State of the Wine
Industry 2018
Written by Rob McMillan, EVP and Founder
Silicon Valley Bank Wine Division
Contents
Introduction 3
2017 predictions in review 5
2018 wine business predictions and observations 7
Evidence of changing consumer preferences 9
Generational changes and wine demand 22
Direct-to-consumer sales 27
Retail evolution 34
Harvest, bulk wine and land 38
Notes 42
1
2
3
4
5
6
7
8
9
2STATE OF THE WINE INDUSTRY 2018
Introduction
The US wine industry is at the tail end of its largest
growth period in history. Since 1994, the industry has
experienced long-term trends of increasing volumes
and higher prices, with only minor attening periods
during recessions (see gure 1).
1
790
MILLION GALLONS
OF WINE CONSUMED
IN THE US IN
2016
3STATE OF THE WINE INDUSTRY 2018
CONTENTS | 1 INTRODUCTION | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9
Today, consumers are leaving the lower price segments in favor
of better-quality oerings, but aer more than 20 years of
straight-line growth trends, total volume growth is leveling out.
Premiumization is still the dominant trend, so volume drops in
lower-priced generics are part of the explanation for attening
volume; but in a more recent development, even premium wine
growth is slowing.
Winery owners, who have seen grape prices escalate markedly
over the past ve years, are nding that cost increases are
dicult to pass on to new consumers, who are signaling that they
have a lower indulgence ceiling than have prior generations.
While the economy overall, as of this writing,
1
is demonstrating
the best results since the 2007–2009 recession, the economic
circumstances that set the stage for the industry’s 20-year
growth trajectory cannot be repeated. The factors that made
you successful to this point will not enable you to sustain
that success. This means the winning sales strategies you are
leveraging in the operating environment today will slowly
prove fallible tomorrow.
Successful wineries 10 years from now will be those that adapted
to a dierent consumer with dierent values — a customer who
uses the internet in increasingly complex and interactive ways,
is frugal and has less discretionary income than their predeces-
sors. Successful companies will be those that evolve retail
strategies away from the winery location as the sole point of
experience and nd other, scalable means of delivering the
experience — and the wine — to consumers where they live.
Figure 1: US wine consumption
Volume
800
750
700
650
600
550
500
450
400
350
300
Millions of gallons
Sources: California Wine Institute, Gomberg-Fredrikson, BW166
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Successful wineries
10 years from now will be those
that adapted to a dierent
consumer with dierent values
INTRODUCTION 4STATE OF THE WINE INDUSTRY 2018
CONTENTS | 1 INTRODUCTION | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9
2017 predictions
in review
We have been researching the wine business since 1991 and
making predictions for more than a decade. Some years, we
properly characterize a market change; in other years, our
ndings might be o in timing or even wrong,
2
but we always
review the forecasts made the prior year just to keep score.
In 2018, a key prediction we will miss in sales growth sets
up a broader discussion of market changes.
2
5STATE OF THE WINE INDUSTRY 2018
CONTENTS | 1 | 2 2017 PREDICTIONS IN REVIEW | 3 | 4 | 5 | 6 | 7 | 8 | 9
What we got right
• We were correct when we suggested that labor shortages,
which were an understated part of the conversation in 2017,
would escalate throughout the year.
• We predicted that M&A activity would remain very high in
2017, and it did, capped by the 600-acre Stagecoach Vineyard
purchase by E. & J. Gallo.
3
• We said that import growth in lower premium price points
would increase. France, Italy and New Zealand all have
accelerated their wine sales in the US and are gaining market
share from domestic wineries.
• With respect to segments, we correctly predicted the
following:
› Under $9 bottled wines would continue to struggle.
Price drops for glass format wines were to be expected.
› Wines sold between $12 and $25 would grow in demand,
and limited price increases would be available. Price
increases were quite limited, but demand in the segment
did grow.
› Wines sold between $35 and $75 would nd price
increases dicult without the US economy’s demonstrating
improved performance.
› High-end luxury wines with an established brand would have
no problem retaining volume levels and making small price
increases.
• With respect to land, we were correct to predict the following:
› The narrowing supply of arable land suitable for higher-end
wine production combined with good buyer interest would
drive vineyard prices higher in premium regions.
› Vineyards in Oregon and Washington would continue to
see high interest from larger wine companies.
› California’s Central Valley would have some additional
acreage to remove.
• Per capita consumption (case volume divided by population
growth) would face headwinds in 2017, but if economic
conditions continued to improve, those impediments would
be oset, leading to slightly higher per capita consumption
for another year.
• The presence of millennials would be most visible in the
$8 to $12 red blend category, but they would gradually move
away from blends and into varietal wines or imports as their
incomes improved. We saw growth in chardonnay and lower-
priced imports in 2017.
• Restaurant wine sales would show limited to zero growth in
2017, which is an improvement over recent negative-growth
years. Restaurant sales did have limited overall growth, but
the industry continues to struggle with closings, declining
same-store sales and outdated store concepts.
What we got wrong
We predicted a sales growth range for the premium wine
segment of 10 to 14 percent in 2017, up from 9 to 13 percent in
2016, describing the conuence of good supply, strong consumer
demand and better retail conditions as factors in delivering
improved industry performance. We also said that industry
growth would be 2 to 3 percent in volume and 4 to 6 percent
in dollars.
From all the sources we can nd today, we see growth ranges in
wine consumption dropping over our expectations at the start of
2017. That is not to be confused with lower sales. Sales are still
increasing, but growth rates are slowing.
Our own database of winery nancial statements shows that
sales growth through the nine months ended September 2017 is
0.3 percent, vs. 9.8 percent for the same period in 2016. For the
industry overall, we are showing 0.6 percent growth in volume
and 2.4 percent growth in dollars, using Nielsen data,
4
so again
we were high on both estimates.
While we still have the October-November-December data to
potentially improve 2017 results, it looks as though we will
miss our sales forecast for the rst time when the nal year-end
numbers are tabulated. We can lick our wounds a little because
we were correct in saying that all the growth would be in the
above $9 segment, but that’s little comfort.
PREDICTIONS IN REVIEW 6STATE OF THE WINE INDUSTRY 2018
CONTENTS | 1 | 2 2017 PREDICTIONS IN REVIEW | 3 | 4 | 5 | 6 | 7 | 8 | 9
WINE BUSINESS PREDICTIONS AND OBSERVATIONS
2018 wine business
predictions and
observations
3
7STATE OF THE WINE INDUSTRY 2018
CONTENTS | 1 | 2 | 3 2018 WINE BUSINESS PREDICTIONS AND OBSERVATIONS | 4 | 5 | 6 | 7 | 8 | 9
Industry
• We predict a sales growth range of 4 to 8 percent for the
premium wine segment, down from the 2017 sales growth
estimate of 10 to 14 percent. For the industry as whole,
sales will rise by 2 to 4 percent, while volumes will increase
up to 1 percent.
• We expect acquisitions to cool somewhat from the torrid
pace of the past three years as many of the major buyers
digest their recent purchases. We will still see foreign
purchases of US wineries and signicant transactions for
vineyard properties over the next 12 months.
• Increasing imports will continue in the lower premium
price points.
Supply
• By all accounts, when 2018 totals are calculated California
will have crushed about 3.8 million tons of grapes, slightly
more than in 2017. Pacic Northwest harvests will set another
record in terms of yield in Oregon and will moderate slightly
in Washington.
• Overall supply is balanced, with chardonnay demonstrating
particularly strong demand. Cabernet is balanced with at to
down pressure at the high end of the market.
• California vineyard prices in premium regions will atten
compared with the strong growth we’ve seen for the past
ve years.
• Oregon and Washington vineyards will continue to see high
interest from larger wine companies with increasing pricing.
• The California Central Valley is closer to being in balance
aer 2017 acreage removals, but some additional removals
will be needed in the southern San Joaquin Valley to produce
sustainable pricing opportunities.
Demand
• Retiring baby boomers and frugal millennials drive a rotation
of consumer preferences. Premiumization will continue,
but soening is likely on the luxury end for wineries without
strong brands. For established brands, growth opportunities
remain positive.
• Millennials are migrating away from red blends and intro-
ductory wines and are starting to have a positive impact
on lower-priced still wine categories — both domestic and
foreign. This trend will continue.
• The Gen X cohort will surpass the baby boomers around 2021
to become the largest ne wine consumer demographic in the
US. By 2026, millennials will surpass Gen Xers to become the
largest ne wine–consuming cohort.
Price
• Price increases will be dicult to pass through in 2018.
Overall pricing should be at.
• Routinely increasing both volume and price, as has occurred
over the past 20 years, will prove dicult for wineries given
the low-growth, low-ination environment.
WINE BUSINESS PREDICTIONS AND OBSERVATIONS 8STATE OF THE WINE INDUSTRY 2018
CONTENTS | 1 | 2 | 3 2018 WINE BUSINESS PREDICTIONS AND OBSERVATIONS | 4 | 5 | 6 | 7 | 8 | 9
Evidence of changing
consumer preferences
Luxury goods
Premium wine is a luxury product. It sells in dierent ways than do
luxury automobiles, leather and eyeglasses, but there are insights
to glean from the behavior of the luxury market — the channels in
which it operates, how products are sold and how they are marketed.
4
9STATE OF THE WINE INDUSTRY 2018
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According to the newly released annual Bain Luxury Study,
5
the
large American market (including both North and South America)
has been undergoing wrenching changes in consumer preference
and retail strategies. The American market was expected to
report at growth for 2017 but instead managed to nish the
year in positive territory, growing by 2 percent. This is compared
with other developed luxury markets — which show much better
growth opportunities — led by China, which boosted sales by
15 percent.
For the US specically, growth following the market collapse
was robust, exceeding 10 percent in all categories except
eyewear, with the growth rate in luxury wine and spirits nearing
15 percent. But since 2011 the growth rate in luxury sales has
trended down to the current rate of 2 percent. Fine wines,
champagne and spirits are a near proxy for the sector’s growth
change (see gure 2). Why is growth slowing in the US but
advancing in other parts of the world?
The face of the US consumer is changing, as are the paths to
market. Bain estimates that online selling, which at one point
was thought of as an anathema to the luxury experience entirely,
is now an accepted channel and is expected to represent up to
25 percent of total sales by 2025. Retailers are now struggling to
dene their digital experience away from sales by location, and
that is proving dicult, particularly for the mono-brand stores.
The consumer too is evolving. While single-brand stores
are struggling, o-market stores and airport shopping are
thriving. The US consumer, whether young or old, is focused
on experience and value, and that is forcing change in retail
marketing strategy. No longer can the store experience be the
dening characteristic for the luxury buyer; in that fact is a
warning for wineries that depend on the tasting room as their
only path to direct sales.
30%
25%
20%
15%
10%
5%
0%
–5%
–10%
–15%
–20%
–25%
Source: Euromonitor International Passport, December 2017
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Designer apparel and footwear (ready-to-wear)
Luxury eyewear
Luxury leather goods
Figure 2: Sales growth rate of US luxury goods
Luxury writing instruments and stationery
Fine wines/champagne and spirits
Luxury jewelry
Luxury timepieces
Superpremium beauty and personal care
Percentage of sales growth
EVIDENCE OF CHANGING CONSUMER PREFERENCES 10STATE OF THE WINE INDUSTRY 2018
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Premiumization: Below $9 retail wine
Over the past decade, the moniker that has stuck to describe
consumers’ willingness to pay more for wine has been
“premiumization.” Besides butchering the English language,
it’s not really an apt term because, as any winery owner will
tell you, while consumers are trading up on average, it’s still
very dicult to increase prices. So how are consumers trading
up if prices aren’t rising?
The truth is, while the consumer has been willing over the past
decade to spend more on average, the trade-up has more to
do with a decline in demand for lower-priced value wines vs. a
willingness by all consumers to spend more on a given bottle
(see gure 3).
The break point between growth and decline in sales falls at
around $9, and in 2017 the segment below $9 declined in both
dollars and case volume. The only countervailing dynamic of
the trend has been a short-lived improvement in $3 to $6 wines,
but even that miniscule bright spot is not what it seems. It really
is reective of larger-format box wine.
$60,000,000
$40,000,000
$20,000,000
$0
–$20,000,000
–$40,000,000
–$60,000,000
–$80,000,000
–$100,000,000
Sources: Nielsen Beverage Group, SVB Analysis 2
1/2015
2/2015
3/2015
4/2015
5/2015
6/2015
7/2015
8/2015
9/2015
10/2015
11/2015
12/2015
1/2016
2/2016
3/2016
4/2016
5/2016
6/2016
7/2016
8/2016
9/2016
10/2016
11/2016
12/2016
1/2017
2/2017
3/2017
4/2017
5/2017
6/2017
7/2017
8/2017
9/2017
10/2017
Figure 3: Rolling 52-week sales growth of wine below $9
$0–$2.99 $3–$5.99 $6–$8.99
EVIDENCE OF CHANGING CONSUMER PREFERENCES 11STATE OF THE WINE INDUSTRY 2018
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The volume and growth came in $3 to $6 wines because all the
formats are converted to 750-milliliter bottles, and $14+ box
wine is a growth segment. The box wine category has been
largely dominated by Constellation Brands and Delicato Family
Vineyards, but Trinchero Family Estates, E. & J. Gallo Winery
and The Wine Group also participated, each using its distribution
muscle to push larger box and Tetra Pak formats (see gure 4).
So even the minor positive news in the below $9 segment is a bit
of a mirage because better juice is being sold more eciently
in larger containers. It does demonstrate how consumers remain
value conscious.
Because the $3 to $6 price segment represents such a large
component of volume sales — 45 percent — it was noteworthy
to see the growth, but it should not be viewed as a reversal of
the premiumization trend.
Premiumization: Above $9 retail wine
While there is no real denition of the term “premium wine,”
we dene it as wine above $10 per bottle. That segment
dominates sales and is responsible for all the growth in the
trade today (see gure 5).
$300,000,000
$250,000,000
$200,000,000
$150,000,000
$100,000,000
$50,000,000
$0
Sources: Nielsen Beverage Group, SVB Analysis 4
Figure 5: Rolling 52-week sales growth of wine above $9
Figure 4: Top-growth box brands
52 weeks
Sources: Nielsen Beverage Group, SVB Analysis 3
Company Top-growth box brands Total category tracked sales Total category tracked growth Brand growth rate
Constellation Brands Vendage, Black Box $256,533,915 $57,351,551 28.8%
Delicato Family Vineyards Bota Box, Cellar Box $201,189,114 $41,740,002 26.2%
Trinchero Family Estates Sutter Home $19,466,059 $391,683 2.1%
E. & J. Gallo Winery Peter Vella, Liberty Creek, Naked Grape $153,718,861 –$835,355 –0.5%
The Wine Group Franzia $473,322,778 –$12,342,791 –2.5%
1/2015
2/2015
3/2015
4/2015
5/2015
6/2015
7/2015
8/2015
9/2015
10/2015
11/2015
12/2015
1/2016
2/2016
3/2016
4/2016
5/2016
6/2016
7/2016
8/2016
9/2016
10/2016
11/2016
12/2016
1/2017
2/2017
3/2017
4/2017
5/2017
6/2017
7/2017
8/2017
9/2017
10/2017
$9–$11.99 $12–$14.99 $15–$19.99 ≥ $20
EVIDENCE OF CHANGING CONSUMER PREFERENCES
12STATE OF THE WINE INDUSTRY 2018
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Looking back, the only time in recent memory that we have
seen trading down as a trend was during the Great Recession of
2007–2012, but in reection things weren’t what they seemed.
During that nancial crisis, wine conference discussions
centered around the direction of spend, and trading down was
discussed as a consumer trend. There was supply chain and
demand disruption, but consumers who were hurt by the
nancial collapse did not give up their wine; they just switched
to less expensive options, but it wasn’t trading down in terms
of consumer preference. In a market-driven paradox,
many of those less expensive wines sold during the
recession were actually the more expensive ne wines
from producers who had to blend down or discount
wine to move product. It didn’t give lower-cost
producers a true advantage, so an argument can be
made that the consumer has not traded down in the
past 50 years.
Even if we acknowledge the single trading-down data
point during the recession as being valid, there is no
way to create a business from it. A model based on the
hope of recession is clearly misguided. As we oen
say, “Hope is not a strategy.” But the question worth answering
is: Can premiumization (trading up) continue unabated forever?
Slowing premium sales trends
Which current market conditions might be signaling a change to
premiumization? Impaired restaurant sales might be one, but we
see that more as a channel and consumer preference shi. Value-
conscience consumers aren’t eating out as oen or spending as
much on alcohol when they do go out, but they are drinking more
at home.
One possible clue that premiumization is beginning to break
down somewhat is shown in gure 5: While there remains growth
in wines above $9, since the end of 2015 that growth rate has
been declining. That’s a newsworthy change in market direction,
but is it real?
The rst thing we do when we see surprising, contradictory
or confusing data is to consider bias and question the context.
It is possible to draw bad conclusions from good research.
Nielsen data are biased in favor of wine sold wholesale. The data
exclude some nontraditional channel information like Costco,
direct-to-consumer (DTC) sales and some private labels like Aldi
and Lidl that don’t participate in syndicated data collection.
It is possible that the decline is not a decline at all but rather a
channel shi that Nielsen doesn’t pick up in its stats.
Costco is the largest US wine retailer, with close to $2 billion
in wine sales annually, and its wine programs are growing.
DTC sales would also oset Nielsen trends, as there is nearly
$3 billion in direct sales, and purchases are clearly growing
there.
6
No matter what, we always have a hard time dismissing
obvious trends from robust data collectors like Nielsen, so
we need to dig a bit deeper.
Can premiumization
(trading up) continue
unabated forever?
EVIDENCE OF CHANGING CONSUMER PREFERENCES 13STATE OF THE WINE INDUSTRY 2018
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Winery shipments
Gomberg-Fredrikson shipment data from wine warehouses come
at sales trends from a dierent perspective and reect sales from
the winery vs. the retailer (see gure 6).
Through September 2017, wine shipments from warehouses
slowed beginning in August 2015, roughly equivalent to
what Nielsen shows in its time line in gure 5. The Gomberg-
Fredrikson data in gure 6 do include DTC and Costco
shipments, whereas the Nielsen data do not.
Winery nancial performance
Silicon Valley Bank collects nancial statements from clients
and non-clients as part of our daily routine. We then provide our
clients with gratis consulting and benchmarking, and with that
information we can track larger-scale industry moves, as well.
Our database reects the wine industry overall and includes
hundreds of wineries, overwhelmingly from the US West Coast.
Average case production in the database is 27,886, with a range
of 1,000 to 730,000 cases. The average retail bottle price is
about $28.
40%
30%
20%
10%
0%
–10%
–20%
Sources: Gomberg-Fredrikson, BW166
Figure 6: Warehouse shipment trends
30,000,000
25,000,000
20,000,000
15,000,000
10,000,000
5,000,000
9-liter cases
1/2013
3/2013
5/2013
7/2013
9/2013
11/2013
1/2014
3/2014
5/2014
7/2014
9/2014
11/2014
1/2015
3/2015
5/2015
7/2015
9/2015
11/2015
1/2016
3/2016
5/2016
7/2016
9/2016
11/2016
1/2017
3/2017
5/2017
7/2017
9/2017
Monthly percent change
Percentage of total California volume Past 12 months cases
EVIDENCE OF CHANGING CONSUMER PREFERENCES
14STATE OF THE WINE INDUSTRY 2018
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Figure 7 is a product of that database, starting in 2008
when the nancial crisis was in full swing. Note that in
2009, sales growth for the
industry was –3.8 percent and
that it rebounded thereaer.
The trended growth rate has
slowed over the past decade,
while wineries simultaneously
evolved their strategies to direct
models, which should imply
higher average sales prices and
gross margins. Gross margin has trended higher as expected, and
while pretax prot remains between 8 and 12 percent, the latest
period of sales growth in the gure is another point of concern.
Through the nine months ended September 2017, average
sales growth has been a paltry 0.3 percent. That’s less than
a 1 percent growth rate. The only close comparison is the
recession-impacted period in 2009. Although the nine-month
information is missing the heavy October-November-December
period and undoubtedly year-end sales will improve, in 2016
the sales growth rate for the comparable nine-month period was
9.8 percent, so it’s unlikely we will see sales growth improve
before year-end to the 8 to 12 percent we’ve become used to over
the past seven years.
Any of the information in isolation is not concerning, but we
are noting declines in volume growth starting in 2014 from
Wine Institute information (gure 1), shipment declines from
warehouses starting in August 2015, restaurant sales declines
for an extended period now and sales growth declines from
interim winery nancial statements in 2017.
While overall volume in dollars and cases is still growing, the
growth rate for wine overall and even for premium wine started
to slow in late 2015 by most available measures, which implies
that there are underlying changes in demand. Understanding
those trends is key to developing future strategies.
60%
50%
40%
30%
20%
10%
0%
–10%
Sales growth and pretax prot
Source: SVB Peer Group Analysis Database
Figure 7: Premium wineries’ nancial benchmarks
12/2008
55.3%
2.0%
9.5%
12/2009
52.4%
–3.8%
2.2%
12/2010
53.7%
10.8%
6.7%
12/2011
53.2%
12.2%
6.1%
12/2012
53.4%
7.7%
6.9%
12/2013
54.8%
9.2%
6.6%
12/2014
56.8%
11.9%
8.0%
12/2015
56.9%
8.8%
9.6%
12/2016
57.4%
9.6%
10.2%
9/2016
57.5%
9.8%
11.6%
9/2017
56.7%
0.3%
9.7%
57%
55%
53%
51%
49%
47%
45%
Gross margin
Gross margin
The growth rate for wine overall and even for premium wine
started to slow in late 2015 by most available measures,
which implies that there are underlying changes in demand
Gross margin
Sales growth
Pretax prot
Sales growth Pretax prot
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Imports
Most US ne wine producers have been oblivious of the growth
trends of imports over the past 20 years. Bulk imports have
a more volatile trend but are currently on the rise, and bottled
wine imports continue to grow to record levels (see gure 8).
It’s hard to blame domestic producers for ignoring the inter-
national interloper. When you have the best worldwide market
to sell wine and you can sell all you make, increase your prices
and still grow your volume, why worry?
There has always been enough US consumer demand to feed
imports and domestic production alike, but the future holds
dierent conditions for domestic wineries compared with the
past two decades. Routinely increasing both volume and
price going forward will prove dicult for wineries given a
low-growth, low-ination environment.
As domestic wineries see growth opportunities tapering, they
will start taking notice of the good-value imported wines that are
hitting domestic shores and eroding their market share. When
that day comes, the ght will inevitably become a competition
over the young customer for value. Younger consumers come to
the table with shaper pencils, always looking for the best deal,
and are more open to a world view. Pushing back that tide a year
from now will prove dicult.
Today, the larger producers are ahead of the curve (see gure 9).
Given the high prices being paid for arable vineyard property in
established appellations that drive bottle prices, they are hedging
their bets by buying foreign brands or nding ways to partner
with foreign producers, handing them the precious keys to the
distribution network they seek.
Figure 9: Bottled imports’ price growth
Sources: Nielsen Beverage Group, SVB Analysis 8
Year ended
10/7/2017
Year-over-year
dollar growth
Year-over-year
case growth
French 15.2% 13.4%
New Zealand 10.7% 9.7%
Italian 2.4% 1.4%
Australian –2.0% –2.1%
Spanish –3.4% –2.9%
Argentine –5.0% –5.7%
Chilean –5.9% –3.9%
40%
35%
30%
25%
20%
15%
10%
Sources: Gomberg-Fredrikson, Nielsen, SVB analysis
Figure 8: Imports’ share of the US market
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Trend line Import market share
EVIDENCE OF CHANGING CONSUMER PREFERENCES 16STATE OF THE WINE INDUSTRY 2018
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Imports are a threat, and if domestic wine starts losing value
in the consumer’s mind, the big wine companies have foreign
supply to bring into the equation, which will add further pressure
on the smaller ne wine producers.
Reacting to the same set of market circumstances and clamoring
for access to US consumers, foreign wine companies are also
looking for the best way to pursue the US market. Dozens of
European buyers today are waiting in the wings to purchase
domestic wine companies or to establish their own domestic
sales companies in the US and gain a foothold in the world’s
largest consumer wine market. They believe that owning assets
in America will improve their access.
Bottled wine imports continue to hit record levels, driven by
French rosé and sparkling wine, Italian pinot grigio and New
Zealand sauvignon blanc. Australian buyers are importing a large
amount of bulk wine but are seeing declines in bottle sales, as
they are focused on lower-price-point wines that are out of favor.
Restaurant wine sales
On a dollar basis, restaurant wine sales improved in 2017 over
2016, with total US restaurant wine sales up about 2 percent
in dollars but down slightly in volume (see gure 10). Over the
longer term, growth rates continue to slow. Those same trends
of at volumes and higher dollars in restaurant sales are also
reected in retail alcoholic beverage sales overall, so the trend
of lower volume and better dollar sales is no surprise.
In our survey work with wineries, we ask them to tell us the
percentage of their sales that ow through each of the major
routes, such as club, wholesale, DTC and restaurant. With
that information, we can track relative movement in sales to
restaurants from year to year (gure 10).
What is obvious is that wineries are depending less on sales
to restaurants each year, and the larger wineries are more
successful than the smaller ones in selling to restaurants.
2014 2015 2016 2017 (estimated)
Figure 10: Sales to restaurants by producer size
Source: 2016 SVB Direct-to-Consumer Survey
45%
40%
35%
30%
25%
20%
15%
10%
5%
Wineries are depending
less on sales to
restaurants each year
1–2,499 2,500–
4,999
5,000–
9,999
10,000–
24,999
25,000–
49,999
50,000–
99,999
100,000–
249,999
≥ 250,000 Average
EVIDENCE OF CHANGING CONSUMER PREFERENCES
17STATE OF THE WINE INDUSTRY 2018
CONTENTS | 1 | 2 | 3 | 4 EVIDENCE OF CHANGING CONSUMER PREFERENCES | 5 | 6 | 7 | 8 | 9
For the smaller winery, sales of wine to restaurants has been
declining in importance for nearly a decade, though the decline
has bottomed out of late (see gure 11). At the same time,
restaurants themselves have been suering from mixed same-
store sales and declining bar tabs — both of which are a major
concern of restaurateurs, as alcohol sales have traditionally
been a signicant source of prot. Because of the pressures
on restaurants, which extend beyond this short list, the raw
numbers of US restaurants have been declining (see gure 12).
Explaining this sales trend within the on-premise trade is
complex. The factors shaping restaurant sales of wine today are
a mix of events, starting with traditional three-tier
7
movement
away from smaller wineries. It is magnied by a consumer
movement away from many of the full-service chain restaurants,
the growth in fast casual dining that doesn’t feature wine,
increasing at-home wine consumption and declines in overall
same-store visits. All of that is against the countervailing
backdrop of an improving consumer economy in 2017, leading
to higher average checks. It appears, however, that a better
economy alone is not sucient to fully oset the headwinds.
Big restaurant chains are served by big wholesalers, who in turn
get their wine from big wineries. Every day, restaurant lists are
increasingly being held captive by large producers with access to
distribution, but permanent changes with consumer behavior are
taking place that play into the results, as well.
Our frugal younger consumers don’t want to pay restaurant wine
markups, and retiring boomers are slowing both their spending
and their alcohol consumption volume. Young consumers
know they can buy a bottle of wine at a store for less, so in the
restaurant they are more likely to start with a cra beer or a
cocktail and have a glass of wine with dinner.
8
A more recent
observation is that as millennials are entering their thirties and
nding a career foothold, they are opting out of restaurants in
favor of at-home meals.
9
Figure 11: Small-winery sales to restaurants
Source: 2016 SVB Direct-to-Consumer Survey
35%
30%
25%
20%
15%
10%
5%
0%
2014 2015 2016 2017
(estimated)
Figure 12: Number of restaurants in the US
640,000
635,000
630,000
625,000
620,000
615,000
610,000
605,000
600,000
595,000
Sources: NPD Group, Statista.com
Fall
2011
Spring
2012
Fall
2012
Spring
2013
Fall
2013
Spring
2014
Fall
2014
Spring
2015
Fall
2015
Spring
2016
Fall
2016
Percentage of average winery’s sales
EVIDENCE OF CHANGING CONSUMER PREFERENCES
31%
19%
16%
17%
18STATE OF THE WINE INDUSTRY 2018
CONTENTS | 1 | 2 | 3 | 4 EVIDENCE OF CHANGING CONSUMER PREFERENCES | 5 | 6 | 7 | 8 | 9
There is good news for the ne wine business: While full-service
chains are struggling with dated restaurant concepts, the small,
independent, local white-tablecloth restaurants continue to
see modest growth, and those are the venues where smaller
producers are more likely to compete for space on the wine lists.
The value equation
“Value” is dened as quality divided by price, and value is the
dominant component for consumer purchasing decisions. When
it comes to ne wine, it’s really quality plus experience divided
by price that denes value, where “experience” is a placeholder
for a shopping experience or the way owning or consuming the
product makes you feel about yourself. But there is no question
that customers buy everything with value in mind, and for that
reason understanding the evolving industry trends in price
segments and varietals is important.
Knowing what consumers are drinking is a key in planning and
planting — and another key to unlocking real drivers of industry
growth. Reviewing emerging trends reveals clues that can be
critical when examining strategies, not only for the big wineries
but also for the smaller family-run ones.
Varietal segment growth
With respect to price segments, reds are still dominating
premium wine growth. Cabernet, red blends and pinot noir are
three of the top four growth varietals (see gure 13). The $11 to
$15 price point is the strongest US consumer growth segment
today, with premium box wine close behind as its own category.
This year the growth trends are showing a couple of surprises.
Figure 13: Growth in varietals
Source: IRI
$100,000,000
$80,000,000
$60,000,000
$40,000,000
$20,000,000
$0
–$20,000,000
Chardonnay Cabernet
sauvignon
Pinot grigio Red blends Pinot noir Sauvignon
blanc
Merlot Moscato Zinfandel
$8–$10.99 $11–$14.99 $15–$19.99 $20–$24.99 ≥ $25
Box wine < $14
value =
quality + experience
price
EVIDENCE OF CHANGING CONSUMER PREFERENCES 19STATE OF THE WINE INDUSTRY 2018
CONTENTS | 1 | 2 | 3 | 4 EVIDENCE OF CHANGING CONSUMER PREFERENCES | 5 | 6 | 7 | 8 | 9
While cabernet is still the king of varietal growth overall, and
strongest in the $11 to $15 price range, chardonnay comes
in second this year, replacing the red blend category, which
dropped to third place. Sauvignon blanc, pinot noir and pinot
grigio rounded out the top growth varietals (see gure 14).
Red blends, though cooling o slightly, are a dream from the
large producer’s perspective. The category allows the large wine
companies, which dominate production, enormous freedom in
the substitution of varietal and place of origin, yet they are still
able to maintain overall quality and margin. There may be wide
bottle-to-bottle variation in a given SKU,
10
but for the price the
quality is generally there for the current entrants. This is no
longer just a sub-$20 product, however; note the success of the
top four red blend brands above $20 in gure 14.
From the consumer perspective, red blends are really the jug
wine craze of the 1960s on steroids. Like the mature generation
who cut their teeth on generics, emerging consumers are
acquiescing to the branding of the large wine companies because
wine is a complex consumer good and branding makes their
purchase easier. It replaces varietal and vintage comparisons
with something simple and catchy like Sexy Wine Bomb, The
Prisoner, Vicious Red Blend, SLO Down Sexual Chocolate, or
Cupcake Red Velvet.
11
If consistency is maintained in these red
blends targeting the emerging wine consumer, brand loyalty will
be there until the customer seeks more-distinctive wine. At that
point, the red blend will fade just like Lancers, Mateus
12
and Blue
Nun
13
did for the boomer and mature generations before them.
The inexpensive red blend category might today be seeing the
beginning of the end of the fad.
Packaging is playing a role in consumer demand, as well.
The 3-liter premium box wine and Tetra Pak formats continue
to grow, with cabernet, chardonnay and pinot grigio each
individually responsible for more than 20 percent of varietal
growth. Canned wine continues to garner press because it’s
growing by 66 percent o a small base, but it’s a tiny sector,
representing less than 1 percent of total wine sales, and is
unlikely to truly gain anything but a footnote in sales results.
Cabernet Average price Chardonnay Average price Red blends Average price
All brands
Josh Cellars $12.57 Butter $14.75 Apothic Wines $9.42
Robert Mondavi Winery $12.42 Josh Cellars $11.37 Roscato $10.88
Black Box Wines $18.86 Black Box Wines $18.86 19 Crimes $9.68
Caymus Vineyards $76.98 Ménage à Trois Wines $9.16 Stella Rosa Wines $11.84
Sauvignon blanc Pinot noir Pinot grigio
Kim Crawford Wines $13.96 Meiomi Wines $19.11 Bota Box $18.31
Whitehaven $15.59 Black Box Wines $19.13 Black Box Wines $19.06
Prophecy Wines $10.43 Prophecy Wines $10.14 Prophecy Wines $10.58
Oyster Bay Wines $11.41 Line 39 $9.14 Liberty Creek Vineyards $7.08
Cabernet Chardonnay Red blends
Brands > $20
Caymus Vineyards $76.98 Rombauer Vineyards $34.19 Cooper & Thief Cellarmasters $24.96
Jordan Vineyard & Winery $52.79 Sonoma-Cutrer Vineyards $21.87 Conundrum Wines $21.85
Justin Vineyards and Winery $23.33 Frank Family Vineyards $30.26 The Prisoner Wine Company $41.05
Intrinsic Wine Co. $20.25 Mer Soleil Vineyards $27.54 Pessimist $20.15
Sauvignon blanc Pinot noir Pinot grigio
Duckhorn Vineyards $26.35 Decoy Wines $20.19 Santa Margherita $20.63
Cloudy Bay $28.51 J Vineyards & Winery $20.55 Livio Felluga $24.17
Cakebread Cellars $31.86 Flowers Vineyards & Winery $46.15 Jermann $24.51
Frog’s Leap Winery $22.33 Belle Glos $50.12 Cantina Terlano-Kellerei $24.06
Figure 14: Top-growing brands sold in the US
Source: Nielsen Beverage Group
The inexpensive red blend
category might today be seeing the
beginning of the end of the fad
EVIDENCE OF CHANGING CONSUMER PREFERENCES 20STATE OF THE WINE INDUSTRY 2018
CONTENTS | 1 | 2 | 3 | 4 EVIDENCE OF CHANGING CONSUMER PREFERENCES | 5 | 6 | 7 | 8 | 9
Consumer preference
Who is driving the growth in these categories? Our own research
suggests that the two growth cohorts are millennials and Gen
Xers. The retiring baby boomers, however, are starting to have
an impact on growing lower premium price segments and are
edging back from the higher-price segments they previously
dominated (see gure 15). You can see the evolution of their
preference curve, which is starting to form a V shape, demon-
strating that boomers are still a power in luxury wines but are
aecting lower-priced wine too.
There is no question that we are seeing a changing of the guard
in premium wine. Young consumers are giving blends a chance,
and from our view their palate maturation looks like a sequel to
the baby boomers’ entrance to wine, which started with Bartles
& Jaymes
14
and then moved to white zinfandel and chardonnay
before settling on merlot. It is interesting to note that the No. 2
growth varietal under cabernet this year is chardonnay, which
is a natural place for palate-expanding millennials to move aer
sweet red blends.
What happens when more of the matures leave the consuming
market and the baby boomers move down the premium price
ladder and collide with millennials, who also want wines that
are more distinctive and consistent and that have a greater
sense of place than a red blend? Where does the consumer push
the growth curve next? My bet is Oregon pinot noir, $15 to $25
limited-production domestics and premium foreign wines.
Figure 15: Generation share of wine consumption by bottle price
2017
Source: Estimated from 2016 SVB Annual Wine Conditions Survey data
Millennials (age 22–38)
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
< $15 $15–$19.99 $20–$29.99 $30–$39.99 $40–$69.99 ≥ $70
Gen Xers (age 39–50) Boomers (age 51–68) Matures (age 69+)
Where does the
consumer push the
growth curve next?
EVIDENCE OF CHANGING CONSUMER PREFERENCES 21STATE OF THE WINE INDUSTRY 2018
CONTENTS | 1 | 2 | 3 | 4 EVIDENCE OF CHANGING CONSUMER PREFERENCES | 5 | 6 | 7 | 8 | 9
Generational changes
and wine demand
Today, we see the impact of four generations in the US wine trade,
with Generation Z on the doorstep. The consumer behavior and demand
from each is evolving the industry in obvious ways. At the same time,
the consolidation of the three-tier system has forced distributors to favor
relationships with larger wine producers, leaving smaller wineries to fend
for themselves. The growth cohorts are millennials and Gen Xers, but it’s
still baby boomers and Gen Xers, not millennials, who dominate premium
wine sales (see gure 16).
5
22STATE OF THE WINE INDUSTRY 2018
CONTENTS | 1 | 2 | 3 | 4 | 5 GENERATIONAL CHANGES AND WINE DEMAND | 6 | 7 | 8 | 9
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Millennials (age 22–38) Gen Xers (age 39–50) Boomers (age 51–68) Matures (age 69+)
19%
36%
38%
7%
The evolution of both consumer preference and price sensitivity
to buy wine across the generations is changing the way wine
is sold — so it is imperative that you evaluate your successful
consumer strategies for emerging signs of weakness. New
strategies must be found, and nding the right one requires
evaluating each cohort’s demand and ability to aord the
wine you’re producing, then scaling that strategy eectively.
Matures
Matures grew up during the Great Depression.
15
Their ensuing
behaviors, such as thriiness, saving and the conservative use of
debt, resulted from their inability to nd employment or even the
bare necessities early in their lives. Add rationing during WWII
to the younger component of the cohort and, decades later, many
still save everything and throw away nothing — ever.
16
Known more as a spirits-and-beer generation, the matures’ wine
consumption t their economic status, and the value of alcoholic
beverages was viewed in part based on alcohol content or the
proof per dollar spent. As a component of purchase, it was very
practical to consider how much alcohol you really were getting
for your money. Wine had a lower alcohol content, so when the
matures purchased wine, they gravitated to low-priced value
wines in large formats.
GENERATIONAL CHANGES AND WINE DEMAND
Figure 16: Cohort share of wine purchased
Source: SVB 2016 Direct-to-Consumer Survey
2012 2013 2014 2015 2016 2017 (estimated)
Evaluate your successful
consumer strategies
for emerging signs of
weakness
23STATE OF THE WINE INDUSTRY 2018
CONTENTS | 1 | 2 | 3 | 4 | 5 GENERATIONAL CHANGES AND WINE DEMAND | 6 | 7 | 8 | 9
$35,000
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
$0
Annual club membership spend
20–29 30–39 40–49 50–59 60–69 70–79 80–89 90+
$7,000
$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
$0
Discretionary income
Age
GENERATIONAL CHANGES AND WINE DEMAND
Figure 17: DTC spend by age and gender vs. discretionary income
Source: Customer Vineyards
Female Male
Discretionary income
Baby boomers
Baby boomers represent the largest native population boom
in US history. Reaching drinking age, they rst demonstrated
their thirst for wine, driving the wine coolers trend
17
in the mid-
and late 1980s. Neo-prohibitionism
18
led to short-term declines
in wine consumption through the early 1990s, but beginning
in 1994, with the median boomers reaching 35 and established
in their careers, wine sales started demonstrating strong
volume growth.
To this day, boomers are still the leading consumers of ne wine,
but they are now retiring or nearing retirement (see gure 17).
They are consuming less wine as they age, are changing their
spending patterns in dollars spent and volume consumed and are
evolving from the high price points as they come to grips with
living on a xed income. Today, boomers who built their cellars
over time are more inclined to consume the wine they’ve stored
vs. aging new purchases, which has a negative impact on the
luxury wine market.
When wine club sta ask why a member is leaving the club,
increasingly the answer is “I’m retiring.” That answer should
make wineries with overwhelming shares of boomers in their
clubs reevaluate their current marketing strategies.
When wine club sta ask
why a member is leaving
the club, increasingly the
answer is “I’m retiring”
24STATE OF THE WINE INDUSTRY 2018
CONTENTS | 1 | 2 | 3 | 4 | 5 GENERATIONAL CHANGES AND WINE DEMAND | 6 | 7 | 8 | 9
$300,000
$250,000
$200,000
$150,000
$100,000
$50,000
$0
21–34 35–44 45–54 55–64 65–74 75+Age
$56,368
$97,106
$130,160
$140,686
$105,702
$76,969
GENERATIONAL CHANGES AND WINE DEMAND
Gen X
One of the messages I consistently oer when speaking is
“No matter the cohort, the age where consumers spend the
most in retail falls between 35 and 55.” Gen X is that cohort
today, but they are in second place in terms of consumption
of ne wine. They have the willingness and capacity to buy,
but they lack numbers compared with boomers (see gure 18).
Largely ignored by the retail press, Gen Xers entered the
workforce at a good time economically, and with fewer college
graduates competing for careers compared with the generations
bracketing them, Gen Xers have had a comparatively easy time
building wealth.
Today, Gen X is at the top of income and spending (gure 18).
Their presence has been below the radar, but their consumption
continues to increase. They are perfectly positioned to surpass
baby boomers as the dominant cohort in ne wine consumption
around 2021. With both capacity and willingness, Gen Xers
should be a major focus of winery owners and tasting-room
managers today.
Millennials
Representing 19 percent of current ne wine consumption
19
is the millennial generation, whose outsized impact has been
falsely prognosticated by the wine press
20
for at least a decade.
The unfortunate reality is that while millennials have by all
accounts a better appreciation of wine compared with the other
cohorts at a similar age in development, their appreciation
has not reected itself in ne wine consumption yet because,
to buy anything, a person needs to have both the desire and
the nancial capacity to purchase, and millennials lag prior
generations in terms of buying power.
Figure 18: Median net worth and income of US families
Sources: US Census Bureau, Statistica.com
Median net worth Median income
No matter the cohort, the age
where consumers spend the most
in retail falls between 35 and 55
25STATE OF THE WINE INDUSTRY 2018
CONTENTS | 1 | 2 | 3 | 4 | 5 GENERATIONAL CHANGES AND WINE DEMAND | 6 | 7 | 8 | 9
140
120
100
80
60
40
20
0
Index base = 100
Millennials (age 22–38) Gen Xers (age 39–50) Boomers (age 51–68) Matures (age 69+)
GENERATIONAL CHANGES AND WINE DEMAND
One study suggests that a typical college graduate of 2008 has
earned $58,600 less over the following decade in unrecoverable
wages compared with a college graduate of 2007. College
graduates skew high on wine consumption, so that’s a signicant
fact, and there is more negative news for the younger generation.
More millennials today live with parents than with roommates.
Almost two-thirds of them receive some type of nancial support
from their parents for day-to-day living. They carry 300 percent
more student debt than their parents did, and those age 25 to 34
are half as likely to own a home compared with young people
in 1975. With respect to alcohol consumption, the news is mixed.
Still seeking a premium product and a positive experience,
millennials are inclined to substitute cra beer and spirits for
wine, especially on-premise, and are ambivalent as to the place
of origin.
21
The youngest consumer cohort has demonstrated a
propensity for frugal hedonism,
22
meaning they are quite price
conscious but don’t sacrice quality when selecting their adult
beverages. They are looking for the best deal, and price is
paramount in their purchasing decisions, which today skew
to lower-priced oerings. But over time, millennials will
undoubtedly increase their wine consumption, as have the
generations that preceded them (see gure 19).
In an interesting collision of consumer preferences, as
millennials age and become more substantial in the workforce,
they will gradually spend more on wine. At the same time,
retiring boomers will move down the price ladder and into
more-modest bottle prices as they also pull back in their volume
purchased. The result is that both generations will consider price
more important than the average consumer does today. In the
next 10 years, there will be a price range for premium wine sales
where the cohorts meet; that sweet spot will grow and become
important to all wine companies.
23
Our forecast is that the millennial cohort will surpass the
Gen Xers around 2026 to become the largest ne wine–
consuming generation.
Figure 19: Alcohol consumption preferences by generation
Source: Scarborough Research, 2015
Beer in the past 7 days Liquor in the past 7 days Wine in the past 7 days
26STATE OF THE WINE INDUSTRY 2018
CONTENTS | 1 | 2 | 3 | 4 | 5 GENERATIONAL CHANGES AND WINE DEMAND | 6 | 7 | 8 | 9
Direct-to-
consumer sales
A casual observer of the business would think that direct
sales have always been an important part of a winery’s
strategy, but that is not the case. Small winery owners
must wear a lot of hats, and while gross margins are
doubled by selling direct, owners have always been most
comfortable growing grapes, making wine and letting the
distributor sell it. But if that’s true, why bother selling
wine directly to the consumer?
6
27STATE OF THE WINE INDUSTRY 2018
CONTENTS | 1 | 2 | 3 | 4 | 5 | 6 DIRECT-TO-CONSUMER SALES | 7 | 8 | 9
DIRECTTOCONSUMER SALES
The simple answer is that selling wine directly to the consumer
has been an aerthought in some eras and a survival require-
ment in others. You’d think the industry would be more strategic
than reactive, but it has been cautious with the evolution of
a DTC strategy. Today perhaps more than at any other time,
the business needs to be out ahead on strategy because for most
wineries the solution will spell the dierence between success
and failure in the coming decade.
Direct sales v1.0
When Prohibition ended in the 1930s, Beringer Vineyards
started wine tours and tastings as a promotional eort to
bring back customers. In the decades that followed, wineries
opened tasting rooms so that
consumers could sample and
purchase their wares. It was
the winery equivalent to the
roadside fruit stand.
Much like Procter & Gamble,
which sent samples of its
products to every mailbox in
the country, wineries saw
a need to deliver samples to
their consumers to support
retail sales in the three-tier
system. Outside of providing a little tax-free cash for the family,
that DTC eort was not about driving direct protability.
Tastings were generally free, and success was measured by how
many people you could get to your tasting room. Legh Knowles,
chair of Beaulieu Vineyard in the Napa Valley, said in the 1980s,
“I have the greatest respect for our customers, but I will admit
the daily touring and tasting doesn’t sell a lot of wine.”
24
Direct sales v2.0
In the late 1980s, with the economy coming o two recessions,
total wine sales were declining due to both neo-prohibitionism
and the aging of the mature generation. Wineries reacted to de-
clining three-tier sales by focusing their eorts on what they
could control, which was the tasting room and, more specically,
developing the wine club concept. It was DTC v2.0, and promotion
wasn’t the reason this time. This iteration was needed for survival.
Winery owners began to recognize the benet of collecting
physical addresses of the people visiting their wineries. Many
started focused US mail campaigns and shipping programs so
that customers could receive wine directly from the winery once
or twice per year. Direct shipping across state lines going into
the early 1990s was quietly growing, despite laws prohibiting it.
In 1996, wineries could legally ship to only 13 reciprocal states
and an additional 17 “personal use” states, many of which
allowed consumers to buy less than a quart of wine annually.
25
Underscoring the absurdity of the laws, more states allowed
people to carry concealed weapons than to purchase wine
directly from the producer. Direct-to-consumer sales were
estimated by some to total less than $100 million per year,
26
and that may be a generous estimate. There were far more
closed states, where consumers could not purchase wine directly,
compared with states in which shipping was legal.
Direct sales v3.0
By 1994, the median baby boomer hit age 35, which is the
magical time historically when consumers begin their serious
consumption careers. Aer almost a decade of declines, US wine
sales took o and distributors started knocking on doors of
even the smallest wineries to meet consumer demand. During the
nineties, it was common to see winery growth rates exceeding
20 percent and wineries completely sold out of wine before the
next release.
27
“I have the greatest respect for our
customers, but I will admit the daily touring
and tasting doesn’t sell a lot of wine.”
28STATE OF THE WINE INDUSTRY 2018
CONTENTS | 1 | 2 | 3 | 4 | 5 | 6 DIRECT-TO-CONSUMER SALES | 7 | 8 | 9
DIRECTTOCONSUMER SALES
With demand refreshed and with less pressure to make the direct
model work, wineries stopped their erstwhile questionable
shipping practices over state lines and sold everything they could
back into the three-tier system. With the selling function again
outsourced to wholesalers, owners stayed home and focused on
growing grapes and making wine.
Wine sold itself, and tasting rooms and wine clubs were only pas-
sively managed. Unlike today, when direct revenue is 60 percent
of the average winery’s sales, through the 1990s direct sales
represented about 20 to 25 percent of total sales for the small
family winery (see gure 20).
Direct sales v3.5
Like ipping a switch, coincident with the short 2001 tech
recession
28
and large 2000 vintage, supply caught up
with demand, and wholesalers, now with a choice, moved
away from selling the product of small wineries.
The wholesaler’s client base had evolved from small chains
and unit retailers toward nationwide big box retailers, and
at that point larger wineries could ll consumer demand.
The prior decade’s playbook was dusted o and, once
again, DTC sales were critical to the survival of smaller
wineries. Tasting-room and wine club activity was again
promoted by owners, but shipping laws were being
enforced, which limited growth.
The industry caught a break with the favorable Granholm
decision in 2005.
29
That ruling knocked the legs out from
under the protectionist state laws that favored in-state
wine producers. Smaller producers would have been put
out of business long ago without the subsequent evolution
of direct shipping, including logistics companies and
those specializing in keeping up with constantly changing
state laws (see gure 21).
Figure 20: Increasing importance of DTC revenue
DTC revenue as a percentage of total revenue
60%
58%
56%
54%
52%
50%
48%
46%
Source: 2016 SVB Annual Wine Conditions Survey
2012 2013 2014 2015 2016
Figure 21: Direct sales as a percentage of total winery sales
By production size
Source: 2016 SVB Annual Wine Conditions Survey
80%
70%
60%
50%
40%
30%
20%
10%
0%
1–2,499 2,500–
4,999
5,000–
9,999
10,000–
24,999
25,000–
49,999
50,000–
99,999
100,000–
249,999
≥ 250,000
2014 2015 2016 2017 (estimated)
29STATE OF THE WINE INDUSTRY 2018
CONTENTS | 1 | 2 | 3 | 4 | 5 | 6 DIRECT-TO-CONSUMER SALES | 7 | 8 | 9
DIRECTTOCONSUMER SALES
While state laws vary — and some permitted state laws can only
be described as arcane if not stealth protectionism — today the
only states to which wineries cannot legally ship are Alabama,
Delaware, Kentucky, Mississippi, Oklahoma and Utah, with Utah
and Kentucky retaining felony anti-shipping laws.
30
Because larger wine companies can attract wholesalers,
dependence on direct-to-consumer sales are less important
to them, but DTC sales for smaller wineries are now the most
critical component of their sales strategy (see gure 22).
The small winery segment has fully grasped the reality that
selling ne wine includes the customer experience. All wineries
are improving their performance in direct sales and are zeroing in
on the use of key performance indicators (KPI)
31
to help execute
on their success.
The number of tasting rooms has increased, and the owner
focus on tasting-room activities and DTC sales has intensied.
Direct revenues continue to climb, but there is a limit to how
far the current strategy will take us.
Can we continue to insist that the consumer come to the tasting
room for an experience? How is that working in malls throughout
the US? In view of clear changes in consumer demand, now is the
time to start thinking about direct sales v4.0.
Figure 22: Premium winery sales growth
Percentage of growth
Source: SVB Peer Group Analysis
30%
25%
20%
15%
10%
5%
0%
–5%
–10%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
(estimated)
28.0
24.0
5.2
4.0
17.6
25.5
19.4
21.2
22.3
2.0
–3.8
19.8
12.2
7.7
9.2
11.9
8.8
9.6
Can we continue to
insist that the consumer
come to the tasting room
for an experience?
30STATE OF THE WINE INDUSTRY 2018
CONTENTS | 1 | 2 | 3 | 4 | 5 | 6 DIRECT-TO-CONSUMER SALES | 7 | 8 | 9
3,000
2,500
2,000
1,500
1,000
500
0
Oregon Washington Napa County Sonoma County Virginia New York
DIRECTTOCONSUMER SALES
Direct sales v3.75: Winery visitation
We have been watching an interesting phenomenon for a few
years now: Tourism is up in the major wine-growing regions.
Hotel stays are increasing, and average room rates are up, as
well. But, with the exception of Oregon, Virginia and New York,
average winery visitation is down (see gure 23). How do you
explain the paradox of more tourism in a wine region but lower
visitation to the wine-tasting rooms?
In 2015, we were uncertain about the cause of the trend because
the negative direction made no sense in light of higher tasting-
room income, better wine club metrics and the increasing focus
that wineries were putting on DTC sales. We suspected that the
negative trend might simply be better reporting from wineries
that were focusing more on their KPI, but we weren’t certain and
could not take a position.
In 2017, we started hearing more wineries quietly lamenting
declining visitation. Aer additional research and reection,
we are convinced that there is more going on than we rst
suspected. Tasting-room revenue is up, but what is driving that
higher revenue is improved average purchases. Wineries
are doing a better job of selling to the guests they host, but the
number of visitors is nevertheless declining, and we believe
there are several reasons why.
2013 2014 2015 2016 2017 (estimated)
Figure 23: Changes in monthly visitor counts
Sources: 2013–2016 SVB Annual Wine Conditions Surveys
How do you explain the
paradox of more tourism
in a wine region but
lower visitation to the
wine-tasting rooms?
31STATE OF THE WINE INDUSTRY 2018
CONTENTS | 1 | 2 | 3 | 4 | 5 | 6 DIRECT-TO-CONSUMER SALES | 7 | 8 | 9
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Number of openings
Before 1982 1983–1987 1988–1992 1993–1997 1998–2002 2003–2007 2008–2012 2013–2017
DIRECTTOCONSUMER SALES
The rst issue is the number of tasting rooms being opened
(see gure 24). Prior to 2000, growers didn’t always include a
tasting room when they established a winery; but as new winery
formations have slowed over the past ve years and direct sales
have become critical, tasting-room openings have accelerated,
with more existing wineries opting to employ duplicate type 02
licenses. This has started a discussion in several communities
regarding the rapid growth of downtown tasting rooms.
32
Average tasting-room fees have been increasing at a steady
pace for years — and for decades on California’s North Coast
(see gure 25). Each year, wineries ask themselves if they can
increase their fees. They see tasting-room revenue up, review
comps from neighboring wineries and then decide to raise
their rates. At some point, that tasting fee becomes a deterrent,
and in some cases we have reached that point.
The aging of the consumer is also playing a role. Older customers
with declining discretionary income have been to wine country.
They used to come, taste for free at as many places as they could
visit and then leave town with wine in the trunk. Today, they plan
where they are going to go, have a bucket list of places to see,
stay at a nice hotel and also factor in food, shopping and other
regional entertainment. Because the visit is planned and they
aren’t going to so many tasting rooms, they are more likely to buy
at the wineries they plan to visit. The bottom line, though, is that
they aren’t visiting as many wineries.
Figure 24: Historic openings of wineries and tasting rooms
Sources: SVB 2017 Direct-to-Consumer Survey and SVB analysis
WineryTasting room
Figure 25: Annual changes in tasting fees
Source: SVB 2017 Direct-to-Consumer Survey
$35
$30
$25
$20
$15
$10
$5
$0
Standard Reserve
$12.31
$13.76
$14.48
$15.84
$25.97
$26.33
$28.90
$32.61
2013 2014 2015 2016
At some point, that tasting
fee becomes a deterrent,
and in some cases we have
reached that point
32STATE OF THE WINE INDUSTRY 2018
CONTENTS | 1 | 2 | 3 | 4 | 5 | 6 DIRECT-TO-CONSUMER SALES | 7 | 8 | 9
Younger consumers are shrewd in their planning of a wine
country visit. A group of four is unlikely to pay a reserve tasting
fee in Napa or Sonoma because that might amount to what they
budgeted for their dinner together (see gure 26). They will
share tastings, if allowed, and will nd as many ways as possible
to reduce their total spend while retaining the experience level.
Still in a discovery mode, they will scout out tasting-fee struc-
tures and reimbursement policies beforehand or will negotiate
at the counter. Like older consumers, they aren’t bound to
visiting as many wineries as possible and will look for other
entertainment, as well.
For the young frugal-hedonist consumer, high tasting fees are
a clear deterrent and are part of the reason why Oregon is still
growing average visitation while Napa and Sonoma are not.
DIRECTTOCONSUMER SALES
Figure 26: Winery visitor sales and fees
Source: SVB 2017 Direct-to-Consumer Survey
Oregon Washington Napa County Sonoma County
Average tasting-room purchase
$77 $69 $304 $140
Standard tasting fees $13 $9 $38 $21
Reserve tasting fees $25 $18 $66 $39
Net wine club growth rate 10.8% 14.0% 12.7% 13.9%
Annual visitation growth (2013–2016) 3.0% –7.9% –2.8% –6.0%
For the young frugal-hedonist consumer,
high tasting fees are a clear deterrent and are part
of the reason why Oregon is still growing average
visitation while Napa and Sonoma are not
33STATE OF THE WINE INDUSTRY 2018
CONTENTS | 1 | 2 | 3 | 4 | 5 | 6 DIRECT-TO-CONSUMER SALES | 7 | 8 | 9
Retail evolution
Pinpointing the exact cause or source of large-scale change
is never easy, and the earlier you predict it, the more
dicult it is to support the prediction. In the case of the wine
business, this year’s changes can be tied to several causes,
some of which are reected in retail and luxury sales overall.
7
34STATE OF THE WINE INDUSTRY 2018
CONTENTS | 1 | 2 | 3 | 4 | 5 | 6 | 7 RETAIL EVOLUTION | 8 | 9
Much of the disruption we see in retail is due to shiing consumer
shopping behaviors — from how they shop via dierent digital
and physical platforms to dierences in the way they value
goods and experiences. This disruption has le manufacturers
and retailers struggling to adapt; but to keep up, they must rst
understand where dollars are being spent and how to tap in to
changing shopping habits to drive growth.
The Amazon eect
Most commentators, no matter their political aliations, would
agree that the US economy has recovered from the recession.
Yes, there are dierences in this economy vs. the one that
preceded 2007, but we can all say that at this moment the US
economy is “good,” and good means we are seeing enhanced
sales opportunities as we move into 2018. But underneath the
positive news, there are evolutionary changes taking place in
both the consumer and the way retail is transacted.
In 2017, countless brick-and-mortar retail establishments closed,
including JCPenny (138 stores), Kmart and Sears holdings
(300+ stores), Macy’s (68 stores), HHGregg (220 stores), MC
Sports (68 stores), Payless ShoeSource (800 stores) and many
others.
33
But the poster child for this disruption is bookstore
chain Borders, which was the early sacrice to the Amazon
eect, also known as digital Darwinism.
34
Amazon is by far the largest e-commerce player, with 44 percent
of estimated online sales. Some of the above-mentioned stores
are working hard to catch up — getting their online retail
presence competitive — and nding success, whereas others
have led for bankruptcy.
How does that relate to wine? Many of the stores above were late
to recognize both the threat and the opportunity of e-commerce.
Borders in particular is a case study for the wine industry of what
not to do.
• Borders saw e-commerce as an extension of what it did, rather
than a replacement of what it oered. It outsourced its sales
to Amazon, believing that internet sales were a nice-to-have,
instead of a critical component of success.
• Borders didn’t foresee the evolution and acceptance of
alternative digital delivery platforms for its products.
• It focused its strategy on the experience in its physical
locations, ignoring the online experience.
• Like many companies that disappear, Borders took on too
much debt to execute on its physical store expansion.
• And nally, to compete Borders decided to expand from
books into music, which is something it didn’t know about,
and it totally missed the oncoming competition in the
iPod revolution.
35
In the end, Borders was inhaled by consumer and digital
disruption by both Amazon and Apple, two tech behemoths
of our day. There is a lesson in that for the wine business.
RETAIL EVOLUTION
Borders in particular
is a case study for
the wine industry of
what not to do
35STATE OF THE WINE INDUSTRY 2018
CONTENTS | 1 | 2 | 3 | 4 | 5 | 6 | 7 RETAIL EVOLUTION | 8 | 9
Direct sales v4.0
In the mid-1990s, the internet took hold. Wineries put up
websites with their contact information and directions to their
locations. Amazon started selling books online in 1995, and
PayPal came around to help with payments in 1998. Wineries
added shopping carts in 2002 and experimented with online
sales, but online DTC has never been successful for winemakers.
Today, e-commerce represents about 10 percent of total US retail
sales (see gure 27),
36
with Amazon accounting for nearly half of
that. While wineries have gravitated to DTC sales, it is old-school
sales without current e-commerce tools. With only 3 percent of
today’s winery sales true online purchases, how can we say that
wineries are really focused on DTC sales?
Here are a few facts:
• Wineries still focus on their clubs as their customer universe,
instead of on all wine consumers.
• Few wineries have an online presence that engages the
customer. Sites lack sophisticated, responsive, fully integrated
designs and experiences that allow new and returning
customers frictionless e-commerce.
• Winery websites are almost static, and, with the exception of
basic Google tracking, they don’t harvest visitor information
or put it to use for responsive experiences, retargeting and
modern FOMO (fear of missing out) tools.
• Online product marketing is rudimentary, lacking a push to
consumers who might index high on Google search results.
There is virtually no focus on turning Instagram followers into
micro-evangelists or deploying targeted Facebook ads.
• The opportunity is wide open for a company using online tools
to replace the distributor’s sales and marketing role.
37
• Digital products that integrate with customer relationship
management and the wine club — and that can deliver
scalable marketing messages for dierent buying personas
over mixed platforms — simply do not exist.
• There is virtually no investment currently for online
acquisition and retention of potential wine customers and
no management of the larger universe of prospects.
38
• The use of big data to enhance outreach to consumers and
improve sales opportunities is not employed at all.
39
Figure 27: Growth in e-commerce sales
Millions of dollars
Source: US Census Bureau
$140,000
$120,000
$100,000
$80,000
$60,000
$40,000
$20,000
$0
Q1/2009
Q2/2009
Q3/2009
Q4/2009
Q1/2010
Q2/2010
Q3/2010
Q4/2010
Q1/2011
Q2/2011
Q3/2011
Q4/2011
Q1/2012
Q2/2012
Q3/2012
Q4/2012
Q1/2013
Q2/2013
Q3/2013
Q4/2013
Q1/2014
Q2/2014
Q3/2014
Q4/2014
Q1/2015
Q2/2015
Q3/2015
Q4/2015
Q1/2016
Q2/2016
Q3/2016
Q4/2016
Q1/2017
Q2/2017
Q3/2017
RETAIL EVOLUTION 36STATE OF THE WINE INDUSTRY 2018
CONTENTS | 1 | 2 | 3 | 4 | 5 | 6 | 7 RETAIL EVOLUTION | 8 | 9
Supplying segment growth
I always cringe when I attend conferences with the topic
“the next hot varietal.” Whenever growers follow a trend, it
is seemingly already over right about the time the plants are
producing (Muscat of Alexandria) or the varietal ends up being
ruined by overplanting (merlot and syrah). Some suggest that
merlot was hurt by the 2004 movie “Sideways,” but that was
more helpful to pinot noir than it was a drag on merlot. That
conclusion is supported by past research.
40
From our vantage point, a decade or longer aer their planting
booms neither merlot nor syrah gained a consistent and
identiable character prole with the consumer, leaving the door
open for popular growth in other red wines. Although it’s not
clearly identied in the literature, observation tells us that many
of the hot red blends being produced now include signicant,
if not dominant, quantities of merlot and syrah — the same out-
of-favor grapes that consumers shunned. Branding and marketing
prove remarkable in shaping a consumer’s palate.
RETAIL EVOLUTION
Branding and
marketing prove
remarkable in shaping
a consumer’s palate
37STATE OF THE WINE INDUSTRY 2018
CONTENTS | 1 | 2 | 3 | 4 | 5 | 6 | 7 RETAIL EVOLUTION | 8 | 9
Harvest, bulk wine
and land
The wine business is cyclical. Some years, we have a light yield
and are underplanted to a variety, spiking bulk and grape prices
higher. Other years, we are overplanted following a string of
heavy years, lowering prices. Any action we take in the short
term seems to have little impact because cycles are so long-
lived and Mother Nature in the end has veto power.
8
38STATE OF THE WINE INDUSTRY 2018
CONTENTS | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 HARVEST, BULK WINE AND LAND | 9
HARVEST, BULK WINE AND LAND
Harvest expectations
Although California and Washington seldom have the kind of
harvest variation that France does, we do have our share of
vintage variation — and 2017 was a unique year. The winter was
one of the wettest ever, but it helped end the record drought that
preceded it, strengthening the vines and leaving added moisture
in the soil for the hot summer to come. Budbreak, bloom and the
beginning of harvest occurred later than in the past few years but
were more in line with historical norms. There were heat spikes
on Father’s Day and Labor Day, followed by the res on the North
Coast that received worldwide media attention.
41
All things considered, the wild growing season in California will
end up coming in slightly low on yield and of good quality overall.
While the discussion of “smoke taint” has been widespread, it is
unlikely to show up in branded luxury wines. Most of the harvest
was already in when the res broke out, and the grapes that were
exposed to smoke were tested before harvest and then separated
from other fermenting lots. If smoke taint develops in the next
several months, wineries will have many options for that juice
other than bottling it and weakening their own brands.
Oregon’s 2017 harvest was a little cooler at the end than in
the past two years and was more reective of what is expected
in sugars and ripeness. A very wet winter led to owering at a
more traditional time, but the record size of the clusters before
harvest was out of character, which along with additional
planting will amount to the largest harvest on record when the
totals are tallied. Like California, Oregon had wildre smoke to
deal with through parts of the season, as well as a Labor Day
heat spike. Cooler weather and some rain allowed maturity to
catch up with ripeness, and most think that Oregon’s harvest
quality will again be very good.
Washington’s growing season began with a cool, wet spring
that pushed budbreak back by about two weeks. A hot summer
accelerated the season and put ripening back on track before
ideal harvest conditions arrived, with prototypical warm days
and cool nights. Like other regions in the west, Washington had
to contend with smoke from Canadian and Pacic Northwest
wildres, but there is little expectation that that will become a
production issue. Harvest tonnage is expected to be less than
that of the past four heavy-yield years.
39STATE OF THE WINE INDUSTRY 2018
CONTENTS | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 HARVEST, BULK WINE AND LAND | 9
6,000,000
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
0
35
30
25
20
15
10
5
0
1/2015 1/2016 1/2017 12/2017
1/2015 1/2016 1/2017 12/2017
Gallons available
Total bulk wine (in millions of gallons)
HARVEST, BULK WINE AND LAND
Bulk wine
California’s bulk wine market had been a little oversupplied with
heavy vintages prior to 2015, so even 2013 and 2014 juice was
available, and prices were a little depressed, with the exception
of Napa cabernet.
Aer the light 2016 harvest, the bulk market was described
as “in balance” throughout 2017 (see gure 28). With another
average harvest of around 3.8 million tons for California in fall
2017, price oered and volume demanded should largely be
in equilibrium heading into 2018, with the possible exceptions
of chardonnay and cabernet. Chardonnay has seen impressive
demand growth and declining stocks, which might drive demand
and price higher. Cabernet, while still growing in demand, has
probably reached a pause in price creep, with slowing consumer
growth rates overall and increasing availability of juice. With
cabernet there seems to be a disconnect between what sellers
think they should get and what wineries believe they can sell
that juice for on the open market.
Land
The old pattern of domestic consumers drinking American
gateway wines
42
early in their lives and then gradually trading
up to more-complex and expensive domestic wines has ended.
This change in the new domestic consumers’ drinking pattern
is a threat to US wine companies because those consumers are
now using foreign wine as their gateway instead of domestic.
One only need look at the growth rates in French rosé, Italian
pinot grigio and New Zealand sauvignon blanc to see how the
new consumers are being weaned today.
While total vineyard growth since 2001 has been up slightly less
than 1 percent in California, a monumental change has neverthe-
less been under way for 16 years. The San Joaquin Valley, which
has traditionally produced generic wine, has removed more than
60,000 acres from production; other regions that grow grapes
destined for more premium production have grown by nearly the
same amount.
Source: The Ciatti Company
Cabernet sauvignon Chardonnay Merlot Pinot noir Zinfandel Total gallons (all varieties)
Figure 28: Annual changes in available bulk wine
The old pattern of domestic consumers
drinking American gateway wines
early in their lives and then gradually
trading up to more-complex and
expensive domestic wines has ended
40STATE OF THE WINE INDUSTRY 2018
CONTENTS | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 HARVEST, BULK WINE AND LAND | 9
$400,000
$350,000
$300,000
$250,000
$200,000
$150,000
$100,000
$50,000
$0
Vineyard values per acre
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
$10,000
$9,000
$8,000
$7,000
$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
$0
Price per ton
HARVEST, BULK WINE AND LAND
In the smaller growing regions in Oregon and Washington,
where essentially all production is premium, planted acreage
is estimated to have grown by 70 percent and 20 percent,
respectively, since just 2008, underscoring the rotation into
premium and out of generic wine.
Given the premiumization trend and the reputation of Napa
and Sonoma as premium wine–growing regions, it is logical to
presume that the North Coast should have the highest growth
rates in planted acreage, but that is not the case. The highest
growth rates in California are in regions where plantable land
is available and where prices are more reasonable compared
with those on the North Coast.
43
Although the growth rate in planted acres on the North Coast is
smaller than in other regions, price per acre is a dierent issue.
As noted earlier, cabernet is leading growth among all premium
varietals today, and Napa cabernet acreage has a value structure
unto itself. That price and value equation has become even more
distorted in the past year (see gure 29).
Using Napa at one end of the growth spectrum, you can see in
gure 29 how the average price per ton of cabernet (green line)
has increased dramatically over the years since the median baby
boomer hit age 35 in 1994. Over the past several years, the price
of grapes has continued to rise, with ninetieth-percentile Napa
cabernet now fetching north of $10,000 or more per ton and the
best land in Napa reaching $400,000 per planted acre.
Despite the heavy unrelenting upward trends in North Coast
vineyard values since 1994, the date when wine demand
accelerated, we believe we are at a place in the cycle where both
grape prices and land values will pause their climb. This is due
to multiple factors, including headwinds in sales for wineries
selling luxury wine, the aging boomer cohort that drove growth
for the past 20 years, an inability to pass grape price increases
on to consumers and the delay in the millennials’ full entrance
to consumerism.
Figure 29: Napa County vineyard value ranges
Sources: The Correia Company, annual CALASFMRA Trends report, annual California grape crush reports, wine industry investment consulting proprietary information
Total range Outlying Secondary Prime Cabernet Whites 90th percentile cabernet
41STATE OF THE WINE INDUSTRY 2018
CONTENTS | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 HARVEST, BULK WINE AND LAND | 9
Notes
A note about the wine report
SVB’s annual State of the Wine Industry report is heavily
researched, based on extensive interviews, discussions with
key industry leaders and analysts, street-level intelligence,
and analysis of regional, national and global economic trends.
We also use information collected from SVB’s twice-a-year
surveys of client and non-client wineries.
In October 2017, several wine-producing regions in Northern
California faced devastating res that disrupted lives, commu-
nities and commerce, resulting in the tragic loss of life, homes
and businesses. Many of the victims are family, friends and
wine industry colleagues. We made the prudent decision to
cancel the annual fall survey that was scheduled to go out as
the tragedy unfolded. As a result, this 2018 report, released
in February, is not based on any fall survey data. Instead,
we expanded other research to help guide us in drawing
conclusions for the year ahead. SVB and the Wine Division’s
Northern California oces are involved in helping the aected
communities recover and rebuild.
9
42STATE OF THE WINE INDUSTRY 2018
CONTENTS | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 NOTES
1. This report was written from mid-November to mid-December 2017.
2. I’m never wrong. It’s the alternative facts that mess up my always-accurate
predictions.
3. Stagecoach Vineyard Sells for $180 Million:
https://www.winesandvines.com/news/article/183272/Stagecoach
-Vineyard-Sells-for-180-Million. Note that the sales price in the headline
is not the full price paid for the Stagecoach Vineyard property and
improvements.
4. Nielsen proprietary beverage scan data, September 2017.
5. Luxury Goods Worldwide Market Study, Fall-Winter 2017:
http://www.bain.com/publications/articles/luxury-goods-worldwide
-market-study-fall-winter-2017.aspx.
6. DtC Shipments Surge 26% in November:
https://www.winesandvines.com/template.cfm?section=widc&widcDomain =dtc.
7. Three-tier system (alcohol distribution):
https://en.wikipedia.org/wiki/Three-tier_system_(alcohol_distribution).
8. 2016: A Happy New Year On-Premise?:
https://blogs.technomic.com/2016-a-happy-new-year-on-premise.
9. Millennials lose taste for dining out, get blamed for puzzling restaurant trend:
https://www.cnbc.com/2017/11/14/millennials-lose-taste-for-dining-out.html.
10. What Is a Stock Keeping Unit (SKU)?:
https://www.thebalance.com/what-is-a-sku-in-retail-terms-2890158.
11. ProWein: The Red Blend Rises, Again!:
https://www.101.com/2016/12/prowein-2017-speciailst-article-no-2.
12. Lancers and Mateus — Representing a Nation of Wine:
https://catavino.net/lancers-and-mateus-representing-a-nation-of-wine.
13. Blue Nun: https://en.wikipedia.org/wiki/Blue_Nun.
14. Bartles & Jaymes was a marketing masterpiece in the 1980s. If you are
interested in marketing, that brand is worth reviewing. Here’s a clip from
one of its iconic commercials:
https://www.youtube.com/watch?v=hYdWHK6AA6E.
15. The Great Depression: http://www.history.com/topics/great-depression.
16. My 91-year-old mom moved in with me a few years ago, and she brought
boxes lled with 8-track tapes, sewing patterns, buttons, books and
blankets from the 1950s. She has spent the past three years asking me if I
can use [ll-in-the-blank thing]. The mature generation doesn’t throw things
away like the boomer generation.
17. Looking Back at 5 Wine Trends from the 1980s:
http://blog.iwfs.org/2015/05/looking-back-at-5-wine-trends-from-the-1980s.
18. Neo-prohibitionism: https://en.wikipedia.org/wiki/Neo-prohibitionism.
19. Millennial consumption share for 2017 was estimated using the 2016 SVB
Annual Wine Conditions Survey data.
20. Study: Millennials drink nearly half of all wine in the US:
https://www.usatoday.com/story/money/nation-now/2016/02/15
/millennials-drink-nearly-half-all-wine-us/80420746.
21. Technomic Finds Millennials’ Adult Beverage Choices Evolving as They Mature:
https://blogs.technomic.com/technomic-nds-millennials-adult-beverage
-choices-evolving-as-they-mature.
22. “Frugal hedonism” is a term I coined to describe a young consumer
trend. Younger consumers understand artisanship and quality. Instead of
consuming as much as they can by volume on credit, as did the boomer
generation, younger consumers prefer to live in smaller homes, reduce
their rent expense, stay away from consumer credit, drive less expensive
cars that have appealing style or just use ride-sharing, and save their
discretionary income for simple luxuries they truly enjoy.
23. I had a whole section on where the future sweet spot in pricing will be —
and I even paid a Russian mathematician in Bitcoin to apply an algorithm to
prove the case — but I had too many words in the report already, so I’ll have
to talk about that at my speaking engagements.
24. Napa Valley Register archives, part IV, April 1985, p. 19.
25. Wine Sparks War Between the States:
https://static1.squarespace.com/static/533dbefce4b0b65c53504cf3
/t/5368c22be4b0dbc1364ef3b3/1399374379281/wine+sparks+war
+between+the+states.pdf.
26. Estimates of total direct sales in the mid-1990s vary widely in the literature.
27. Silicon Valley Bank clients routinely had stock-outs in the mid-1990s,
with some selling all of their vintage in mere months, which sounds nice,
but it puts the brand out of customers’ view for the remainder of the
year. Planting started unabated in an eort to catch up with shortages,
and Mondavi started a Chilean joint venture to help ll the wine shortage
(Viña Seña and Arboleda).
28. The NBER’s Recession Dating Procedure:
http://www.nber.org/cycles/jan08bcdc_memo.html.
29. Granholm v Heald: https://en.wikipedia.org/wiki/Granholm_v._Heald.
30. Use a wine. Go to jail.
31. The Basics of Key Performance Indicators (KPI):
https://www.thebalance.com/key-performance-indicators-2275156.
Note that Silicon Valley Bank runs a DTC survey in which nearly 10 percent
of the industry participates annually. Only participants receive the data,
which includes dozens of KPI. To be included in the survey, please contact
the writer at rmcmillan@svb.com.
32. Is Opening a Downtown Tasting Room Smart?:
http://svbwine.blogspot.com/2017/09/is-opening-downtown-tasting-room
-smart.html.
33. Sears, J.C. Penney, Kmart, Macy’s: These retailers are closing stores in 2017:
https://www.usatoday.com/story/money/2017/03/22/retailers-closing
-stores-sears-kmart-jcpenney-macys-mcsports-gandermountian/99492180.
34. Amazon eect: http://whatis.techtarget.com/denition/Amazon-eect;
and Digital Transformation and the Race Against Digital Darwinism:
https://www.prophet.com/thinking/2014/09/digital-transformation-and
-the-race-against-digital-darwinism.
35. The iPod Revolution Transformed Our Lives and Economy:
https://www.cultofmac.com/125400/the-ipod-revolution-transformed-our
-lives-and-economy.
NOTES
43STATE OF THE WINE INDUSTRY 2018
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36. Quarterly Retail E-Commerce Sales; 3rd Quarter 2017:
https://www.census.gov/retail/mrts/www/data/pdf/ec_current.pdf.
37. Online distribution is still in its infancy, but one interesting company I’m
watching is LibDib: https://libdib.com.
38. Why Evian now spends 80 percent of its marketing budget on digital media:
https://digiday.com/marketing/evian-now-spends-80-percent-marketing
-budget-digital-media; and Blue Apron is spending more than $400 for
every new customer — and that’s creating a major problem for the company:
http://www.businessinsider.com/blue-apron-spends-big-for-new
-customers-low-return-2017-8.
39. Customer Vineyards — a wine industry data consortium that includes
participation by Rob McMillan, Sonoma State University and Vinventions/
Nomacorc — is working to deliver a big-data product to the industry in late
2018. Already through its proof-of-concept phase and aer analyzing more
than 40,000 individual consumer les and linking them to other data from
the big-data warehouses, Customer Vineyards’ early returns are promising.
40. The “Sideways” Eect:
http://www.winesandvines.com/template.cfm?section=features&content
=61265.
41. California’s wine country wildres near containment even as structure
loss grows:
https://www.cnbc.com/2017/10/23/number-of-structures-lost-in-wine
-country-blazes-jumps-to-8400.html.
42. “Gateway wines” is a term used in the trade for entry-level wines that have
historically been produced in California’s Central Valley. They were simple,
well-made wines, oen with a little residual sugar remaining that appealed
to wine consumers at the start of their discovery curve. That’s another
phrase that should be added to the Urban Dictionary.
43. Information about Oregon and Washington land and values is not included
in this report because of a lack of available trended data. We can say with
observation, however, that the trend of sales prices is increasing. Without
question, growth rates in both states exceed what is happening in California
precisely because there is plantable land in Oregon and Washington that ts
consumer demand and is more aordable compared with California.
NOTES
44STATE OF THE WINE INDUSTRY 2018
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This material, including without limitation to the statistical information herein, is provided for informational purposes only. The material is based in part on information from
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45STATE OF THE WINE INDUSTRY 2018
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