The US market tipped to slow

Friday, 23. February 2018 - 15:15

Rob McMillan, Silicon Valley Bank

According to Silicon Valley Bank’s 17th Annual State of the Wine Industry Report, changes are afoot for the US wine market. They include a drop in sales of wines priced under $9.00 a bottle, an increased focus on premium brands and a move to more direct wine sales.

“World luxury sales are going up everywhere but the United States,” according to the Napa-based Rob McMillan, the executive vice president and founder of the Silicon Valley Bank (SVB)’s wine division. He attributes the wine market slowdown to boomers—who control 50 percent of the country’s net worth and 75 percent of discretionary income—spending less, while younger buyers don’t have the same amount of money to invest in wine.

“It is a rotation of consumers,” he concludes. For the wine industry “the trade off is not fair.” He adds that younger buyers tend to be frugal by economic necessity and also because their culture supports thriftiness. “Being cheap in that generation is laudable. It is a value shift.” He concludes that the implications of these changes “for the wine industry are quite stark.”

Key findings of the study include the fact that demand will grow for wines priced from $12.00 to $25.00, while demand for those priced between $35.00 and $75.00 will not. The report notes that while consumers are leaving the lower-price segments in favour

of better-quality offerings, after more than 20 years of straight-line growth trends, total volume growth is leveling out.

Another finding notes that while premiumisation is still the dominant trend, even premium wine growth is slowing. The SVB’s report adds that the premium wine segment, defined at more than $10.00 a bottle, will grow between four to eight percent, down from the estimated 10 to 14 percent in 2017. In addition, overall pricing will remain flat.

To confront the challenges ahead, the wine industry needs new sales and marketing methods. Successful companies will be those that evolve sales strategies away from the winery location, and who can find other, scalable means of delivering the experience, and the wine, to consumers where they live.

This is a major change from the recent direct-to-consumer sales drive that many wineries have been focusing on, as they have long seen it as more profitable. McMillan noted in a recent interview that the current model of converting eight percent of tasting room visitors to wine club membership for 30 months will no longer be successful as a sales model.

If all winery customers need to come to the tasting room, “You are ignoring the other 49 states.” He adds, “the word needs to get about digital marketing and the use of big data,” which includes the information gathered on consumers in various markets.

The market is ramping up to shift to online sales. McMillan adds that, according to the marketing consultants’ Bain & Company, by 2025, 25 percent of luxury goods sales will take place online. This should serve as a clarion call to wineries that are still doing business the old-fashioned way.
Liza B. Zimmerman