Premium Wine Business Doing Well; The Rest Are Hurting: Silicon Valley Bank

In 2022, the premium wine business saw revenue rise 9.7% on average through September, Silicon Valley Bank reports in its latest wine industry report.  But the industry as a whole isn't measuring up, it says, and wine sold below $15 continues to slide and the result will be a second year of negative volume growth for the industry overall.

Many believe the economy is entering a recession. "Every recession since the late 1980s has stared with too much wine in the tanks," but this time, thanks to three years of short harvests and good-quality vintages, "we have balanced cellar stocks of well-regarded vintages across the industry," the report, authored by Rob McMillan, senior vp, says. "We're the best positioned we've ever been to successfully negotiate a recession."

Who buys wine?  Boomers – those over 60 – "still lead all cohorts in share of consumption.  The opportunity to" grow sales "from a cohort with a median age of 66 will prove difficult," the analysis says.

A sizable number of alcohol consumers under 50 fall into the category of consumers who imbibe but have chosen not to drink wine.

Wellness has merged with the sober-curious movement and a growing number of dry events are being popularized, such as Dry January and Sober September.  "Neo-Prohibitionism is very mucu alive and well," the report observes.  

All these factors lead McMillan to conclude sales growth of 4% yo 6% is likely in the premium wine segment.  That's down slightly from 2022.  But for the industry as a whole, he sees volume stabilizing this year at "negative growth levels."

Costs – particularly rising costs for bottles, materials, shipping and staffing – continue to be an issue.   "Finding labor at any price is sometimes more of a problem that it once was."

The impact from climate change is varied and presents new risks in planning.

Most worrisome: "The wine industry isn't working together to solve the obvious demand problem for the wine category."

McMillan believes the wine industry "is at a pivotal point of change. The writing on the wall is legible now."  

Turning to marketing, McMillan notes the the opportunity for the largest increase in consumption is those who drink alcohol but not wine.  The "alcohol not wine" consumers are growing 3% since 2017.  "This is a cohort the industry isn't connecting with and who have decided to stick with other alcoholic options or become abstainers," he says.  More worrisome: The younger the age band, the higher numbers of "alcohol not wine."  This is a particular worry because as people get older the "alcohol not wine" consumer becomes an abstainer.

McMillan is scornful of industry advertising.  "When we do market today, we are still largely selling “long warm days, cool nights and special soils,” he says. "You know what I mean by that. We spend time talking about the date of harvest, the pH of the wine, acidity and pick dates. We speak of the owner, their background and their successes, if not also the family’s history. Some owners put drone footage of their beautiful properties on their websites to entice visitors.

"What we are doing in the premium industry is selling white-linen hospitality and gracious living, with a nod to the lifestyles of the rich and famous in many cases — information that’s interesting to wine geeks and consumers over 60 but probably not to the vast majority of potential customers. That message is at best wasted a younger crowd; at worst, it’s turning them off," he writes.

"The solution to flagging demand is to improve the value of wine vs. competing beverages for the  consumer. Reducing prices could increase value, but a better bet is to promote features about your wine that resonate with new and marginal wine consumers," McMillan says.

You can find the complete report here.