Rob McMillan, executive vice president/founder of Silicon Valley Bank’s Wine Division, thinks the United States wine industry could go the way of beer if things don’t change very soon.
“We can’t keep doing things the way we’ve been doing it, because we have a five-year window, tops, to put change into place and evolve. Or we could end up being beer,” McMillan says.
Millennials are not drinking wine as often as forecasters had predicted, preferring whiskies and craft beers. But beer sales, which had been trending higher for several years, are likely to flatten in 2019.
“Talking about warm days and cool nights, special grapes and special soil, it’s not going to fly.”–
Rob McMillan, executive vice president/founder, Silicon Valley Bank’s Wine Division
“[Millennials] lack financial capacity, have a current preference for premium spirits and craft beer, and have been slow getting into careers. Cannabis demand skews to younger males today, and that is also likely playing a role in the cohort’s delayed appreciation for wine,” McMillan told the industry as he delivered his State of the Wine Industry Report earlier this month.
Changing wineries’ status quo
When it comes to what he calls “the buzz for dollars” scale, McMillan notes, “You can get a $27 bottle of Maker’s Mark that doesn’t oxidize, or you can get a $27 North Coast wine that you have to drink that night… We don’t have a mixologist in the wine business that’s sitting at the bar doing something that’s incredibly cool. Talking about warm days and cool nights, special grapes and special soil, it’s not going to fly.”
McMillan urged U.S. producers, whether they are boutiques or behemoths, to find alternatives to tasting rooms for customers to experience their wines.
He also sees the natural end to the mergers and acquisition cycle in 2019.
“There are a lot of vineyard transactions that are still out there happening, but on the winery side it’s slowing up. Maybe there are those that are saying ‘Aw, shoot. I waited too long.’ ”
Supply without demand
According to McMillan, “We’re at a point of oversupply of grapes, especially in the California market.”
Over a five-year period grape prices increased and the 2018 harvest was particularly large.
The Wine Institute reported that the harvest was in line with the U.S. Department of Agriculture’s August forecast of 4.1 million tons, which is up 2% from 2017 and above the historical average of 3.9 million tons.
It’s an issue “when you don’t have the growth rate [in consumption]. Just as we need to work on the sales and marketing side of the wine business,” McMillan says, “we will need to work on collaboration in the farming side of the vineyard business, because we do need each other to be successful.”
Tennessee Wine and Spirits Retailers Association vs. Blair
When asked about the Supreme Court case, Tennessee Wine and Spirits Retailers Association vs. Clayton Blair, McMillan, a free-market proponent, noted the three-tier system does not work for small wineries and “anything you can do, in my opinion, to take the friction out of the delivery system is OK…”
The impact of Amazon
“You can have an Amazon. The question is, is Amazon a bad thing? And I don’t know the answer to that,” he says.
When Amazon first tried selling wine online it must have been “a little befuddling to them to think they could actually sell many wineries’ entire [annual] production…on one day.”