buying wine that costs less than $7 a bottle, and overall wine sales are flat. Given those three things, the average price of a bottle of wine has gone up, which is different than prices going up.

“I don’t see prices going up,” says McMillan. “It’s very hard to raise prices these days.”

Instead, Big Wine is introducing new products at higher prices to appeal to people who want buy more expensive wine. This is the key that unlocks premiumization, says McMillan – Big Wine’s ability to produce $15 and $20 wine to meet consumer demand in a way smaller wine producers couldn’t – and didn’t think about doing – a decade ago. There are dozens of wines on store shelves today that exist for one reason only – to sell to consumers who think they want to buy it. And why do they think they want to buy it? Because, says McMillan, Big Wine’s marketing ability and clout with retailers is almost unprecedented in wine history.

You can see this change in the September Nielsen sales numbers. Growth in wine costing more than $12 was up double digits from a year ago, while sales in wine costing less than $9 was flat. And the overall increase in the average bottle of wine was just 19 cents – hardly cause for a Wine Curmudgeon rant.

Which brings us to the good news. There is still quality cheap wine available, even if it is more difficult to find. That’s because premiumization is not necessarily about the $8, $10, and $12 wine that I write about, but about the on-going sales decline for the very cheap jug and box wines that dominated the market from the mid-1970s to the end of the recession, and the increase in sales for wine that costs more than $15 since then.

Is the U.S. wine boom over?

U.S. wine boomThat’s the question that the annual Silicon Valley Bank state of the wine business report addressed last week, and the answer? It does look like the U.S. wine boom is over — for now, anyway. And though Rob McMillan, who writes the report, was optimistic that the slump may be short-lived, the fact that he cut through the usual pom poms and short skirts that pass for wine business analysis speaks volumes about how serious the situation is for anyone who loves wine.

The report predicts a decline in U.S. per capita wine consumption after more than 20 consecutive years of growth, and while overall sales in dollar terms will increase slightly, sales measured by the amount of wine sold will remain flat for the fifth year in a row. That is also the end of a two-decades-old trend; after sales bottomed out in the early 1990s, they increased annually, even through the recent recession.

McMillan points to three reasons for the change:

The collapse in sales for wine that costs less than $6 a bottle, the boxes and jugs of Almaden and Carlo Rossi that have been some of the biggest cash cows in wine retail history. “That market is gone,” he said during the report’s webcast last week, “and it’s not coming back.” Yes, consumers are buying more expensive wine, but not as many of them are buying wine overall, and premiumization seems to stop at $15. There is little evidence that anyone is trading up higher than that.

Competition from craft beer and spirits, which are more appealing to younger consumers. The report didn’t go into detail about why they’re more appealing, but as a 20-something woman told me the other day (and she worked in a wine shop): “Wine is such an anachronism.”

Generational change, and McMillan said what few others in wine want to admit publicly. The Baby Boomers who powered the 20-year wine boom don’t drink as much as we used to, and we’re going to drink even less as we age. Meanwhile, the Gen Xers and Millennials aren’t making up the difference, whether because they’re drinking craft beer or can’t afford to. I talked to McMillan after the report came out, and he was blunt: “The Millennials are not going to spend the money on wine that the Baby Boomers did.”

In fact, most news reports of the study downplay that bit about the Millennials, who are supposed to be the wine business’ savior. But anyone who is clear-eyed about the economy understands that that may not be possible. First, this isn’t the 1990s, when the gross domestic product grew three to four percent a year. Second, the Millennials, for all the talk about peak earning years, don’t have access to the same high-wage jobs the Boomers did 20 years ago. And third, without those high-wage jobs, they will have even more difficulty paying off an unprecedented $1.3 trillion in college loan debt. All of which means it’s more likely they’ll buy a $5 craft beer instead of a $15 bottle of wine.