In our May issue, Wine Enthusiast Editor & Publisher Adam Strum wondered if the wine industry can sustain “the new normal;” consumers have traded down in the amount of money they spend on wine. And there’s no end in sight. You hear it everywhere. The luxury tier has been battered, and so has everything over $15, or whatever the price point is where consumers shudder. Strum, ever the optimist, expressed confidence that the American wine industry will experience a “rebalance” and “will continue to thrive.” “One consistent bright spot is…the Millennial segment,” Strum noted. That’s because most of this 70 million-strong cohort are at the peak of their independence, without families (yet), and with disposable income that, often as not, goes to wine, beer or a cocktail. True, their generation has also been hit by the recession. Some 37% are currently out of work. But they have proven to be serious consumers; once the economy improves, it is believed, the hundreds of billions of dollars of spending power commanded by Millennials will be a bracing tonic to the wine industry.
Through my blog, I’ve gotten deeply involved with Millennials and the social networking conversation. So I want to focus on what exactly is the promise that Millennials give to the wine industry, and whether that promise can be fulfilled. The promise, obviously, is sheer numbers. Seventy million is gigantic, and even though all of them aren’t wine drinkers, enough are to theoretically sustain the industry for decades. The Millennials are in search of new experiences, looking for information, which gives individual wineries the opportunity to brand themselves and capture Millennial hearts.
I had tea recently with Leah Hennessy (herself a Millennial), who runs Wine Tasting for Los Angeles (WTFLA) and Millennier Wine Sales, which advises wineries on how to market to Millennials. Our discussion ranged over the landscape: why wineries should use social networking, how Millennials make buying decisions, how the magic of branding occurs, whether social media can help a winery sell wine, and what happens as digital networks transform the way we engage with each other.
Obviously, this requires lots of crystal gazing. We’re trying to predict the future of massive trends, something nobody is very good at, not even “experts.” So it was not surprising that Hennessy and I would disagree on some crucial points. She’s convinced that wineries that survive in a Darwinian future will be those most adept at using social media, while I see social media as only one element in a winery’s struggle for existence.
Let’s take the 4,000 winery brands in California. Many, maybe most of them, are trying hard to figure out social media, and they’re succeeding. But there are certain stubborn facts that have to be faced. Trillions of dollars in asset value have been wiped out by the recession, and that money isn’t going to reappear for many years. In the meanwhile, “the new normal”—the fact that people are spending less per bottle—means that most wineries are going to have to figure out how to survive with less money coming in. The Two-Buck Chucks won’t, of course; this recession has been good to them. But most wineries can’t sell their wine at those prices.
This means that the vast majority of California wineries face a problematic future, whether they’re playing with social media or not. One prediction Hennessy made is that wineries will survive by building networks of club members through social media. But does anyone really think 4,000 wineries in California alone are going to sell everything through clubs? Moreover, the distribution system isn’t going away anytime soon, and since it favors large wine companies, the little guys, who account numerically for a huge percentage of wineries, will continue to find it hard to get into the pipeline. And don’t expect universal direct-to-consumer shipping anytime soon. The political pressures against it are just too strong.
I began this column by asking whether the promise of 70 million Millennials for the wine industry can be fulfilled. The answer depends on what kind of economic future they’ll have. If they experience the kind of disposable income the Baby Boomers did, the wine industry will be just fine. They’ll eventually reach the point where a $20 or $25 bottle becomes the new $8, and $45 or $50 isn’t out of line for a special dinner.
But every long-term economic forecast I’ve seen suggests that America’s economy is not going to return to its robust heights for a long time. That suggests that the Millennials aren’t going to have a lot of disposable income, especially as they start having kids and saving for college and retirement. So while I hope Adam Strum’s optimism for a thriving rebalance happens, I’m also more pessimistic than he is. Our culture uses the word “new” in the most flip and slick way— the “new this” and the “new that” always implying that another change is just around the corner. With the wine world’s new normal, I don’t think so.