Are the gloomy messages about the state of the wine industry warranted? I say not for wineries like us.
I've spent much of the last two weeks at wine industry symposia: first the Direct to Consumer Wine Symposium in Concord, CA, and then the Unified Wine & Grape Symposium another hour north in Sacramento. I spoke on panels at both, at the first on measuring ROI on winery events, and at the second on technical and market challenges and opportunities for rosés. But I also took advantage of being there already -- and the free passes that come with being a speaker -- to sit in on some of the other sessions. Both events began with "state of the industry" reports, with quite different outlooks.
The core message I took home from the DTC Symposium was mostly positive: that direct-to-consumer wine sales continue to grow at a healthy rate, with shipping totals topping $3 billion for the first time in 2018, and growth coming broadly across wineries of all sizes. What's more, the tools that wineries have to capture, analyze, and fulfill these consumer-direct sales have never been better. The take-home message from Unified was less positive, with worries about declining sales at restaurants and supermarkets, grape market oversupply, demographic challenges for wineries as their prime customer base (mostly Baby Boomers) ages, and challenges connecting with Millennials through traditional wine marketing. These have spawned some much-discussed articles (within the wine community, anyway) containing lots of hand-wringing about what the future might bring to California wine. A couple (click-bait titles notwithstanding) will give you a sense of the worries:
- Wine and Sex off the Millennial Menu (W. Blake Gray, Wine Searcher)
- Can the Wine Industry Survive Millennials (Leslie Gevirtz, Wine Enthusiast)
- Challenging Years Ahead for Wine Industry? (Taylor Hillman, AgNet West)
In a second piece, on his own blog (Millennials are talking but the wine industry isn't listening) Blake Gray identifies some of the barriers that may be keeping Millennials from gravitating toward wine, at least at this point in their lives: the industry's resistance to transparency in labeling, its steadfast promotion of just a small handful of grape varieties, and an inability (or unwillingness) on behalf of wineries to engage with the Millennial consumer. I'd add a few others, including the often high price of premium wines and winery experiences, which puts them outside the reach of many cash-strapped Millennials, the marketing of wine as elite (which often crosses the line and comes across as elitist, to an audience that prizes authenticity), and the dominance of shelf space in the wholesale and grocery markets by a handful of large wine companies, when what every study of Millennials indicates they want is 1) a closer relationship with real people behind the products they consume, and 2) confidence that those products are produced in a way that matches their values.
So, which is it? Are wineries in good shape, or are there dark clouds on the horizon? As is usual with complicated questions, it depends on where you're looking, and over what time frame.
Let's look at the negatives first. Some of the largest wine companies (including Bronco, Gallo, and Constellation Brands, all of whose sales skew toward lower-priced wine in chain retail) saw sales decline last year. Many traditional fine dining restaurants have closed or rebranded as consumer trends have shifted toward more casual experiences. Nielsen data showed that overall wine retail sales declined slightly (0.5%) by volume last year, at least in the 70% of retailers that participate in the Nielsen data collection.1 The combination of distributor consolidation and winery proliferation have made it harder for most small-to-medium wineries to sell through the wholesale channel. And tasting room visitation was down in many established regions in 2018, including Napa and Sonoma, even as tourism was up.2 So, if you are a small-to-medium winery who wants to sell their production through wholesale, a large winery whose sales skew toward the lower end of the retail spectrum, or a winery in an established region whose customer acquisition mostly happens in your tasting room, you likely have cause to worry.
On the positive side, winery direct-to-consumer shipped sales grew again in 2018, by about 12%, to more than $3 billion, a figure nearly triple what it was just in 2011.3 Wineries can now ship to 90% of the US population, with the right permits. The average price of a bottle of wine sold increased both in three-tier retail and in direct-to-consumer last year. Although tasting room visits are down in many areas, our experience is that people are spending longer when they do visit, are more interested than ever in learning the story and the practices behind the wines, and are happy to spend more: our average sale per visitor was up 8% last year. The price ranges of wine that saw sales declines were the under-$10 bottles (at which, I think it's fair to say, California does not excel) while all higher price points saw sales growth. And most importantly, total winery sales, when you take direct-to-consumer into account, grew 4% in 2018. That means that the pie continues to grow, and it seems like it's primed to continue to grow in the segments that most impact wineries of our general size (small to medium) and profile (producing wines between $25 and $60, with DTC providing the majority but not the totality of our revenue).
Some of what I see as more equivocal data has been painted in the most negative light. There are some demographic trends that wineries need to plan for. Wine's largest audience, for the last two decades, has been Baby Boomers, and with the average Boomer reaching retirement age -- the time at which, historically, cohorts start spending less on wine -- they will need younger generations to step in. And GenXers, of which I am a proud member, have been doing so. Will Millennials, who are a larger cohort than GenX, step up when it is their turn? It remains to be seen. But I think that the doom and gloom about them is pretty overblown. The median age of a Millennial is 30, but the Millennials at the peak of the demographic bubble are just 24. Were many Baby Boomers drinking wine at age 30, let alone 24? No. How about GenX? Not much. Millennials are drinking more wine than preceding generations were at the same age, which should be a positive enough trend. But I think the news is better than that, at least for wineries like us. They are also much more likely to drink craft beer or craft cocktails, to be interested in the source and making of the foods and drinks they consume, to have grown up in a wine-drinking household, and to be open to trying wines from new grapes and new growing areas.
Are many Millennials hamstrung by the poor job market when they entered the work force and saddled with student debt? Absolutely. But even if they never attain the buying power of earlier generations, it seems to me that the sorts of wines that Millennials are likely to embrace are the sorts of wines that wineries like Tablas Creek would like them to embrace: smaller family run wineries, from organically farmed vineyards, incorporating grapes that may be outside the mainstream but are good fits for their growing locations, and wines that offer value, at whatever price point.
Does that sound like a gloomy future? Not to me.
- 1. Note that there are some important retailers whose data is not included, most notably Costco, and that the Nielsen data also does not include winery DTC sales.
- 2. All these data points are from (and beautifully explained in) the 2019 SVB Wine Report, the industry's gold standard for data collection and analysis.
- 3. This data point and the ones that follow come from the 2019 ShipCompliant Direct to Consumer Wine Shipping Report.