What kind of year will 2014 be for the wine industry? For the past four years Silicon Valley Bank has put out a report that tries to answer that question. The 2014 report can be downloaded here.
Silicon Valley Bank interviewed almost 650 wineries for the report. It’s one of the best sources of primary data on the most important trends in the wine market.
Here are the points the bank chose to highlight in their release:
• Short-term: Continued growth in the demand for wine and limited pricing power for producers
• Long-term: Baby Boomers’ declining demand for wine will not be immediately replaced by Millennials’ demand, impacting the ability for wineries to sustain their current rate of growth
• Supply: Expect final numbers on the 2013 harvest to reach 3.94 million tons, which is the second largest harvest on record in California after 4 million tons harvested in 2012
• Sales Growth: In fine wine, sales growth is predicted to be in the range of 6-10 percent in 2014, which is the first increase in three years
• Pricing: Bottle pricing will remain stable, increased grape and bulk wine costs are not being passed onto the consumer, therefore winery gross profits will be down
• Demand: Luxury wines and $10-$18 bottles will see greatest growth in demand
• M&A: Mergers and vineyard acquisitions will continue at a record pace
To recap only slightly, times are good right now but there are troubling clouds on the horizon. Harvests are at record levels and the United States is now the biggest wine-buying market in the world. Holding companies like Kendall-Jackson, Coppola and Duckhorn purchased additional production facilities in 2013, and foreign investors are zooming up and down Highway 29 in Napa looking to invest.
But as point 2 above states, the decline of the Baby Boomer generation could mean trouble for the wine industry. According to the report, consumers in their 50s and 60s currently buy almost half of all fine wine in this country. As these wine lovers age and retire, the demand will not be made up by Millennials who are not currently matching the consumption or price point levels of their elders.
Internet sales were a bright spot in 2013, increasing 44 percent. The report attributes some of that to the loosening of ancient Prohibition Era shipping regulations, where much still needs to be done. The Great Recession is seen as the other catalyst, forcing many wineries to finally put up online stores due to fears of losing in-person sales.
It doesn’t look promising right now, but time will tell how the generational transition will change the wine industry. In the meantime, record harvests will keep most prices stable and be a boon to the savvy shopper. Second labels may increase, and are often a good bet for quality wine at reasonably prices. Some of my favorites available locally are Martin Ray’s Courtney Benham, Owen Roe’s Sharecropper and HawkCrest from Stag’s Leap.
Let’s all do our part this year. Next time you buy a Millennial a drink, make it a Pinot or a Cabernet.
Read Parente’s previous Wine & Dine Column: Wines for your Thanksgiving Table on WashingtonExec.
Christopher Parente is managing director and partner of Strategic Communications Group, a social media and public relations consultancy based in Silver Spring, Md. and Tysons Corner, Va. He also publishes Work, Wine and Wheels, a top 100K web site in the United States as measured by Alexa, an online measurement company. You can follow Chris on LinkedIn or Twitter.
