2022: The Challenges that Lie Ahead for the Wine Industry

In a recent edition of the SF Chronicle I read an interesting article about non-alcoholic cannabis Rose. And I thought, it wasn’t bad enough that something like “white claw” could gather so much attention now another competitor for wine was entering the “Octagon” battling for share of stomach.

I have watched wine– currently holding a 15% “share of stomach” among alcoholic beverage –grow steadily over the last 20 years, but recently, it has begun to plateau. Long-time Industry expert and prognosticator Rob McMillan of Silicon Valley Bank, stated in his 2019 State of the Wine Industry report that:

“The US wine industry is at the tail end of its largest growth period in history.”

There are many reasons for this; not the least of which is increased competition from other alcoholic beverages for share of stomach– such as the Cannabis Rose. Other reasons include the decline of the baby boomer generation–due to retirement. Boomers have been the main drivers of growth in wine sales for the last 23 years.

Direct to Consumer (DTC) Sales, as a channel has come into its own. It is still showing growth–fueled by the number of states that have changed their laws to allow direct shipments to wineries. (46 at last count, thank you “Free the Grapes”) Another reason for DTC growth has been a quantum shift in thinking by vintners that tasting rooms are not just “PR” tools to drive sales to traditional retail outlets. And for those of you who don’t remember, for a long-time tasting room were simply considered PR tools–ways to expose the brands to new customers–particularly tourists. It was hoped that visit to the tasting room would leave a lasting impression that the guest would remember when they purchased wines back home.

But headwinds are blowing on the traditional tasting room model, as well as two of the other prongs of DTC; the traditional wine club and the “mailing list”.

Tasting rooms began an arms war creating bigger and better longer more expensive “experiences” to attract customers. Several downtown’s in wine country feature more than a dozen choices for tourists–choices which Hotels happily recommend to allow their guests to taste wine and avoid driving. Wine clubs– which offer discounts–will find themselves in an endless cycle of battling their internal wholesale teams on pricing because of aggressive front-line prices at big box wine stores and the utter transparency of the internet.

(On a separate note, on-premise outlets are having their share of difficult conversations as millennials now check their phones as they read the wine lists and challenge the sommelier to defend markups of 3X and 4X.)

The highly allocated “mailing list” tool to sell Ultra-premium wine had its “Emperor has no clothes” moment after the last recession. Wineries that had “waiting lists” of 2-3 years or more, suddenly reached out their mailing list members who had been on “hold” to let them know their wait was over– “we have wine for you.” (I will not name the brand, but it had three levels of product that suddenly reached out to me in 2009 and said you’ve been elevated to the top of our list Mr. Baker.)

And so it goes. Changing demographics, more competition two new generations to attract to the category (yes two–don’t forget “Z-Gen”–coming of age next year) and an arsenal of tactics in DTC that need innovation.

What’s a vintner to do? Test. Innovate. Change.