January is the season where the wine community gets together at events like the Unified Grape & Wine Symposium and the Direct to Consumer Wine Symposium. In preparation for these gatherings, some of the industry's most important thinkers and researchers pull together the data from the previous year and assess the state of the industry. Two reports that I always read are the Silicon Valley Bank State of the Industry Report and the Sovos/ShipCompliant Direct to Consumer Wine Shipping Report. The keynote "State of the Industry" talk at Unified often provides the take-home messages that then make their way into print headlines.
As you would expect, some assessments are more pessimistic, while others focus on the positive. This year, it seems like most of the headlines focused on the negative. An article that I thought threaded the needle pretty well to give a balanced assessment was Bill Swindell's piece in the Santa Rosa Press Democrat: US wine shipments increase slightly to 409 million cases in 2019 (although it's worth noting that the original headline was more pessimistic: "US wine shipments increase slightly, despite fears").
Bill points out in his article that despite slight overall growth there are major issues for certain segments of the industry. Lots of grapes went unharvested in 2019. Grape and bulk wine prices on the open market are down, squeezing growers. After years of strong growth, sales flattened in 2019. And younger drinkers (mostly the Millennial generation) have been slower to adopt wine as their beverage of choice than previous generations. So, what's the outlook?
I think it's complicated. The fact that growers are having trouble selling their grapes appears to me to be due to two things:
- There has been a ton of speculative planting in recent years. The 2018 California Grape Acreage Report (the most recent year available) shows some 637,000 acres of wine grapes in the state, including 47,000 planted in the last two years and therefore non-bearing. That's new acreage greater than the total acres in Paso Robles, planted just in the last couple of years, and growth of 21% since 2008. And most of this acreage isn't being planted by estate wineries. It's large plots, owned by growers hoping to sell grapes to wineries on the open market.
- By and large, the big American wine companies are struggling. According to the SVB Wine Report, the seven largest American wine brands saw a total sales decline of 3.09% last year. That may not sound huge, but as those brands amount to between 68% and 70% of the domestic market, that decline totals some 3.4 million fewer gallons (1.4 million fewer cases) sold. That's a lot of volume for small producers to soak up. And looking locally in Paso bears this analysis out. It’s growers who contracted with these behemoths who are hurting most, leaving grapes unharvested, while demand for premium vineyards has remained strong.
Of course, there are also the demographic challenges that the SVB Wine Report pointed out. Younger generations aren’t adopting wine as fast as the industry hoped they would, with Millennials' share of the wine market growing only from 14% to 17% in the last five years, even though that time frame saw the youngest millennials reach legal drinking age and the oldest approach 40. That said, although I haven't been able to find exactly the right data to prove my point, I'm pretty sure that they're drinking more wine per capita than previous generations were at their age. I'm right in the middle of GenX, I grew up in the wine business, and neither I nor my friends were drinking much wine at age 25. I think it's even less likely that baby boomers were drinking as much wine at age 25 as millennials are now. The peak of the boomer generation would have been 25 in 1980, when cocktails and beer were ascendant and the total American wine market was half the size it is now. Wine coolers? Maybe.
Importantly, things are still growing for quality producers. While wines with prices below $9 showed declines in both sales volume (between 3.5% and 4%) and value (around 2.5%), the picture looks better up the price spectrum. Wines between $9 and $12 were more or less flat in both value and volume. All the categories above $12 showed growth in both volume (between 7.5% and 8.5%) and value (between 4% and 8%). And direct sales from wineries — mostly toward the higher end of the price spectrum — grew 4.7% in volume and 7.4% in value.
What are we to make of all this? I think it's naive to assume that the wine market is somehow immune to the market constraints of supply and demand. Growers shouldn't be able to plant unlimited additional acreage and expect to sell it regardless of quality. Wineries shouldn't be able to muscle whatever production they make into the US market even if they have no path to market or way of connecting with customers.
As far as I'm concerned, that thinking is a relic. Producers need to be focusing on quality. And on responsibility. And on storytelling. And on transparency. If there’s something to learn from analyzing millennials’ buying trends, I think it should be to align your production with customers’ values. Last year’s darling category — hard seltzer — took lots of smart people by surprise. At the DTC symposium, a presenter pointed out that they're making a big deal about it being "pure", to the point that it's part of White Claw's motto. The White Claw home page lists carbs, calories, and alcohol, and the cans all bear a "gluten-free" logo:
Wine is a natural product, made from a healthy raw material (grapes) with relatively benign farming inputs. But somehow hard seltzer has seized the mantle of the new "healthy" alcohol. Why are we as an industry allowing this to go unchallenged? It’s disappointing that the big national wine companies haven’t made any serious efforts at meeting this head-on. Are they just not wired this way? If I were in their shoes (and, let me be clear, I’m happy I’m not) that would be priority number one.
If transparency is at least part of the answer, it will require a major shift in how wine is marketed. The mystique and exclusivity that is a staple of most luxury wine marketing is, I think, part of the barrier that the wine industry has erected between itself and millennials, because it can often come off as elitism.
Back to the conclusion of the Santa Rosa Press article I linked in my second paragraph: “The people who are successful right now are the people who have focused on the quality of the wine and the quality of the experience”. That shouldn’t be shocking. But it's clear that, at least in terms of experience, there's improvement to be made. In a bombshell of a blog post last weekend, Silicon Valley Bank's Rob McMillan shared a letter he received recently from a friend who spent such a disappointing weekend visiting wine country with his GenX daughter — being ignored and taken for granted at one winery after another, all while spending thousands of dollars — that they decided next winter they'd visit the Grand Canyon.
In retrospect, I think we'll realize that lots of wineries have had it easy in recent years. The market was growing fast enough that it absorbed larger quantities and higher prices every year. New states were opening up through liberalized shipping laws, offering wineries direct access to customers and enticing millions of new vacationers to visit wine country. Premium wine regions and highly rated wineries saw enough demand that they didn't need to focus on customer service.
Whether 2019 was a blip or the start of a new era, I think this is a good time to refocus on providing great wine and great experiences, being transparent about how wine is made, and — most importantly — accelerating the improvements in industry practices so that the transparency shows a picture we're proud of. It seems like that would improve things both short and long term.
Are we really saying that wine, made from fruit in a natural process that is millennia-old, shouldn’t be able to compete on authenticity with hard seltzer, an industrial triumph of marketing, developed roughly 15 minutes ago? Give me a break. Let's have this conversation.