Confidence waning amongst US wineries, according to industry report
US wineries are feeling less confident about the future prospects for their businesses than at any time in the past four years, according to Silicon Valley Bank’s annual industry report.
While 2018 was a good year for the US wine industry, with sales reaching record levels and and premium wine sales up, sales growth is slowing and this is a trend that is expected to continue, according to the report's author Rob McMillan.
Millennials are not embracing wine as many had anticipated, which is attributed in part to “damaged financial capacity” but also to cannabis legalisation and negative health messages about drinking. At the same time baby boomers who are the biggest wine purchasers, and control 70% of US discretionary income, are moving into retirement and having to adjust to living on smaller incomes – as a result per capita consumption amongst this group is declining.
Increased competition from wine imports and substitutes such as craft beer and spirits are an increasing threat amongst emerging wine consumers, while the ongoing consolidation of distributors and a lag in alternative DTC strategies are limiting DTC growth for family wineries.
In addition, large retailers are expanding their private label offerings in an attempt to better control the supply chain and drive down costs, and this has captured wine sales that would otherwise be filled by traditional wine companies.
While McMillan predicts that the premium wine segment, defined as wines above $10 per bottle ,will grow between 4 – 8% this year, he believes that long term, the trend of premiumisation is coming to an end.
“With price incrases difficult against the backdrop of slowing sales growth, the trend and manra of premiumisation we’ve become used to is coming to an end,” he said.
Bottled imports are predicted to take additional market share from US producers, while grape and bulk pries will significant drop in the California market this year.
But it’s not all gloom and doom. For the off-premise retail outlet, sales are expected to increase in value between 0.5% and 2.5%, while volume sales are forecast to shift between minus 0.5% to growth of 1.5%. However, both volume and value sales growth are predicted to be lower than 2018.
While baby boomers are easing into retirement, they are still demonstrating “spending resilience” and increasing their purchasing of wine above the $9 bottle price, creating another year of record US wine sales last year.
And there are growing numbers of young consumers advancing into their 30’s the age at which consumers start to drink more wine.
Other positive trends include a growth in the number and diversity of retail concepts and locations selling wine, while producers with long established brands and those with good distributor relationships continue to perform above their peers.
Last year’s harvest was of excellent quality in virtually all regions, with the exception of Virginia where hurricanes made for a disastrous season, and to a lesser extent New York which had to contend with heavy rain.
Oregon is being flagged as the region to watch as consumers are able to find consistentely good value in its offering, and the region remains on a strong double digit growth path.
"Despite the positive year in 2018 and 25 years of great growth for the US wine business, I believe sales growth forecasts for the next five years should be tempered," said McMillan. "The fundamental underpinnings that created the industry growth are changing, which means the tactics that were relied upon to ride this wave of success to this point will slowly prove flawed without business adaptation. To continue its growth in the years ahead, the US wine industry needs new direction and a changed focus."