A Major Turning Point For A Segment of the Wine Industry

I WAS SHOCKED!!!

I was more shocked as I read "The State of the Wine Industry 2016". (This report can be found and downloaded by searching on this title). 

For more than a dozen years Silicon Valley Bank (one of the largest banks helping wineries) & Rob McMillan has been producing these annual reports. They were always very influential, much anticipated & for the last 4 to 5 years accompanied by a webinar. They were also heavily promoted!

First shock came when I read they it had already happened. Up until 4 years ago they had been released in April of each year. Then they moved it up to January. One might assumed that technology allowed for earlier publication. EXCEPT that ShipComplaint started to produce the Direct to Consumer reports about 4 years ago in January. This year I am convinced that the State of the Wine Industry was released early for 2 reasons; #1 because this year's DtC report will be a blockbuster and would completely overshadow the SVB report, and #2 by releasing it before the DtC information was available none of the points in it had to be acknowledged.

Rob McMillan is one of the smartest American wine industry experts out there. Last year (2015 report) was the first time I felt that I disagreed on a few points. The second shock of the 2016 report was that there were many points that I disagreed on.

I gave A LOT of thought as to why McMillan was presenting the information in the way that he did. It couldn't be that he was unaware of the information that I was???

It dawned on me that starting last year he changed his style..instead of writing a report for the entire industry he was writing it for a small but important and powerful segment. Please refer to page 42 to see what I mean. On this page there is a graph that shows 8 wine businesses (they are no longer JUST wineries) that dominant 60% of the American wine market. I feel that the entire report is really a reflection of these businesses, what they do and who they market to. Many of the "facts" that are presented as arguments for his analysis are for these 8 businesses.

I was very torn about what to call this piece. I chose the name that I did because I feel that these "shocks" that I felt were also a representation of the real threat to the wine "establishment". The DtC sales channels (and the newer sales channels that have yet to be named) are the real premiumization sales channels.

My copy of this 76 page report is filled with notes...many as notations of disagreements. What McMillan has written is right and it is wrong depending upon which segment of the wine drinking public you are considering. The American wine drinkers are NOT an amorphous whole. If a winery read this report and tries to develop a plan for itself and is a small volume producer they will fail.

I will NOT go through the entire report and argue my points...because McMillan and I are not focused on the same wine markets. 

But for those producers who do get a copy and read it there are 3 key points that are different for them then for those big "8" wine companies.

#1 - Millennials are NOt all frugal. Yes, many of this age group went through college, graduated, and as of yet have not found decent jobs. Many have moved back into their parents homes and these Millennials are living frugally....they have to (many have significant debt) . Yet there are a segment of them that have gotten good jobs (very good high paying jobs) who are on their own and they are NOT living frugally. In fact I would argue that these Millennials are spending at a much higher rate than previous generations. They want and they get the best of everything. I personally know many who fit this description.

#2 - The elite of the Baby Boomers are not going to go away anytime soon. For most of the last 100 years people would get a job, stay with that company their entire working life and then at 65 they would get a gold watch and be sent on their way. They would see their incomes fall dramatically and they go quietly wait until their time to end.

NO MORE. Those elite Baby Boomers have often started their own limited liability corporations (LLC). They are making better money now than they ever have and most are not stopping work. With a very uncertain future for Social Security none of these people are going to give up their incomes...no one is telling them that they have too...and most are of excellent health with very active lifestyles. Today's 65 years olds are yesteryear's 50 year olds. count on them to be kicking (and drinking) for many more years to come.

#3. In this report McMillan refers to a possible switch to imported wines. He is referring to mass produced wines...not premium wines. Yet here I agree that America's wine lovers palate is becoming more sophisticated and will begin to try more and more imported wines. Many of McMillan's graphs show data from 1995 and on. What he doesn't say is during that time many of the non-domestic wineries with an international focus have undergone dramatic transformation. Most have increased the quality of their wines many fold. Whether it be Millennials or Baby Boomers (and others) I believe over the next few years we will see a significant increase in the consumption of imported wines.

If you are a smaller producer of quality hand crafted wines (whether domestic or not) you need to develop a sound strategy for going forward..and please don't use this report as your blueprint.