Every year, everyone with a serious interest in the US wine industry takes the time to read the annual report Rob McMillan produces for Silicon Valley Bank where he is founder and executive vice president of the wine division. Based on surveys completed by a wide range of around 600 US wineries as well as other authoritative research data, the report provides an invaluable insight into drinking trends in the world’s most profitable market. Every year, it also attempts to predict how the picture is likely to change over the short term.
While much of the report focuses on prospects for domestically-produced wine, noting the impact of recent short harvests and forest fires, for example, as well as the growth of Direct-to-Consumer sales by US wineries, it also takes a close look at who is drinking wine, how much they are consuming, and the price they are paying. This is just as as relevant to those involved with exporting wine to the US as to any winery in Napa or Sonoma.
Changes in the last 12 months
Twelve months is not a long time, even in as fast-changing and dynamic a market as the US and inevitably much of what McMillan describes is similar to points he made in the 2022 report. Bravely, however, and unlike many analysts, he compares his previous year’s predictions with the reality of what happened, and acknowledges the areas in which his crystal ball has proved unreliable. This year, there was only one ‘miss’: suggestions that US winery tasting room sales, and wine club recruitment would struggle to regain the success they enjoyed before the pandemic proved to be overly pessimistic. In fact, this sector seems to have bounced back remarkably well.
On the other hand, online sales that enjoyed a boom during Covid lockdowns have not had the continued growth that was anticipated as the US emerged from that period.
Writing the 2022 report in December 2021, McMillan had no way of foreseeing the impact on prices of war in Ukraine nobody was really expecting, but rising labour, logistics and dry goods costs were already an issue that has only become more of a concern. “Increases in price were common across the full industry but easier to take in higher-priced wine,” McMillan says now. However, “The increased cost of goods from inflation isn’t being covered fully by price increases in any segment.”
Looking at other areas the 2022 report got right, McMillan recalls foreseeing good growth for premium wine, but slower than in 2021 when it shot up by 18.1%. In fact, last year saw this sector rising by a still healthy 9.6%. The overall market was flat or declining last year and is expected to be the same or worse over the next 12 months, in fact, as McMillan wrote in December 2021, “within three years, declining sales by volume [will] be accepted as reality by all analysts.”
Wine production levels
The last report talked of the need to reduce US production, and over 20,000 acres (8,000ha) of vines were indeed uprooted in California and Washington State.
Thanks to the growth in premium wine sales, reduction in volume has come alongside an increase in dollar value, and this is a trend that is expected to continue in 2023. However, McMillan remains firm in seeing dark clouds in the horizon as the wine industry fails to attract interest among young and even middle-aged consumers. “It’s increasingly obvious,” he says, “that wine as a product has lost the lustre it once had with the consumer 20 years ago.”
The 2022 report shocked many readers by including a chart showing 2021 research by The Harris Poll, in which only two demographic cohorts—45-to-54 and over-60—would take wine to share at a party rather than beer or spirits. Even the 55-to-64-year-olds showed no preference for wine over beer in that situation.
What to drink in a restaurant
Last year, the same polling organisation asked: “Which premium beverage would you order at a fine-dining restaurant, presuming the cost and relative quality were equal between the choices?” Respondents had to choose between an $8 premium beer, a $12 cocktail or a glass of premium still or sparkling wine. The average across all age groups was just 28% for still wine and 10% for sparkling. Only the over-65-year-olds showed a significantly greater likelihood of drinking wine with their meal than a spirit-based drink. Those who see wine as a beverage people ‘grow into’ should pause to consider that less than a third of 45-to-54-year-olds chose wine as an option, and just over a quarter of the 55-to-64-year-olds.
For McMillan, the fact that “a sizable number of alcohol consumers under 50 fall into the category of consumers who imbibe but have chosen not to drink wine,” is a major concern, alongside the fact that: “The opportunity to gain additional sales growth from a cohort with a median age of 66 will prove difficult.” Especially if these older consumers listen to their doctors. “’Wellness’,” McMillan points out, “has merged with the sober-curious movement, and a growing number of dry events are being popularized, such as Dry January… Neo-Prohibitionism is very much alive and well.”
Wine’s long-term outlook
If these comments seem pessimistic for the long-term health of the US market—and they certainly justify some urgent new thinking about the way wine is marketed to all age groups—there are some grounds for short term optimism.
“The quality of solid technology partners and service providers supporting the wine industry with great solutions has never been better,” McMillan notes. Maybe TikTok or AI or the Metasphere or whatever else follows will come to the rescue. And, for those in the premium wine sector, even tougher financial times may not be too much of a problem.
“Typical consumers of premium wine are sitting on more than a trillion dollars in Covid savings." McMillan notes. "Our customers have the capacity to use their savings and discretionary income to buy wine even in a soft economy.”
Read the full 100-page 2023 State of the Wine Industry report here.