Millennials still missing as fine-wine core consumers, says Silicon Valley Bank report
Sales growth for U.S. wine is expected to remain in positive territory this year - better, for premium producers - but the industry needs to revamp its appeal to the next generations of core consumers else lose share of wallet to competing beverages and imported wines, according to a closely watched industry report released Wednesday evening.
Millennials (ages 22–37) have been talked up for more than a decade as becoming the next big group of consumers of premium wine (over $10 a bottle), but they're not reaching for finer wine in as large of numbers as anticipated, according to Silicon Valley Bank's State of the Wine Industry report. And the smaller Generation X (ages 54–72) appears better poised to become the top buyers of higher-priced wines for several years, it said.
The report, now in its 18th year, is produced mainly by Rob McMillan, founder of the bank's Napa-based premium wine division. The bank is forecasting premium-wine sales dollar growth to be 4 to 8 percent this year, on par with last year's forecast. Sales growth averaged nearly 6 percent for the first nine months of last year, based on analysis of client financials. And based on expectations among wineries in the bank survey for strong year-end sales, sales growth for premium wines in 2018 may be higher, McMillan wrote.
“In my view, the issue of greatest concern for the wine business today is the millennial generation's lack of participation in the premium wine category,” McMillan wrote in the 57-page report. “While millennials hold slightly higher consumption in the $8–$11 bottle price points and are interested in wine, they haven't made any noticeable movements to become premium wine consumers for almost five years.”
Millennials last year consumed 17 percent of fine wine, staying around 15 percent of an average winery's sales for four years, according to the bank's annual survey of producers. While millennials have been driving the craft beer and craft spirits movement in the premiumization across adult beverages, they are held back by an “indulgence gap” of slower starts to their top income-generating arcs than boomers and Gen Xers, McMillan wrote. That gap is projected to delay millennials' peak earning to reach their luxury aspirations for five to 10 years, potentially becoming the top fine wine consumption group by 2027.
Meanwhile, Gen X is the smallest in number of the four wine consumer age groups (including matures, over age 73), but Gen Xers have hit their career stride as a group, representing 34 percent of fine-wine sales and rising. They are expected to pass boomers, currently 41 percent of premium sales, three years from now, the report said.
Other highlights from the report:
* The flurry of wine industry mergers and acquisitions in the past few years “is approaching a natural end and will slow noticeably in 2019 as many of the major buyers continue to digest earlier purchases and execute on new brand strategies.”
* Bottled imports will take additional market share from U.S. producers.
* Grape and bulk prices will drop noticeably in the California market in 2019.
* Overall retail pricing should be flat in premium wine as the industry works through sluggish volume growth and a slight surplus of wine. There should be some limited price reductions in the $15-$17 bottle price range. Wine below $9 will continue to shrink in volume and value.
* Oregon will be the bright spot regionally as consumers continue to find consistently good value in the region's offerings.
However, McMillan warns that the declining number of tasting room visitors per day noted in Napa and Sonoma counties, chalked up to fewer number of wineries visited per trip by millennials and boomers, could spread to Oregon.
Wineries need new direct-to-consumer marketing strategies to continue the trajectory of wine sales mostly upward since the “French paradox” boom in interest in fine wine in the early 1990s, McMillan wrote. Those must be online and in-person tactics, and brands will built in more regions by bringing an experience to consumers, instead of expecting them come to the tasting room, he wrote.
McMillan is set to discuss the report in a Jan. 16 webcast with Amy Hoopes, president of Wente Family Estates; Paul Mabray, CEO of Emetry; and Dale Stratton, vice president of commercial insights at Constellation Brands.