REGION:

2018 OUTLOOK
THE US WINE INDUSTRY IS AT THE TAIL END OF A 20-YEAR GROWTH PERIOD

Rob McMillan, EVP and founder of Silicon Valley Bank’s Wine Division, writes one of the wine industry’s most authoritative annual reports that assesses current conditions and provides a unique forecast based on micro- and macroeconomic and behavioral trends. In this latest report, he says that successful wineries 10 years from now will be those that adapted to a different consumer with different values — a customer who uses the internet in new and interactive ways, is frugal and has less discretionary income than their generational predecessors.

This consumer rotation, along with several other indicators that point to reduced direct-to-consumer success, has specific implications for small wineries. Action is required now to stay ahead of these changes.

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Forecasts for 2018:

  • Consumers are leaving the lower price segments in favor of better-quality offerings, but after more than 20 years of straight-line growth trends, total volume growth is leveling off. Retiring baby boomers and frugal millennials are driving a rotation of consumer preferences. Premiumization will continue, but softening is likely on the luxury end for wineries without preexisting strong brands.
  • The premium wine segment will grow in the range of 4 to 8 percent, down from the estimate of 10 to 14 percent in 2017. For the industry as a whole, sales will rise by 2 to 4 percent, while volumes will increase slightly.
  • Acquisitions will cool somewhat from the torrid pace of the past three years as many of the major buyers digest their recent purchases. We will still see foreign purchases of US wineries and significant transactions for vineyard properties.
  • When 2018 totals are calculated, California will have crushed about 3.8 million tons of grapes, slightly more than in 2017. In the Pacific Northwest, Oregon will set another record in terms of yield, and Washington’s yield will slightly moderate.
  • For more than 20 years, we’ve seen regular increases in volume and price. But sustaining routine increases may be difficult for wineries given the low-growth, low-inflation environment. Price increases will be hard to pass through in 2018, so overall pricing will be flat.

French Wine Cellar

In this 17th annual State of the Wine Industry report, Rob McMillan finds that while business overall is projected to increase, the growth rate is slowing. He also offers perspectives on how the industry may sustain growth by embracing new demographic segments.

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Plunging grapes to extract color

The report findings were discussed in a January 2018 webinar featuring Rob McMillan. Industry leaders joining him were Gretchen Boock, Chief Executive Officer, Dobbes Family Estate/Wine By Joe; Mary Jo Dale, Marketing Director, Americas, Vinventions/Nomacorc; and Paul Mabray, Wine Industry Digital Futurist and Director, Getemetry.com.

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US WINE CONSUMPTION

After more than 20 years of straight-line growth, total volume growth is leveling off. Premiumization is still the dominant trend, so volume drops in lower-priced generics are part of the explanation for flattening volume; but in a more recent development, even premium wine growth is slowing.

WINE INDUSTRY CONSUMPTION TRENDS

PREMIUM WINE SEGMENT

The premium wine segment — which we define as wine above $10 per bottle — dominates sales and is responsible for all the growth in the wine trade today.

PREMIUM SEGMENT WINE INDUSTRY TRENDS

GENERATION SHARE OF WINE CONSUMPTION BY BOTTLE PRICE

Retiring baby boomers are starting to have an impact: They are evolving to lower-price premium segments in place of the higher-price segments they previously dominated.

BOOMER, GEN-X AND MILLENNIAL WINE TRENDS BY BOTTLE PRICE

GROWTH IN VARIETALS

With respect to varietal segments, reds are still dominating premium wine growth, but chardonnay has emerged as the second-highest growth varietal, moving ahead of red blends.

GROWTH IN VARIETALS WINE INDUSTRY TRENDS

GENERATIONAL DIFFERENCES IN NET WORTH AND INCOME

Today, Gen Xers lead in income and spending. Their presence has been below the radar, but their consumption continues to increase. They are perfectly positioned to surpass baby boomers as the dominant cohort in fine wine consumption around 2021.

BOOMER, GEN-X AND MILLENNIAL WINE TRENDS BY NET WORTH AND INCOME

About SVB Wine Division

Founded in 1994, SVB’s Wine Division offers financial services and strategic advice to premium vineyards and wineries. With one of the largest banking teams in the country dedicated to the wine industry, SVB’s Wine Division has offices in Napa and Sonoma counties and primarily serves clients in the fine wine–producing regions along the West Coast of the United States.

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This material, including without limitation to the statistic information herein, is provided for informational purposes only.

The material is based in part on information from third-party sources that we believe to be reliable but which have not been independently verified by us, and for this reason we do not represent that the information is accurate or complete. The information should not be viewed as tax, investment, legal or other advice, nor is it to be relied on in making an investment or other decision. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to the material should be construed as a solicitation, offer or recommendation to acquire or dispose of any investment or to engage in any other transaction.

Silicon Valley Bank is not selling or distributing wine or wine-related products. Through the online informational platform, SVB Cellar Selections, Silicon Valley Bank provides material to employees about a variety of premium Silicon Valley Bank winery clients and their wines. These communications are for informational purposes only. Silicon Valley Bank is not responsible for (or a participant in) the sales of any wineries’ products in any fashion or manner and makes no representations that any promotion or sales of alcoholic beverages will or will not be conducted in a lawful manner. Further, Silicon Valley Bank disclaims any responsibility or warranty for any products sold by wineries or other wine industry service providers.

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