Tag Archives: SVB wine report

Follow-up: SVB wine report 2023

 

wine people bring to a party chart

The wine business’s house is on fire. Why doesn’t anyone in the wine business notice?

This year’s 22nd annual Silicon Valley Bank state of the wine industry report reminded me (with many apologies to President Franklin Delano Roosevelt) of the story about the neighbor’s house catching fire. Study author Rob McMillan wants to lend the neighbor his garden hose, in the form of a wine industry marketing campaign. It might not be enough to put the fire out, but it’s better than what the wine business wants to do – wait for the fire to put itself out, assuming there even is a fire.

Because wine’s house is on fire — people younger than 60 have pretty much given up on wine, according to the report.

“I don’t know what the wine business is doing to drive growth among younger consumers,” McMillan told the report’s webinar audience. “But they’d better stop, since it isn’t working.”

Two charts from the report demonstrate this. The first, at the top of the post, shows the booze people bring to a party, based on their age. And the only people much interested in bringing wine are ready for Social Security. Click here to see a larger version. The second, which is here, shows that people who don’t start drinking wine when they’re young don’t magically start drinking it as they get older.

Talk about a fire.

McMillan’s proposed WineRamp marketing plan, which was similar to the California Raisins and “Beef: It’s what for dinner” campaigns, was shelved last year after considerable resistance from the wine industry. Serious division remains about whether it was needed, let alone whether it would work. But anyone who questions the need for more and better wine marketing is living in 1990 and waiting for “60 Minutes” to air its French paradox story. Which, of course, isn’t going to happen.

And I can’t speak to whether something like the Raisins would work; several wine marketers I respect insist it would be a huge and costly failure. But I can see the house next door is burning down, and if my garden hose is the only thing handy to put it out, then I will use my garden hose. Because I know the fire isn’t going to put itself out.

SVB wine report 2023

Man slumped over computer
“Negative demand growth? Say it ain’t so, Rob!”

Think the WC is full of gloom and doom? This year’s annual wine industry survey takes gloom and doom to places where even I’ve never been

The annual Silicon Valley Bank state of the wine industry report, released yesterday, is so full of gloom and doom that it sounds like I wrote it after a too long day tasting $18 smoooth red wine. But Rob McMillan, the study’s author, is hardly a curmudgeon.

Which should tell you the desperate situation facing the wine business – too high prices, too few drinkers, too few people interested in wine, and no one in wine much concerned.

“This is obviously a place where none of us want to be,” said McMillan, speaking to an international webinar. “If a rising tide floats all boats, then a shrinking tide is the opposite. In that case, we’re in a Darwinian model, where the only way to get business is by taking it from someone else. And that’s obviously a place where we don’t want to go.”

Among the report’s findings:

• A decline in wine sales and demand — “negative volume growth” — for a second year in a row, as wine continues to lose market share to spirits.

• The two generations younger than the Baby Boomers are not going to flock to wine as they get older, no matter how much wine thinks they should: “Consumers younger than 60 have a lower share of wine consumption compared to what they did in 2007,” while about one-third of those 21 to 29 drink alcohol — but not wine. And expecting them to suddenly embrace wine just because is a march of folly.

• The divide between Big Wine, the 100 or so largest producers that control some 90 percent of U.S. production, and the other 10,000 or so small, premium producers is the biggest in memory. Which means the biggest producers have very little in common with helping the rest of the business survive.

• The lack of a strategy to promote wine – partly because of the divide in the business, partly because not everyone sees a problem, and partly because wine is wine — is having a consequence that’s obvious to anyone who looks at the numbers.

In fact, even the little good news for some wine producers isn’t especially good for the rest of us. There is growth for wines costing $15 or more, but since most wine sold costs less than $15, the trend is only benefiting the few.

Photo: “News Flash–Heat Bad for Productivity” by moria is licensed under CC BY 2.0.

More SVB wine reports:
• 2022
• 2021
• 2020

 

SVB report follow-up: What? The wine business worry?

what me owrry
Is Alfred E. Neuman the new poster boy for the wine business?

Want to see how little the wine business understands its existential crisis? Follow the headlines

The Wine Curmudgeon has a stock photo he uses for stories likes this – a man with his head in a hole in the ground, based on the myth about ostriches burying their head in the sand when there’s danger. They supposedly do this because, “if they can’t see the predators, then the predators can’t see them.”

Ostriches don’t actually do that, but it’s a useful metaphor when someone or something acts in ignorance of the facts. The assumption is that if they hide from the crisis, then the crisis won’t happen.

Cue the wine business.

Wednesday’s Silicon Valley Bank report, an annual survey of the state of the wine business, says wine may well be facing an existential crisis thanks to climate change and water shortages in California, as well as what looks to be the continuing collapse of the restaurant wine business.

Most importantly, the report notes, people younger than 50 aren’t especially interested in wine. That means, as the Baby Boomers die off, fewer people will drink wine – a lot fewer people. Which, the report says, “poses a primary threat to the business. That issue has yet to be addressed or solved, and the negative consequences are increasingly evident.”

So how did the wine business react? Save for the San Francisco Chronicle, which didn’t pull any punches – “New report rings a desperate alarm for wine” – it was business as usual for news coverage of the report, as well as similar, wine-related news.

Call it the perfect Alfred E. Neuman storm:

• U.S. wineries report bumper year

• Global Wine Market Size Expected to Reach $456 Billion In 2028, for a release issued the same day as the report and which noted wine’s “increased consumption pattern.”

• Wine’s Premium-Plus Tier On The Rise As Total Market Slips, from our friends at the company that owns the Wine Spectator.  My favorite bit: “premiumization remains a key driver of value for the industry, with higher-priced segments significantly outperforming less expensive categories.” In other words, nuts to everyone who doesn’t buy $40 wine.

• Survey: After robust 2021, winery owners face long-term challenges

Know something else here. The report’s author, Rob McMillan, is a banker. Bankers typically don’t call out their clients for – to be polite – acting like ostriches. That Rob did speaks to how serious the problem is. And, frankly, it took guts. One person, who knows how the report is compiled, told me that Rob may face intense criticism for what he wrote: “That’s the price of a widely released report and trying to provide leadership for change. People resist change, so he’ll get a few arrows over this.”

In which Rob shows more concern for the wine business than it shows for itself.

Full disclosure: I wrote a trade piece about the report, but I didn’t gloss over the issue. The second paragraph said: “The bad news? Wineries may well need those two banner years to offset the aging of the industry’s Baby Boomer base, the continued decline in on-premise sales, and the beginning of climate change-related water shortages and restrictions.”

SVB wine report 2022

TR
“Yes, wine business, I’m pointing at you — and you know why!”

The annual wine industry survey is pessimistic about wine’s future, thanks to too high prices, too old wine drinkers, and too much plonk

The annual Silicon Valley Bank state of the wine industry report, released yesterday, is so depressing that I almost didn’t write about it.

But if study author Rob McMillan is going to say things that get him dirty looks at wine events, then he needs all the support he can get. The truth will set you free – and boy, is this report full of truth:

• Wine faces continuing, serious problems with “falling interest in wine among younger consumers, coupled with the encroaching retirement and decreasing wine consumption of baby boomers.” This, McMillan writes, “poses a primary threat to the business. That issue has yet to be addressed or solved, and the negative consequences are increasingly evident.”

• McMillan, who thought premiumization would start to recede last year, said that hasn’t happened. Instead, the “reality was that COVID continued to accelerate premiumization.” Hence, a devastating trade-off – less wine sold overall, but at higher prices. And he doesn’t necessarily see this ending any time soon.

• And why not, since the wine business has all but abandoned entry-level wine. Does this sound familiar? “The wine industry has allowed the lower-priced entry-level wines to be produced without transparency as to ingredients and in a homogeneous and uninteresting way,” which is unlikely to appeal to younger consumers. In other words, plonk. And, McMillan adds, without quality entry-level wine, “it’s going to be hard to grow the wine category.”

• And that post-pandemic party so many expected? “Throughout the reopening, wine lost market share to spirits. Worse yet, total wine sold through wholesale declined through most of the year. … We predicted there would be a reopening celebration, and it turns out we were correct, but the reopening celebration that took place in 2021 didn’t include the wine industry.”

And, finally, the most depressing news: That restaurant wine sales may never return to what they were, and what they were in the several years leading up to the pandemic was nothing to get excited about. The reason? Prices that are too high and that scare off younger consumers.

Hang in there, Rob. The WC has your back.

Photo: “Teddy Roosevelt” by JBrazito is licensed under CC BY 2.0

More SVB wine reports:
• 2021
• 2020
• 2019

SVB wine report 2021

svb report
SVB report 2021: The wine business must find a way to reach under-40 consumers.

The good news in SVB wine report 2021: This year should be an improvement over 2020. But don’t get your hopes up for 2022

How about some good news in the SVB wine report 2021, Silicon Valley Bank’s annual state of the wine industry effort? It would be a welcome change from the gloom and doom of the past 10 months, as well as the past couple of years of SVB reports.

So rejoice.

“I think the news will be measured and good,” says Rob McMillan, the report’s author. We exchanged emails in the run-up to the report’s official release and webcast yesterday.

“I think we have a bounce ahead of us,” he says. “And going back to history, I remember having data that showed a massive growth in wine consumption in 1945, then a drop in 1946. I do expect a bounce in 2021 – maybe not like 1945. Call it a rolling celebration that will span 2021 and into 2022 as occasions and delayed celebrations come back.”

The report reinforced that good news – assuming the pandemic gets under control and the wine business doesn’t do anything stupid:

• Expect a bounce in demand if tourism and restaurants come back. The report sees an increase in wine sales gaining momentum in 2021, but it may not be sustainable next year.

• Wine demand this year did not increase, no matter what others are saying. Instead, says McMillan, what happened is what’s called a channel shift — we bought less wine at restaurants and more wine at supermarkets and on-line, but the overall total didn’t change. In this, restaurant wine sales have not recovered and may still be down as much as two-thirds over the same time last year.

• Premiumization is nearing its peak, but will continue this year thanks to that pent up demand and the industry’s efforts to reduce the wine supply. The 2020 California harvest may be the smallest in a decade.

• Retailers who understand on-line sales and e-commerce – even without more loosening of three-tier laws — “will have a strong 2021.” The report says on-line sales could represent 20 percent of an average winery’s sales within five years – an impressive figure, given those are in the mid-single digits now. And e-commerce sales during a three-month period in 2020 increased as much as the previous 10 years.

Not all was good news, of course. What else would we expect after 2020? Wine’s growth rate, even with premiumization, has declined across all price segments for years, and there is no reason to expect a long term change unless the wine business changes tactics in how it sells wine. In addition, as Baby Boomers continue to drink less wine, the industry must find a way to reach under-40 consumers. Which, as we know, it has failed miserably at.