Silicon Valley Bank’s Executive Vice President Rob McMillan forecasts that the sales growth in the U.S. wine industry will range from 4% to 8% in 2018, noting that people are “drinking better wine, but less wine.”
SVB usually issues an annual report on the state of the wine industry, but this year the wildfires in Napa and Sonoma caused “some of our clients to lose their homes” and even kept McMillan out of the bank’s Sonoma office for a month. “I’m not sure the gas is even on yet for heating. We’ve been putting in electrical for a long time.
“But October is when we usually do our survey [of the wineries]. So, this year we had to do the wine report without the survey,” McMillan explained. The report will be released in February, he said.
Using statistics based on data from Nielsen, IRI and Gomberg, McMillan showed the rate of sales growth in wines priced above $9 per bottle had slowed. It’s down from $1.4 million per week in February 2017 to $1 million per week in October 2017.
But the number that jumped out was from SVB’s own resources–the financial statements of its clients and potential clients. As of September 2017, sales growth for the year had declined to 0.3%. That was the lowest it had been since 2009, when it was -3.8% as the country struggled with the Recession.
Plotting Future Online Growth
“Something is going on,” McMillan said, but was unable to be more specific. He is basing his 4% to 8% forecast on the economy, “which is strong” as well as “any bump that might come from the recently passed tax reform plan and the fiscal stimulus” will aid discretionary income.
McMillan said the average winery now gets 60% of its revenues from direct-to-consumer (DTC) sales, but only 3% of its sales are from online sources. That, he told winemakers, has got to change. Online, he said, “is the direct-to-consumer 4.0. If you can get it up to 15% or 20%,” that will be the next revenue stream.
McMillan also pointed out that in another five years, most of the baby-boomers will be 65 and older and for the most part, will be living on fixed-incomes. He expects this means many will be trading down when it comes to wine “or emptying their cellars.”
Millennials, whom he described as financially disadvantaged, stuck with student debt and getting a late start to their lives, are “also brilliant about the way they find value. They are better digitally than boomers in finding value and find avenues for deals.” So, keep the $50 tasting fee for the reserve flight at a tasting room, he argued, “but open your inventory to that young consumer who doesn’t have the wealth, but does have the interest. They are your customers of the future. You’ve got to engage them” by letting them discover the deals.