In this fascinating analysis of the ups and downs of the US wine market, Rob McMillan, principal brand strategist for wine at Silicon Valley Bank, sets out the overriding issues that have resulted in the first serious drop in demand for wine in the US since 1994. He explains why a fundamental shift in consumer demographics coupled with a resurgence in serious anti-alcohol campaigns is having serious ramifications on wine sales, particularly as the “wine-friendly Boomer population” is also starting to drink less. But there are reasons to be positive too, but it will need wineries, importers and retailers to wake up to the micro-marketing opportunities there now are to target a new generation of potential wine drinkers that can be drawn to wines that offer true value for money that deliver on taste, intrigue, sustainability and relevance.
After 30 years of growth, the US wine industry is experiencing a demand correction, felt most acutely in wine sold less than US$12. While supply adjustments due to heavy harvests or economic shocks have occurred over the past few decades, the demand profile of the wine consumer has only changed once before, between 1986 and 1994 when only 15% of the wineries operated versus today.
There are two main causes for the change in demand.
First, a new consumer is emerging with different tastes and preferences compared to the aging population that are over 60 and moving toward full retirement.
Second, within the alcohol beverage category, there is a general trend toward value, driven by this same emerging group, who live under a different set of economic realities compared to their parents.
Within the full segment, both retiring elder consumers and emerging younger consumers are more frugal than a decade ago, even if they both aspire to better wine.
If part of the explanation is value, then shouldn’t wine priced under $12 be doing well instead of the main culprit driving the declines in the wine category? Value, though, is not just about price. There are luxury cars that cost $75,000, which some would consider good value. To a luxury consumer, that auto might be worth $125,000.
Delivering value starts with understanding the consumer. So, after 30 years of selling to a homogeneous population who loved wine, we are today tasked with decoding a consumer who is multi-cultural, and drinks wine, but on fewer occasions.
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