A humming U.S. economy and consumers' increasing thirst for better wine are making this a good time to be a vintner, particularly of fine wine for which the North Coast is known. But the industry is rapidly adjusting to slower sales growth and a tougher time capturing the attention of consumers with a multiplying myriad of adult beverages and ways to get them, according to experts at a major wine business gathering in Sacramento on Wednesday.
"Tailwinds pushing outweigh some of the challenges," said Danny Brager, senior vice president of Nielsen's Beverage Alcohol Practice, speaking on a "State of the Industry" panel at the Unified Wine & Grape Symposium.
Propelling the business along, he noted, were the "pretty strong economy," positive yet slower growth in wine sales overall and continued growth for higher-end wines — strongest for retail prices of $15–$20 a bottle — a consumer trend often called "premiumization." Other tailwinds Brager sees are a shift in consumption away from beer, greater consumption among frequent wine drinkers — a target demographic for North Coast vintners — more places to buy wine, and product innovations that capture an increasingly wide-ranging consumer palate, namely rose, sparkling wines and alternative packaging such as cans and wines on tap.
On the economy side, some of the latest estimates of fourth-quarter U.S. growth include 3.4 percent from the Atlanta Federal Reserve Bank and nearly 4 percent from the New York Fed. Projected full-year real GDP growth for the U.S. last year was 2.54 percent, up from 2016 and 2017 but down from the postrecession high of 2.86 percent in 2015, according to the Organization for Economic Co-operation and Development (OECD).
Brager pointed to 2017 growth for U.S. wine shipments of 1.3 percent by volume and 2.9 percent by value, suggesting continued growth for higher-priced wines. That's based on figures released earlier this month by BW166 and Gomberg Fredriksen & Associates.
Yet that volume growth is less than half the 2.8 percent rate in 2016, which was a good-growth year, Brager said. Wine from just California, the largest U.S. producer, increased 2.1 percent by volume last year.
Earlier this month, wine market analyst Rob McMillan of Silicon Valley Bank warned of slowing growth for over-$20 wines. He estimated sales growth for bank's fine-wine peer group for all of 2017 was 4.0 percent. That's down from 9.6 percent for all of 2016, 19.8 percent in 2010 coming out of the Great Recession and 7.7 percent–12.2 percent in the intervening years.
Added to the wine sales volume through retail channels are direct-to-consumer shipments, which are growing at a fast rate, Brager said Wednesday. DtC grew last year 15.5 percent to $2.69 billion and 15.3 percent by volume to 5.78 million cases, according to figures put out this month from SOVOS and Wines & Vines. Average bottle price was $38.75, and 97 percent of the 9,645 wineries in the report produce less than 50,000 cases annually.
DtC now has reached 10 percent share of U.S. wine sales.
But good news for the fine-wine business is "high-frequency" consumers of wine — every day or more than once a week — are drinking more of it, Brager noted. Thirty-five percent of them are imbibing more than they did two years ago, and 13 percent are drinking less. He said it is concerning that 29 percent of "occasional" drinkers — less than three times a month — are consuming wine less often, and only 19 percent are drinking it more often.