2015 wine consumer data is revealing new pressures on the U.S. wine industry. These trends will create business opportunities and confuse brand strategy for years to come. We are already seeing several of these changes beginning and I believe the others are inevitable:
The strong dollar is affecting currency exchange and making it easier for European producers to compete in the U.S.
Climate change is altering micro-climates in many regions around the U.S.
Demand is slowly migrating from table towards premium wines.
Major growth in the sale of sparkling wines for every day consumption.
Changing state wine distribution laws are making it easier for Direct-to-Consumer (DtC) business models to reach the consumer… and consumers are showing a DtC preference.
The Millenial Generation (born 1977-1995) has become the largest wine consuming age group, just surpassing Baby Boomers and bringing with it changes in demand and buying behavior.
U.S. off-site wine purchases are continuing to grow, driving greater sophistication in the wine buying community and increasing demand for wine education.
On-site beverage revenue growth is likely to follow and bring a more demanding clientele with it.
The expected growth in on-site beverage revenue (as a percentage) will increase the need for improved business skill-sets at smaller venues and individual outlets.
Ship Compliant ™ & Wines & Vines ™ – 2016 Direct to Consumer Wine Shipping Report
USDA Foreign Agricultural Service, Global Agricultural Information Report – EU27 Wine Annual Report and Statistics 2015, February 24, 2015, GAIN Report Number: IT1512
Premium wine sellers are focusing on the Baby Boomer age group, mistakenly thinking it is still the largest wine consuming demographic. This oversight will generate a window for new business opportunities with producers, distributors, off-site and on-site marketers who understand the changing demographic within the wine drinking community. In the next decade, the dominance of Millenials in the wine consuming public will grow (demographic data has shown – as we age, per capita wine consumption rises). In order to understand these changes. it is important to understand how Millenials buying habits differ from Baby Boomers.
Millenials tend to:
Be more adventurous in trying: unfamiliar grape varieties, labels and experiment with imports.
Drink sparkling wines daily, rather than just on special occasions.
Be less single varietal focused and prefer blends.
Be willing to spend more per bottle of wine when they drink, but prefer craft beer and cider.
More per bottle spending, means likely more discerning palates.
- U.S. Wine Marketing Council – October 19, 2015, “MEDIA ADVISORY –
Wine Market Council Releases Latest Research on the Online Wine Shopping
Behaviors of Wine Consumers”
- U.S. Wine Market Council – March 24, 2016, “U.S. Wine Marketing Council stands by their 2016 Consumer Research on Millennial Wine Consumption Habits”
So what to make of all this data? I believe:
- Distributors will have to make choices: add more value than simple logistics (education, more direct marketing, etc.), spend more money on lobbying to influence state beverage laws, or downsize.
- Producers will be able to dramatically improve profitability through establishing and growing the DtC channel. Producers will need to change focus to blended wines (similar to Europe). This should enhance AVA focused labeling and marketing.
- Current small volume markets will grow. Over 50% of DtC wine shipments are to 5 states. Huge opportunity for producers to develop new markets.
- Off-site re-sellers like grocery stores and on-site re-sellers like restaurants will become EVEN MORE focused on beverage as a percentage of their revenue.
- Demand for wine educators and trained wait staff will continue to grow.
- Growth in the premium segment will increase economic pressure on the largest wine producers… bringing EVEN MORE consolidation.
- Increasingly educated buyers will be more willing to shop at warehouse stores with larger selections and less personalized service.
- Changing climates will drive big swings from vintage to vintage in production. Examples:
- 2015 Sonoma County: 36% drop in pinot noir crop.
- 2015 Washington State: 8% drop in cool-climate Riesling crop, with 12% increase in warm-climate Cab Sauv… causing a net 2% growth in Washington State wine fruit production.
These vintage to vintage changes in available fruit will add volatility to pricing and may make it difficult to capture year-to-year fluctuations in fruit costs. Source: Wines and Vines, 02.10.2016 – “California Wine Grape Tonnage Falls” at: http://www.winesandvines.com/template.cfm?section=news&content=164654
May You Live in Interesting Times!
The ancient Chinese curse may be very apropos here. Growth in both successes and failures are on the horizon for the wine business. No, it will not be overnight, but the next 5-10 years could drastically change the landscape. I am quite curious to see where all this change will take us…
Many of these ideas represent my personal conclusions drawn from a wealth of new marketing data released this year. I hope you enjoy my crystal ball!