Tag Archives: SVB wine industry report

Winebits 629: Prohibition, SVB report, wine consumption

ProhibitionThis week’s wine news: It’s the 100th anniversary of the repeal of Prohibition, plus insight into the SVB wine report and why the U.S. still drinks more wine than anyone else

Happy anniversary – or not: Reports the BBC: “A century on, a small group of Americans are fighting to keep the dream of the so-called ‘noble experiment’ alive.” The story looks at those who think repeal was a mistake, and why they’re still optimistic about stopping alcohol sales in the U.S. Because, as the story also notes, “The drinking age of 21 is higher than in other nations where drinking is legal. Dry counties and dry towns – where alcohol sales are restricted or barred outright — are dotted throughout the country. And Gallup polling from last year shows that nearly one fifth of respondents said drinking alcohol was “morally wrong.”

Keep the faith, baby: Rob McMillan, whose Silicon Valley Bank wine industry report made such depressing reading last week, tells the Wine Business International trade magazine that one should not abandon hope. He says the industry needs more professional management, which is usually missing given so many family businesses; that wine needs to understand younger consumers and not assume they’re like their parents and grandparents; and that wine needs to focus on health and not premiumization.

Still No. 1: The U.S. remains the world’s biggest consumer of wine, despite all the doom and gloom. That’s the latest data from a study by International Wine and Spirit Research commissioned by Vinexpo. Intriguingly, Chinese consumers drink more red wine than anyone else, some 155 million cases. By comparison, the French drink 150 million cases of red wine. No, I have no idea what this means, save the Chinese prefer red wine.

SVB wine report 2020

svb wine report 2020

“I know those younger consumers are down here somewhere.”

SVB wine report 2020: The wine business is hurting, and things are going to get worse before they get better

How upside down is the wine world? This week, during the annual Silicon Valley Bank state of the wine industry webcast, one of the panelists said something that was almost unprecedented:

“We need to pay better attention to consumer demand.”

Which, as regular visitors here know, is the opposite of what we’ve heard for decades, and especially since the end of the recession and the growth of premiumization. The wine business knew best, and sold us what it said we needed, and not necessarily what we wanted.

Because that’s how we ended up where we are today, with decreasing wine sales, decreasing demand, and decreasing interest in wine among younger consumers. Which, not surprisingly, was the theme during this year’s wine industry webcast. Rob McMillan, the executive vice president and founder of the Silicon Valley Bank wine division, put it bluntly on Tuesday morning: The wine industry has to change the way it does business and focus on what makes wine worthwhile. It can no longer assume that consumers will drink wine because they always have.

And, reinforcing just how different things are from where they were just a couple of years ago, McMillan said it was time for wine to reconsider its objection to nutrition and ingredient labels. Because, of course, that’s what consumers want.

We ain’t in Kansas anymore, are we?

The rest of the webcast was depressingly familiar for anyone who has been paying attention to something other than wine scores and premiumization for the past decade:

• A price bubble exists for California’s best quality grapes, as prices continue to increase while demand doesn’t.

• Retail wine sales, measured by volume, have declined to where they were in spring 2015.

• The amount of bulk wine on the market is at record levels, which is a key gauge of wine industry health. More bulk wine means less demand, which means lower wine prices, which means wineries make less money.

Will the wine business take its head out of the sand and act on the report? McMillan isn’t necessarily optimistic. I talked to him this week, and he said that there is still tremendous denial among producers, save for the very biggest. Big Wine, he says, “is looking for ways to change the industry,” but it’s about the only ones.

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.