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Wine bottle line-up at Castello di Amorosa

Calistoga's Castello di Amorosa produces roughly 30,000 cases of wine annually, all sold directly to consumers.

The wine industry is facing a turning point. With consumer behaviors changing, slowing demand, shifting demographics and a growing chorus of voices extolling the harmful health impacts of alcohol consumption, wine-growers and producers are feeling anxious about the future.

The question is, are these changes just part of a natural business cycle or do they represent a fundamental existential threat to the wine industry as we know it? Or to put it in health-related terminology, does wine have just a cough or does it have something worse?

A shift in demographics

The baby boomers (born approximately between 1946 and 1964) are slowing in their consumption of wine, and Generation X (born approximately between 1965 to 1980) is not financially healthy enough to make up the difference. And whereas the wine industry hoped that the millennials (born approximately between 1981 and 1996) would take up the slack and then some, this hope has turned to hand-wringing as millennials are drinking less and less as time passes.

A recent study from Streetbees shows 29% of them report drinking less alcohol in the past year. Others point to the still-very-young Generation Z (born approximately between 1997 and 2015) as the saving grace, but reports show that they have even less interest in alcohol than the millennials.

Partly a numbers game

About 60% of Americans drink alcohol at least occasionally, according to a 2012 Gallup poll, which was consistent with the historical average of around 63% since 1939. Of those taking the poll, about 35% said they drank wine. Assuming these percentages are for those of legal drinking age, then 27% of the total population was not considered. The population of the United States is roughly 325 million people, so if we take out those who are underage, 237 million remain, leaving 142 million who drink occasionally, 50 million of them drinking wine.

According to the 2019 Silicon Valley Bank state-of-the- wine-industry report, baby boomers made up 40% of wine sales, while Generation X was 34%, millennials 16% and “matures” (age 73 and older) made up the rest. The nascent wine-buyers in Generation Z were not included in the analysis.

So, if we take the 50 million wine drinkers and apply the percentages of current wine sales, we see that there are 20 million baby boomers, 17 million Generation X and 8 million millennials who drink wine. It appears that all of these generations except Generation X are reducing their alcohol consumption.

Partly an economic reality

With a teetering world economy, all generational groups are looking for ways to rein in spending. In a report from Kasasa, a financial and technology services company, baby boomers have a median net worth of $224,000 and Generation Xers a median net worth of only $59,800, while the millennials’ median net worth is only $11,000. The Generation Z’s average net worth is difficult to report given their age.

Whereas baby boomers have the highest median net worth, they also have the lowest percent of debt. Baby boomers carry on average $95,000 in debt, while Generation Xers carry $142,000 in debt (mostly in mortgages), which they are frantically looking to lower as they plan for retirement and caring for their aging parents.

According to Business Insider, millennials in the college graduating class of 2018 had an average student loan debt of $29,800.

Couple these numbers with slow or stagnant wage growth and it is clear why no generation except the baby boomers has much in the way of disposable income – and they are drinking less and less wine.

Partly situational awareness

Beyond disposable income, the younger generations’ values are not as aligned with wine consumption (and alcohol more generally) as their elders.

Whereas the boomers experimented with drugs and built a culture – at least partly – around intoxicants of all kinds, the millennials (and likely the Generation Zers) seem more inclined toward a life of sobriety. Why?

The millennials have lived through the Great Recession, a series of costly wars, rampant random shooting events (nearly on a weekly basis) and the fall from grace of institutions, leaders, coaches, church leaders, business leaders and entertainers. They have witnessed their prospect of long-term employment evaporate, wine going from being considered almost healthy to having to carry a cancer warning, and the possibility of imminent environmental disaster.

It is within this context that the millennials are looking more and more like the traumatized post-World War I generation who lived through the Great Depression. And like them, they seem to be on a path toward becoming more frugal, more skeptical and keenly attuned to maintaining situational and sober awareness when in public.

Does the wine industry have just a short-term cough or a life-threatening disease?

Ask any doctor and they’ll tell you that there are three types of patients: those who overreact to the smallest and most benign symptom, those who seek out medical services when appropriate, and those who deny and avoid needed treatments.

The same goes for any business in flux. The data for the wine industry point to a future that is different from the recent past. Consequently, innovative leaders within the industry will need to rethink and reimagine how wine fits into a healthy and balanced lifestyle for their customers.

Given the recent deluge of retail bankruptcies, it is clear that the wine industry is not alone in facing a challenging business environment.

Actions to consider

The days of growth are near the end, and that means both opportunities and threats. The last thing wine industry leaders need now is to chase every new fad that pops onto the radar screen. Although canned wine, cannabis-infused beverages, spiked hard seltzers, red blends and “natural wines” all seem attractive, unless these are in your current business plan it’s probably best to go beyond these flashy lures and think toward the future.

How about single-origin, single-ingredient wines? What about having a recycling program where people can bring in their used bottles to be refilled? What about low- or no-alcohol versions of wine grape juice? Why not look into reducing production? Lowering the price of $50 or higher bottles raising the price of $9 bottles so they don’t have to compete with all the alternatives at that price? Shockingly, have you considered replacing your billion acres of Cabernet Sauvignon with something like Chenin Blanc or other grapes that have been proven in your area to produce fine inexpensive wine but aren’t popular at the moment?

You face dozens of threats, but you also have thousands of opportunities.

Think frugal. Think health. Think safety. But whatever you do, I think it’s time to go see a doctor about that cough.

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