The title should not be too alarming if you have been following the trends in the wine industry. Various forces are at work causing the industry to squirm and re-think their traditional methods of going to market. To recap those key forces and outside agencies playing havoc for the wine industry are:
#1 – Sales are down
#2 – Grape supply is at an all-time high (more supply than demand)
#3 – Contracts by wineries to wine growers are being cancelled
#4 – Millennials and Gen-X and Gen-Y wine consumption is not meeting expectations
#5 – Wine industry is losing ground to “health conscious next gen’s”
#6 – Packaging challenges from “form” and “portion size”
Topic #1 – Sales are down for the first time in 25 years according to IWSR, wine consumption dropped .9%. Sales have plummeted from a little over 14.5 million cases (Sept 2017) to about 13.2 million cases (Sept 2019). Varietals that are losing market share are Chardonnay, red blends, Pinot Grigio, Merlot, Pinot Noir, white blends, Moscato and white Zin. Those wine varietals showing good growth (5% or more) are Rose and Prosecco (significantly lower price points than many of the varietals). Those varietals which show moderate to low growth (less than 5%) are Cabernet Sauvignon (1%), Sparkling (2.5%) and Sauvignon Blanc (2.5%). The varietals which are showing moderate percentage of growth include some of the highest ASP’s like Cabernet Sauvignon and Sparkling. Also, tasting room visitors are significantly down in Napa and up in Sonoma, Oregon, Washington and overall in the nation. Napa Valley should take heed.
Topic #2 – Grape supply is at an all-time high (more supply than demand). The California Bulk Wine Inventory is skyrocketing to shocking heights! For Cabernet Sauvignon in November 2019 the estimate is just under 7 million gallons and the January 2020 estimate is just under 9 million gallons. One year prior it was 5 million gallons. This while sales are going down, will only exasperate the glut.
Topic #3 – Contracts by wineries to wine growers are being cancelled. In the last 18 months, wineries cancelled orders in Oregon. They are having little luck in finding homes for grapes recently harvested. Call it inventory management, but several wineries are blaming “smoke taint”. The reality is that a surplus of wine juice exists throughout the west with weakening demand. Stories are circulating in the Central Valley, Mendocino County and Sierra foothills of California of grapes not being picked due to supply/demand market being out of balance. It will only be a short time before this reaches Napa and Sonoma Valleys’.
Topic #4 – Millennials and Gen-X and Gen-Y wine consumption is not meeting prior expectations or similar ramp as Baby Boomers. Gen-Z (21-22 year olds) showed a moderate growth from 2018 to 2019 and now stand at 2.1% of the total wine being consumed. Millennials (23-38) after four years of relatively flat consumption at 16%, showed an uptick to 17% in 2019. Gen-X (39-54) are flat at 34.6% from 2018 to 2019. And of course the Baby Boomers (headed towards retirement) dropped to 40.1% in 2019 from 41% in 2018. The last market segment is the Mature (74+) and they dropped from 7% to 5.9%. The last two categories can be attributed to a combination of disposal income and health issues (not taking alcohol with medications).
Topic #5 – Wine industry is losing ground to “health conscious next gen’s”. In a survey by The Harris Poll on why younger consumers are reducing their consumption (first week of January 2020), the number one reason was they were opting for a healthier lifestyle (32% responses). The next was they lost interest in drinking alcohol in general (24% responses). The other two major categories around health, the response was 18% and 17%. Down the list was lifestyle (not going out as much), consuming other alcohol beverages and non-alcohol beverages. Down the list was at 10% response was more interest in Cannabis. So if the wine industry wants to garner more market share of the next generations, they will have to put forth either medical facts on a healthy person consuming moderate amounts of wine or separating them and their dollars from other alcohol beverages or non-alcohol beverages.
Topic #6 – Packaging challenges from both “form” and “portion size”. The next generations are already showing a distain with their purchasing power of large format wine consumptions. Growth rates for the standard 750ml bottle has shrunk -2%, the 1.5L bottle -6% and the 4 & 5L at -2%. The biggest growth uptick is in the 375ml at over 21%. This most likely ties into the healthier lifestyle with having only a glass each between two people. While the “can wine” industry shows some great promise in portability of wine, they have yet to showcase quality wine as the Baby Boomers have been accustomed to previously. In this regard, while so many positives of transportation, shipping costs, etc., loom large and inviting, the can wine industry may not be cultivating the desired results of bringing forth the next level of wine aficionados with quality wine. It appears to be a quick grab for the next generations’ dollars with twinkling lights (packaging) without substance.
Perhaps the most shocking statistic is that while the wine industry (especially in California) is in the crosshairs of chaos and threatening internal and external pressures, wineries are content with the status quo. 55% of all wineries have no one analyzing their DTC customer base. Add to this another 27% only employing part time help in analyzing their business, which means approximately 82% of the wineries are “flying blind” into a generational or culture abyss. Have we not learned anything by having someone on watch?
These are just a few of my opinions while listening to Silicon Valley Bank’s State of the Wine Industry Report for the last three years, reading articles daily from various wine professionals & writers and from first-hand experience of over 40 years. The time is now for the wine industry strap their “big boy business pants on” and to first understand their customer base, explore ways of confronting the issues and take action sooner than later.