Report: North Coast wine growth to get tougher
Sales of U.S. fine wine like that produced in the North Coast are projected to be in double-digit growth territory again this year, with more room for price increases, according to a newly released closely watched industry forecast. But local vintners should prepare for a break in the two-decade climb in wine consumption as younger drinkers start to dominate and must anticipate more competition as large producers go upscale and high-priced bottled imports return.
“While demand for premium wine will increase this year, there are clouds on the horizon that should be considered,” said Rob McMillan, founder of Silicon Valley Bank’s Wine Division and author of the lender’s 15th annual State of the Wine Industry report, released Jan. 21. “We believe total and per-capita wine consumption in the U.S. will drop for the first time in more than 20 years due to emerging generational shifts in consumption patterns that we see accelerating in the near term. We believe this is the case, since there is a permanent shift from generic wine, and aging baby boomers are being replaced by frugal millennial consumers. Millennials, at this point in their development, have proven more agnostic in their choice between beer, spirits or wine, compared to retiring boomers.”
The mature generation of consumers, those older than 68, slipped to last place in fine wine consumption in 2015, at 11 percent of the share of purchases tracked in the bank’s annual survey of industry executives, according to the 76-page report (svb.com/wine-report). That was behind 16 percent share for millennials (ages 21–37), 32 percent for generation X (38–49) and 41 percent for baby boomers (50–67). The report noted that millennials passed matures last year in all price points.
Boomer share of wine purchases in the survey has been in slow decline for the past few years, and the median age of the generation will be at retirement in five years, the report noted. Gen X share of these wine purchases is projected to pass those of boomers in 2021, and millennials will pass gen X in 2026.
The report said U.S. producers should be concerned about evidence that millennials “substitute craft beer and spirits for wine, especially on-premise, and are ambivalent as to its place of origin” and that the 2015 Gallo Consumer Wine Trends survey “found millennials are also four times more likely to select a wine based on its label where they look for personality and originality."
Indeed, the bank’s survey found industry executives are more worried about competition from wine substitutes such as craft beer, spirits or even legalized marijuana, followed by competition from bottled imports and availability of enough skilled labor for the vineyards.
U.S. fine-wine sales are forecast to grow this year 9 percent–13 percent, according to the report, based the bank’s peer group sampling of financial reports from its 300-plus West Coast winery and vineyard clients. That would be down from the estimated 2015 sales growth of 15 percent, which would be at the low end of the bank’s 14 percent–18 percent growth prediction a year ago.
Sales for the report’s peer group of producers were up 10.7 percent through September last year, 2.5 percentage points ahead of that period in 2014, not counting the October–December period in which 60 percent of U.S. wine is typically sold.
Looking at the overall premium segment, wine retailing for the equivalent of $10-plus per standard 750-milliliter bottle, sales this year are projected to increase 4 percent–8 percent.