Reports On Growth Within The U.S. Wine Industry Show Both Headwinds And Tailwinds

Do Americans really like wine very much? Were you to believe all the reality TV shows it seems the only thing the “Real Housewives” of Beverly Hills, Atlanta and Miami do all day is swig Champagne at al fresco lunches or poolside, as does everyone in “White Lotus.” (Of course, you’d expect that in a fictional comedy like “Emily in Paris.”)

Depending on whose stats you wish to believe, the US wine industry looks positively rosy: According to Research and Markets’ 2022 “U.S. Wine Market Size, Share & Trends Analysis Report by Project,” sales of wine (domestic and imported) topped $66.97 billion, with table wines dominating, followed by sparkling wines (most domestic), whose projected sales will rise 7.7% from 2022 to 2030 and the U.S. wine market size is expected to reach USD 115.03 billion by 2030.

The report credits the “rising worldwide supply of grapes, increasing consolidation among producers, distributors, and retailers, and a shift in consumers’ drinking patterns are acting as major drivers for the market.” So far so good.

But the just-released “State of the US Wine Industry 2023,” by Rob McMilan, EVP and Founder, Silicon Valley Bank Wine Division, finds some distressing flies in the barrel, reporting several areas for concern in the market. For one, consumers older than 60 are the only growth segment, while those under 60 have a lower share of consumption compared to what they did in 2007, when forecasts were that Millennials, Gen-Xers and the rest would be drinking more wines and better wines. This now seems to be reversed, with older wine drinkers trading up to more expensive wines, a trend call “premiumization.”

In the group of 21-29 year-olds, 35% drink alcohol but not wine, while only 28% American consumers overall drink alcohol. The majority of Americans never or rarely touch the stuff.

What would seem good news enough to make vintners dance in their vineyards may not be so good after all: The heavy rains in California will likely result in a much larger than normal harvest this season, when there won’t be enough consumers wanting to buy all that increased supply. Three smaller vintages, owing to draught and other climatic conditions, prior to the rains were actually beneficial in reducing volume produced.

The better news is that, according to the Silicon Valley Bank Peer Group Analysis Database, premium wines (above $15 a bottle) are rising, but wine sold below $15 continues to slide, resulting in a second year of negative volume growth in the industry as a consequence.

There is optimism that “the typical consumers of premium wine are sitting on more than a trillion dollars in COVID savings. Our customers have the capacity to use their savings and discretionary income to buy wine even in a soft economy.” The question remains whether or not enough will spend those dollars on wines, when inflation has made everything from butter to burger more expensive.

Americans continue to drink a great deal more American wines than foreign, but the lower end segment that produces jug, canned and box wines and dirt cheap bottled wines under five dollars, like Charles Shaw Merlot ($2.99), has been dropping in popularity. And let’s face it, how many people want to spend $15 and well above to drink a bottle of wine two or three times a week? I have friends who call themselves “wine lovers” who share a single bottle over an entire weekend.

Add to this the fact that there is so much wine in the global market coming from an increasing number of countries that the buyer has an enormous range of wines to choose from at all price points. Competition is fiercer than ever.

My own take on all these data is that worldwide consumption will remain more or less steady for the next five years. Not only has the war in the Ukraine disabled shipment routes, but the crackdown in China of what seems to be a deflating economy with a disturbing drop in population and birth rates can only blunt the excessive optimism of wine sellers who thought that the China would be an inexhaustible market as more people entered the middle class and sought to imitate Western culture.

By the turn of this century the supply of wine outweighed the demand for something that is for most people something of a luxury. Even the younger generation in France and Italy, where wine has been an ancient staple of the diet, is now shying away from wine in favor of beer. Five, ten years from now, who knows?

If the future doesn’t look all that rosy, there is one bright spot: Sales of both still and sparkling rosé wines are soaring, now accounting for 9.3 percent of the overall wine category.

SvbWine Industry Trends and Report 2023 | Silicon Valley Bank