Consumers will be drinking fewer inexpensive wines — bottles priced at under $9 — in 2016, while the demand for wine priced over $20 per bottle will increase this year, but not as much as in 2015.
That’s according to the annual State of the Wine Industry Report, released on Thursday by Silicon Valley Bank.
“There is permanent shift from generic wine, and aging baby boomers are being replaced by frugal millennial consumers,” said Rob McMillan, founder of Silicon Valley Bank’s wine division and author of the report.
Compared to retiring baby boomers, “millennials are far more ambivalent about what they want to drink,” he said. They range freely from beer to craft spirits and wine, he said.
“While retail bottle prices will modestly increase this year, the consumer will still benefit from three consecutive large and excellent harvests in 2012, 2013, and 2014,” McMillan said. “Not all of that wine will make it into branded premium labels and that will leave plenty of great juice available for domestic négociants who will repurpose it into imaginative labels.”
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The report was created using the bank’s expertise in the U.S. wine business and proprietary research, Silicon Valley Bank said a news release. The bank provides financial services and strategic advice to more than 300 premium vineyards and wineries on the West Coast.
Besides the decline in cheaper wine consumption, the 2016 report suggests other changes for consumers and wine businesses.
Imported bottled wine will take market share away from domestic fine wine producers, said the report. “Right now, imports represent about 25 percent of bottled wine sales in the U.S. and we expect that to go higher,” said McMillan.
Domestic wine priced higher than $10 per bottle will show modest sales growth of 4 to 8 percent, compared to growth of about 10 percent in 2015.
Fine wine sales — $20 bottle and up — will end 2016 with growth between 9 to 13 percent, a slight decline from the roughly 14 percent sales growth in 2015, said McMillan.
While demand for premium wine will still increase, “there are clouds on the horizon that should be considered,” said McMillan.
Large and notable sales of premium vineyards and wineries will drive an active mergers and acquisitions environment throughout the year. Tens of thousands of additional grape acres will be permanently removed from the Central Valley.
Supply of arable land suitable for higher-end wine production will narrow and drive vineyard prices higher, the report said.
Also, the lowest price generic segment that appealed to the entry-level consumers of the 1960s has permanently lost its appeal.
Generation Xers will surpass the baby boomers around the year 2021 to become the largest fine wine consumer demographic in the U.S., and the millennial cohort will surpass the Generation Xers around 2026.
McMillan discussed the annual report and the state of the wine industry in a live videocast with Paul Mabray, chief strategy officer of VinTank; Amy Hoopes, chief marketing officer/EVP global sales at Wente Family Estates, and Jeff Bitter with Allied Grape Growers.
Silicon Valley Bank’s wine division was founded in 1994.
Jennifer Huffman
Business Editor
Jennifer Huffman is the business editor and a general assignment reporter for the Napa Valley Register. I cover a wide variety of topics for the newspaper. I've been with the Register since 2005.
