Silicon Valley Bank wine business forecast warns of slowing sales growth
Sales of premium wine will continue to grow in 2018, but producers in premium regions such as the California North Coast had better up their marketing game to reach younger consumers amid signs that the U.S. market for fine wine and other luxury goods is changing, a closely followed industry analyst told a gathering of winegrape growers in Santa Rosa on Thursday.
In a preview of his annual State of the Wine Industry Report sprinkled with sobering snapshots of consumer behavior, Silicon Valley Bank executive Rob McMillan reminded the couple of hundred listening that sales of higher-end wine — over $20 a bottle — do continue to climb.
"I think 2018 is going to be a great year," said McMillan, founder of the bank's Napa Valley-based Premium Wine Division. He was the keynote speaker at Sonoma County Winegrowers's annual meeting, the 27th annual Dollars & Sense Seminar and Trade Show, held at the Luther Burbank Center for the Arts.
His 2018 projection of average sales growth is 4 percent to 8 percent for premium wine and 2 percent–4 percent for U.S. wine overall. Strong segments of wine sales in the past year, according to Nielsen product-scanning data, is under $10, over $20 and, especially, $15–$20, but volume of wine sold isn't growing much, McMillan noted.
Some say that scan data isn't telling the whole story about wine sales, because major sales channels such as Costco Wholesale, aren't included. He pointed to the latest California warehouse-shipment data for January 2013 through September 2017 from Sonoma County-based BW166 that shows a flattening of shipment volume in the past 12 months moving into U.S. distribution.
"Slowing growth should concern you," he said.
There has been a general downward trend in annual growth rates for fine-wine sales since 2000, McMillan said. And growth nearly halted for the first nine months of 2017 — up just 0.3 percent from 2016, based on financial research on hundreds of the institution's winery clients.
CHANGING CONSUMER DEMAND
"I have not seen that kind of sales growth since 1993 or the Great Recession," McMillan said. By comparison, growth for that peer group was 9.8 percent for the first three quarters of 2016.
1993 was just after an economic recession and before a boom period that ran through early 2001. Fatter wallets and publicity over the "French paradox" helped fuel the quick rise in sales and production of higher-priced wine in the U.S., much of it coming from California, particularly its North Coast. Sales of the bank's financial-analysis peer group only have shrunk once since 2000, by 3.8 percent in 2009.
Estimated sales growth for the bank's fine-wine peer group for all of 2017 was still positive: 4.0 percent.
"Which is pretty weak for fine wine," McMillan said. 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.
This flattening of demand likely will show up in slower growth for pricing of North Coast winegrapes and vineyards in premium areas, McMillan said.
"Consumer demand is changing, and getting out ahead of it is important," McMillan said.
Spending on luxury goods continues to growth worldwide, buoyed by central bank–stimulated economic growth in countries and regions that are prime fine-foods markets, such as Europe, Japan and China, McMillan noted. But sales growth on higher-end products seems to be lagging in the U.S.