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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.

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.