State of the Wine Industry Report 2020

2020 OUTLOOK
THE US WINE INDUSTRY WILL BE CHALLENGED OVER THE NEXT FIVE YEARS

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 with street-level intelligence and provides a unique forecast based on micro- and macroeconomic and behavioral trends.

In this report, Rob suggests that we are in the midst of a consumer reset, which requires every winery to reimagine how they sell and market wine. The early results tell us there are winners and losers today, with about 25 percent of the business struggling while the upper quartile of wineries is delivering record years.

“Boomers are not your target for growth given that the last of the cohort will hit normal retirement age in 10 years. We are slow to evolve as an industry and must solve for the young consumer, who has different values."

“There are solutions, but hoping millennials will adopt boomer values as they age — and, as a result, move away from spirits and gravitate to wine — just isn’t a sensible business strategy.”

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Forecasts for 2020:

  • Acute oversupply will allow for better-quality juice in lower-priced bottles, which will improve value and may provide an incentive for some millennials to become more consistent wine buyers.
  • The oversupply will lead to vineyard removals — and fallowing in some cases — and reduced returns for growers.
  • Grape and bulk prices will stabilize at lower levels than we’ve seen in the past five years. It will be well beyond 2020 before we see grape prices stabilize.
  • Baby boomers are moving into retirement and declining in both their numbers and per capita consumption, while millennials aren’t yet embracing wine consumption, choosing to stick with spirits or abstain altogether.
  • On the other hand, millennials represent the wine industry’s largest opportunity.
  • Premiumization is nearing its apex as a trend, indicated by the decline in total wine sales volume, the decline in premium wine growth rates and the difficulty in passing price increases on to consumers.
  • We have entered a period where the cumulative negative messaging about alcohol and health is impacting demand from young consumers. They have stalled in growing their wine preference, leaning instead toward premium spirits and craft beer.

Wine Report Part 1 Custom

The report findings were discussed in a January 2020 videocast featuring Rob McMillan. Industry experts joining him were Amy Hoopes, President of Wente Family Estates, Juliana Colangelo, West Coast Director of Colangelo & Partners and Paul Mabray, CEO at Emetry. We also had a special feature with Glenn Proctor, Global Wine Global Wine and Grape Broker at Ciatti Wine Broker, discussing grape supply and pricing.

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Wine Report Part 2 Custom

Following-up on our live videocast, the panel takes to questions from our audience and continues the conversation from the first hour videocast. We will also feature Tony Correia, Owner, The Correia Company, discussing land price.

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HOW WAS YOUR YEAR? 

There are winners and losers, with nearly a quarter of the industry still reporting a record year while another 25 percent of wineries are reporting increasingly difficult times.

Chart 1 – Fig 1@2x.png

TRENDS OF INDUSTRY SENTIMENTS

(Total "Positive" responses to each category minus total "Negative" Responses to each category)

Despite resilient performance, the mood and sentiment of the industry has shifted decidedly into negative territory, with 49 percent of winery owners now expressing a pessimistic view of future conditions.

Chart 2 – Fig 3@2x.png

WINE GROWTH BY VOLUME

On- and off-premise depletions have turned negative in volume, according to wholesale depletion information.

Chart 3 – Fig 13@2x.png

VARIETAL GROWTH RATE AND SHARE OF MARKET

Chardonnay, red blends and pinot noir, among others, have trended negative. Wines with lower alcohol content and lower price tags, such as sparkling wines, rosé and sauvignon blanc, are still trending positive.

Chart 4-Fig25@2x.png

About SVB Wine Division

Silicon Valley Bank’s 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.

Learn more at www.svb.com/winedivision.

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This material, including without limitation the statistical 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 throughout this report 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. You should obtain advice from your own tax, financial, legal and other advisors and only make investment decisions on the basis of your own objectives, experience and resources. SVB does not provide tax or legal advice, and individuals should consult their tax or legal advisors for matters involving taxation, business planning or other tax or legal matters. 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.

The views expressed in this article are solely those of the author and do not reflect the views of SVB Financial Group, Silicon Valley Bank or any of its affiliates. Silicon Valley Bank is not selling or distributing wine or wine-related products. Silicon Valley Bank provides banking and financial services, along with industry insights to Vineyards and Wineries. 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. All companies, people, informational and news related sources other than those specifically named or represented by SVB, SVB Financial Group or Silicon Valley Bank are independent third parties and are not affiliated with SVB Financial Group.