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Survival of the Fittest: Analyzing SVB’s State of the U.S. Wine Industry Report 2024

Ominously, the recently released Silicon Valley Bank “State of the U.S. Wine Industry Report 2024” begins with a full-page quote from none other than Charles Darwin:

“It is not the strongest of the species that survives, not the most intelligent that survives. It is the one that is the most adaptable to change.”

By invoking such a cloud-summoning introduction, Rob McMillan — founder of the SVB Wine Division and author of the report — launches his much-anticipated annual analysis with a moody implication that the current situation is, most assuredly, not great.

Along with many other issues, consumer trends have been changing rapidly and dramatically, inflation has forced price adjustments, and competition from beverage sectors at home and abroad — wine and otherwise — have combined to stir a combustible brew into an already pressurized scenario. Every aspect of the industry is now being squeezed in some way, and cracks in the hull could soon give way.

Essentially, according to McMillan, this could get ugly — and quickly — for any member of the industry not proactively adapting to avoid an impending implosion.

Wine that makes up the under-$12 selections — representing the vast majority of overall U.S. volume — is now in a state of persistent decline according to the report. Should this form into the American equivalent of a European wine lake glut, the contagion could spread higher up the price ladder and threaten to decimate large swaths of the industry.

Boomers, Abstainers, and Neo-Prohibitionists

Demand for wine has undeniably been waning, with more problems seeming to show up daily out of the woodwork. Boomers — the absolute rock-of-ages for the wine industry over the past several decades — are gradually aging out.

What’s left to replace them according to McMillan’s report, then?

An intimidating lineup of one generation after another, all drastically less likely to buy wine for a social event. And sure, while wine is a “sophisticated” beverage generally associated with increased maturity and a more established demographic, the severity of this cliff is far too sharp to climb via “aging-in” alone. The younger generations just aren’t into wine in the way that Boomers have been.

“Younger generations are looking for relatability, [but] what is worrisome to me is that most often, I see wine brands comparing themselves to other wine brands, when really their aspirations should be focused on a competitive set that has expanded dramatically.”

An additional sobering prospect is the surging movement of alcohol abstainers and neo-prohibitionists further dissolving the foundation of demand, and the trend has been given additional fuel from recent declarations by the World Health Organization. “Neo-prohibitionists want to relate wine to cigarettes, and they’re backing into the data in a phony way. It’s become a political thing right now,” McMillan says. Whatever the methodology these recommendations are utilizing — dubious or not — the message has been hitting home. Between the Boomer cliff and the re-energized neo-temperance movement, the U.S. wine industry, quite simply, has a rapidly growing demand problem.

Dedicated Wine Growers Are in Danger

McMillan doesn’t mince words when asked about the state of alarm for dedicated growers. “In the early 2000s, I wrote a blog about being careful, or the [California] Central Valley will become Detroit,” he says. “The point wasn’t that the Central Valley was inferior, but they could put themselves in a bad spot if they can’t figure out how to brand themselves.”

He points out that premiumization of wines, combined with the lower harvest yields of the past several vintages, have allowed the industry to precariously sail by without a broadside of damage. This tenuous scenario has so far masked the underlying problems for dedicated wine grape growers who sell to many of the larger wineries. But it won’t last forever.

Eventually, a bumper crop like 1997 or 2012 will storm into this environment and tank grape prices. While this bounty will ease some of the pressure surrounding margins for the wineries — particularly those that are vertically integrated — this inevitability could spell disaster for dedicated grape growers.

To be fair, certain growers — especially in the vast plains of California’s Central Valley — have the relative luxury of transitioning to other crops like nuts, tomatoes, and citrus. However, that’s an expensive proposition, time-consuming, and far easier said than done. And some of these farmers… well, they’re multi-generational wine grape growers. It’s what they know and who they are. The prospect of a grape pricing apocalypse would be a death blow to many of these more vulnerable independent vineyard owners.

Imports Versus Collective Branding

Compared to domestic bottlings, import wine consumption is decreasing more slowly — the declining-market equivalent of growing faster. Angelo Camillo, professor of wine business at Sonoma State University, sees the importation issue as an increasing one. “U.S. producers are competing against government-subsidized foreign producers from [places like] Australia and New Zealand,” he says. “Flavored drinks like Aperol and Campari have also reached a price point of over $32 a bottle. [They’re] in direct competition to many wines.” (Though even Campari and the like also seem to be struggling somewhat.)

“Saying ‘here, drink this’ is a lemonade stand marketing mentality that is not in favor of adaptation.”

As if that weren’t enough, there’s additional looming expansion of competition on the horizon. New players and revived stalwarts will be entering and re-entering the international wine market, further diluting the share available to U.S. producers. “Emerging economies and wine-producing countries like Uruguay, Hungary, Slovakia, Croatia, and Romania will compete globally and affect advanced economies due to the lower cost of labor,” Camillo warns. This all points to a U.S. industry chaotically scrambling to figure out a stabilizing solution to the eroding berm.

Besides the outlier success of juggernaut Napa, the American wine brand is in desperate need of an overall re-energization — that is, if producers and regions can be coaxed out of their respective corners to cooperate on a collective strategy.

Foreign regulatory institutions and producers seem more than willing and able to apply such an approach effectively, but agreement among U.S. analogs in the wine realm is frustratingly less frequent. ”We need a ‘Got Milk?’” says McMillan. “Collaborative industry marketing would be very helpful if we could get it done.”

The lagging and rather antiquated strategy of the American wine industry is further elucidated by Maryam Ahmed, owner of branding and experience consultancy Maryam + Company, and creator of Field Blends Wine Travel. “Younger generations are looking for relatability, [but] what is worrisome to me is that most often, I see wine brands comparing themselves to other wine brands,” she says, “when really their aspirations should be focused on a competitive set that has expanded dramatically.”

American wineries are still pounding the table with an outdated approach, and further delay regarding advertising and packaging adaptation will only deepen the hole that’s been dug. A messaging shift is long overdue. “Some of the most resonant messaging could be on moderation and broader lifestyle,” Ahmed emphasizes. “Saying ‘here, drink this’ is a lemonade stand marketing mentality that is not in favor of adaptation.”

It’s a sentiment that echoes McMillan’s broader point, regarding a younger customer base that views brand adoption in a wildly different way. “The rotation of [generational] consumers is an unavoidable thing,” McMillan says, referring to the aging-out of the stalwart Boomer monolith. “We have to do better consumer research. It’s all the aspects of marketing, and that’s the road to success,” he concludes. “You have to give the customers what they want.”

France: A Canary in the Coal Mine for U.S. Wine

By gazing across the Atlantic to France, the U.S. industry can view the potential chaos that could ensue, should decisive action not be embraced in short order. The French wine industry — outside of those fortunate few occupying the super and ultra-premium and luxury strata — has taken a beating as of late. The EU wine lake is back… with accompanying protests raging and government bailouts flying.

The cautionary tale unfolding in Europe should induce wringing hands and a cold sweat for American wine interests. “Waiting for a fictive cohort to age sufficiently to discover wine or believing that our strategies ‘have always worked before’ is toxic to adaptation when the context driving demand changes,” the SVB report declares. “That is something the weakest businesses will do. Their lack of adaptation will cause a predictable outcome.”

It’s a direct, steely-eyed, and Darwinian warning from McMillan and his team — and one that all involved in the U.S. wine industry should heed.

The article Survival of the Fittest: Analyzing SVB’s State of the U.S. Wine Industry Report 2024 appeared first on VinePair.

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