Why The SVB 2020 State Of The Wine Industry Report Is Good News

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Good News About Wine
Good News About Wine

By now we’ve all read the SVB 2020 State of The Wine Industry report by Rob McMillan. In many ways the news is familiar. Aging boomers, industry consolidation, health concerns, and a difficult labor market are all ongoing concerns. What’s new is the reluctance of Millennials to embrace wine. This isn’t the only driving factor, but it is changing the game. We’re seeing low to negative volume growth, pricing pressure, and a grape and bulk wine surplus.

The wine industry is at a pivot point. Shifting demographics and consumption patterns are changing the game. The good news is wine is perfectly positioned to grab hold of a new generation and drive growth for decades. The opportunity is there. It’s just up to us wine marketers to grab it.

Sounds like bad news, and the media has reported accordingly. “The Next Five Years Will Challenge The U.S. Wine Industry“, is the headline from Forbes. “The Wine Industry Needs To Evolve“, says winebusiness.com. And thedrinksbusiness.com says “American Wine Report Warns Of Over-Supply And Under-Consumption“. Challenging times indeed. But when you dig into the findings, there’s a lot to be glass half full about. Let’s take a look.

The Generation Gap

We don’t talk about the generation gap anymore, at least like we used to back in the day (OK, Boomer). But the psychographic gap between Boomers, Gen Xers and Millennials is very real, a chasm more than a gap. In my view it’s the real reason for optimism when reading the report. It’s no secret that the wine industry has had trouble speaking to Millennials. We got off track speaking to Gen Xers in relevant terms with the rise of digital marketing and social media. Since then we’ve been playing catch up with other beverage categories. But, there’s a data point from the report that should put a smile on your face. “The Gen X cohort will surpass the baby boomers by around 2022 to become the largest fine wine–consumer demographic in the US. By 2027, Millennials will surpass Gen Xers to become the largest fine wine–consuming cohort.”

Wait a minute. Didn’t I just say that we’ve been playing catch up in speaking to those cohorts? And aren’t Gen Xers the generation that nobody cares about, and Mills aren’t drinking wine? Yes, yes, and yes. The point is, we’ve reaching a tipping point. We now must act in order to get back to seeing volume and pricing growth.

A Key Take-Away From The SVB 2020 State Of The Wine Industry Report

We have a large potential audience in the Gen X (roughly 70 million) and Millennials (roughly 80 million). That’s 150 million potential wine consumers, much larger than we had to work with during the Boomer days. And we have the most efficient means of speaking to this group since the invention of the printing press: digital marketing. It’s a huge opportunity, and all we have to do is grab it. Easy to say, I know, but stick with me.

Here’s the take-away that I think hints at our greatest opportunity. Two psychological cues that drove industry growth over the last 30 years are more in line with the values and aspirations of the younger generations that they were with Boomers. Health concerns and a desire for authenticity in the products we consume were major factors in Boomers embracing wine as a beverage of choice. But those concerns and desires are more deeply rooted in the younger generations.

Paradoxically Speaking

Boomers were influenced by media reports on health (the French Paradox, for example, helped grow red wine sales by 40%). But Gen X and Y are more data driven in their behavior, thanks to the internet. They look at stats, read labels and are more granular in their concerns. Alcohol consumption, for example, is a real concern for them, which has resulted in a new kind of paradox. Why are they drinking more spirits and beer, when wine is clearly the lower alcohol, lower carb choice?

Boomers also gravitated to wine because it was authentic, with real people, places and stories behind it. Beer, before the big brewers caught on to the craft movement, was generic and bland. Spirits were faceless and marketed as a social lubricant with no compelling story. Now, the wine industry has let beer and spirits co-opt one of wine’s biggest marketing advantages.

The so-called Silent Generation, Boomers parents, shied away from wine largely because they considered it to be the unfashionable, peasant drink of their immigrant parents. Chianti fiascos and jugs of generic red wines didn’t help that perception. It wasn’t until the wine industry did something about that perception that wine sales start to take off. Cork finished 750ml bottles, varietal labeling and marketing wine as a food and lifestyle enhancement (healthy and authentic) worked. We are faced with precisely the same challenge today: wine is the drink of Gen X and Y’s parents. Boring, pretentious, and by the way, too expensive.

Health And Wealth

Boomers talked a good game about health and authenticity, but when it came down to it, premium wine was really about prestige. We sold luxury, exclusivity and scarcity, and Boomers ate it up. With the release of the first vintage of Screaming Eagle in 1992, the die was cast. For the right wines, prices went in the stratosphere and the word cult became associated with wine. Cult. Not really a very healthy, or authentic sounding word, is it? Don’t get me wrong. The demographic and economic trends in the 90’s created a gold rush for the wine business. Volumes and prices grew dramatically every year. But let’s face it: it wasn’t about a healthy lifestyle and getting back to the land. It was about conspicuous consumption. As wineries, we all aspired to be Screaming Eagle, or first growth Bordeaux. And those two are still doing fine, but Bordeaux exports fell by 14% in volume in 2019 (Vitisphere, 3/20/2019). For Gen X and Y, the ultra-premium wine category is largely irrelevant.

Show Me The Money

Millennials are far behind their parents in wealth accumulation. Crippling college loan debt and the high cost of home ownership are the big culprits. Business Insider reports that Millennials currently hold only 3% of total U.S. wealth and Gen Xers about 16%. Boomers held 21% when they were the same age. That’s troubling, but it ignores the fact that all that money isn’t simply going to disappear. Wealth will be transferred and Millennials will find their footing. In 15 years, Millennials and Gen Xers will hold the majority of U.S. wealth. In the meantime, we have a great opportunity to meet this demographic wave head on, by telling our stories.

Summary: Good News From The SVB 2020 State Of The Wine Industry Report

The good news for the wine industry is that the opportunity is there. We sell a generally lower alcohol, natural, plant based product, supported by great stories about real people. We have a potentially huge market of receptive consumers. They will spend their hard earned money on products and brands they believe in. If we make our customers believe in us, our customers will respond. That sounds like very good news to me.

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