The recently released Silicon Valley Bank – State of the Wine Industry 2018 report is a must-read for anyone with a stake in the wine industry. The report reveals several trends that are challenging traditional marketing and sales strategies, while also providing keys to future success.
The major takeaway is the wine industry – like almost all industries – must adapt new creative online strategies to drive sales. Currently, most wineries are lacking in this area. A renewed focus on e-commerce will become especially critical over the next 10 years as the Millennials surpass the Baby Boomers in fine-wine consumption.
Thanks largely to the Baby Boomers, the U.S. wine industry has experienced exponential growth for more than two decades. Prices and volumes have increased consistently, with only minor periods of stagnation due to economic recessions.
In Napa County, the demand for cabernet sauvignon has continued to grow. The average price per ton for cabernet grapes has increased dramatically over the past 20 years. Currently, 90th percentile Napa cabernet earns more than $10,000 per ton, and the most premium land in Napa Valley sells for $400,000 per planted acre. I have personally seen higher sale prices than $400,000 per acre.
The Silicon Valley Bank report notes, however, that after more than 20 years of increasing grape prices and land values, the growth is levelling out, even in premium regions such as Napa Valley.
Premium wines are currently the dominant trend. Today’s consumer is preferring quality wines over lower priced wines. Still, growth is slowing in both the lower price and premium wines.
The report predicts a sales growth range of 4 to 8 percent for premium wine, down from the 10 to 14 percent growth seen in 2017.
Winery acquisitions are also expected to slow after experiencing a rapid increase over the past three years. However, foreign purchases of U.S. wineries will still generate significant transactions over the next 12 months.
According to the Silicon Valley Bank Report: “Winery owners, who have seen grape prices escalate markedly over the past five years, are finding that cost increases are difficult to pass on to new consumers, who are signaling that they have a lower indulgence ceiling than have prior generations.”
In about 10 years, the retiring Baby Boomer generation will be out of the market. Around 2021, the Gen X group will surpass the Baby Boomers as the largest fine-wine consumer demographic. By 2026, the younger, more frugal Millennials will surpass the Gen X cohort.
The demand for premium wines is expected to continue, but wineries lacking strong brands may see a softening on the luxury end. Well-established brands should continue to have positive growth opportunities.
According to the report: “Millennials are migrating away from red blends and introductory wines and are starting to have a positive impact on lower-priced still wine categories – both domestic and foreign. This trend will continue.”
Although the economy is currently producing the best results since the 2007-09 recession, the circumstances that led to 20 years of steady growth in the industry are difficult to repeat. Winning sales strategies that worked then will have to be revamped to produce success in the future.
“Successful wineries 10 years from now will be those that adapted to a different consumer with different values,” the report states.
Millennials use the internet in complex and interactive formats. They’re more frugal and have less disposable income. Wineries need to adapt by delivering the wine, and the wine experience, to where these consumers live, instead of solely focusing on the winery location to drive sales.
Wine tours and tastings began after Prohibition ended in the 1930s as a strategy to bring back customers. For decades, wineries opened tasting rooms so consumers could sample and buy wine. In these early stages, tastings were generally free and wineries measured success by the number of people drawn to the tasting room.
As early as the 1980s, it was noted that daily tours and tastings weren’t selling a high volume of wine. Later that decade, wineries adapted by creating wine clubs and shipping programs, so wine could be delivered to specific consumers once or twice annually. By the mid-90s, with the Baby Boomers in their mid-30s, U.S. wine sales began to skyrocket.
The Silicon Valley Bank report notes an interesting paradox: While tourism is increasing in wine country destinations, average winery visitation is down. The exceptions to this odd trend are the states of Oregon, Virginia and New York. Some reasons for this trend include the rapid growth of new tasting rooms outweighing consumer demand and higher tasting room fees discouraging new visitors. In Napa County, the average tasting room fee is $38. In Oregon, which is still growing average visitation, the standard tasting fee is $13.
For continued success, the report recommends that wineries adapt to more creative e-commerce sales. Today, online purchases account for only 3 percent of winery sales.
Some of the biggest problems noted in the report, are that most winery websites are static and wine companies as a whole lack an effective approach to online marketing and sales. Winery websites need more interaction and real-time information. Wineries also need a targeted approach to popular social media sites, like Instagram and Facebook. By using online tools correctly, a wine company could potentially replace the distributor’s sales and marketing role.
According to the report “Branding and marketing prove remarkable in shaping a consumer’s palate.”
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If you want to know more about the Wine Industry report or if you’re interested in Napa real estate, I have access to some extraordinary wineries, vineyards, luxury estates and homes that are not on the open market and would be delighted to help you find your dream wine country property. You can reach me at 707-738-4820 or [email protected].