Premium wine sales to grow in the US
A report published by California’s Silicon Valley Bank has predicted sales of premium wine ($12 to $25) in the US to grow between 10 to 14% in 2017, as a trend toward premiumisation continues and price increases take effect.
The Silicon Valley Bank (SVB) released its 16th annual State of the Wine Industry Report yesterday, delivering a number of predictions on the US wine market in the coming year.
Among the notable trends identified was the continued rise in sales of wines priced at between $12 and $25, along with high-end luxury wines.
“We expect to see small price increases in these segments, with volume and price drops for bottles priced under $9,” the report stated.
“Sales growth is predicted between 10 to 14% for the premium wine segment. The confluence of better retail conditions, strong consumer demand and good supply will collide to deliver improving industry performance.”
The prediction of a rise in this segment of between 10 to 14% in 2017 is above that of the 9 to 13% increase predicted in 2016, with the final rise for this segment during that year coming in at 10%.
For the industry as a whole, SVB expects value sales to rise by 4 to 6% and volume sales by 2 to 3%, with this growth expected to be “exclusively in premium wine” with volume and price drops expected in the below $9 bottle segment.
Millennials to become the ‘largest fine wine-consuming cohort’
This prediction appears to tally with producers’ efforts to streamline their portfolio and prioritise their higher end brands in recent years. Several brands including Treasury Wine Estates have been working to streamline their offer, prioritising their more premium brands in order to capitalise on a trend toward drinking less, but better, largely driven by health conscious, cash-strapped millennials.
Indeed, the report also noted a shift whereby “retiring wine-loyal baby boomers” are being replaced with less affluent millennials, who are “ambivalent about their beverage choice”.
According to the report the Gen X demographic, those born early-to-mid 1960s to early 1980s, will surpass the baby boomers around 2021 to become the largest fine wine consumer demographic in the United States. However five years later, by 2026, millennials are expected to surpass Gen Xers to become the largest fine wine-consuming cohort.
As millennials gain increasing influence, capturing the attention of this demographic, which are not necessarily wine loyal and also drink beer and spirits, will become an ongoing challenge for wine producers.
“Millennials are beginning to affect the lower price range of premium sales,” the report noted. “Their presence is most visible in the $8 to $11.99 red blend category, but they will gradually move away from blends and into varietal wines or imports as their incomes improve.”
Furthermore, while sales of premium wine are expected to increase, the report noted that this may not necessarily be among domestic brands.
“The growing millennial demographic has evolved view of the world wines vs. the baby boomer and Gen X cohorts, who favoured US producers in the same period in their development,” the report noted. “We shouldn’t expect millennials to assume the baby boomers’ preference for domestics.”
As such, an opportunity could arise for importers of premium wines into the US, with a strong US dollar and “willing millennials” predicted to encourage import growth in lower premium price points ($8 to $11.99).
The report also touched upon the impact of Donald Trump’s presidency on the wine industry, with supply of farm labour and costs likely to become a key issue. Rob McMillan, founder of SVB’s wine division and author of the report, went so far as to say that labour force in the US wine industry is today “inadequate” in all areas, which is leading to increased costs and more incentive to mechanise.
“With the new federal administration’s agenda for the first 100 days possibly including deportation, we believe that farm labor supply and costs will be a more dominant concern in both headlines and conferences in 2017,” the report said.
Total harvest in California for 2017 is predicted to be 3.95 million tons crushed, a 7% increase on 2016.
You can read the full report here.