For industry-trend watchers, Rob McMillan’s annual Silicon Valley Bank Wine Report is a must-read. The 2024 edition is especially welcome after the bank’s financial tribulations last year that made its demise seem all too possible.
McMillan compiles his report using survey responses from a wide range of wineries that represent the California industry as a whole. And, by extension, the US market.
The overriding message of this year is that the US industry has produced more wine than it has been able to sell and consequently has too much stock and too many acres of vineyards. Ideally, McMillan explains, inventory stock should match sales on a 1:1 ratio. Instead, the figure is 1.6:1.
Every time a 12 bottle-case leaves the warehouse of a high volume winery, around 19 bottles arrive to take its place.
Translated into simple English, every time a 12 bottle-case leaves the warehouse of a high volume winery, around 19 bottles arrive to take its place. This oversupply, McMillan predicts, will ‘likely linger through 2024’.
Premium wine: DTC and wine tourism
Premium wineries fared better but still felt the impact of a reduction in tasting room visits and Direct-to-Consumer sales. Or as Jennifer Locke, CEO Crimson Wine Group said at the release of the SVB report: "There had been bad wine and too much of it. Now its good wine and too much of it."
In theory, McMillan says, a fourth year of lighter-than-expected yields should drive grape pricing higher, “but the lack of significant movement in price is just another indication of soft demand.” However, some increases are expected – as there are in DTC sales and winery visitor traffic.
Wine sales fell in 2023 by 2-4% in volume and McMillan does not expect them to rise this year either. Last year’s value fared slightly better, with growth of more or less 1.5%, and that too is predicted to be the picture for 2024.
The industry is presently built to overproduce.
These short-term trends are less important, however, than the fundamental fact that, as McMillan says, “The industry is presently built to overproduce” and, while Oregon’s “planted acreage is in balance with [current] demand… the planted acreage in CA and WA is exceeding it.”
Consumer: changing favorites
McMillan continues that “Fewer US consumers see wine as their preferred alcoholic beverage; instead – they drink across categories. The sales of wines produced below $12 have been dropping for years. Consumers today drink less alcohol, choose substitutes including RTDs, spirits, and Cannabis instead of wine, and there are more abstainers today in the population.”
Work together or increase efficiency
McMillan suggests that there are “two solutions to declining wine demand”. Industry members either have to “work together to create a resonant message that positively influences consumption”, or “use whatever means we have to increase efficiency in production, grape growing, and marketing.”
His preference would be for the former but having, as he says, worked for over two years with a steering committee “made of some of the industry's brightest minds… to put together a cooperative industry marketing organization” called WineRAMP, and announced its formation in January 2021, “the will to support the concept evaporated once it was made public.”
Today, McMillan seems to have little hope of WineRamp’s revival, but merely says that “the goal for every winery should be to improve efficiencies and take market share back from spirits, sports drinks, cannabis, and beer producers.”
You can find the full report HERE.