Older Americans only area of growth in wine consumption, SVB report says
Perhaps it all makes sense. While the American wine industry believes it’s getting ready for a recession, the only group of consumers who are drinking more wine than in previous surveys is people over 60. And everyone is still drinking more premium wines than before. Those were three of the key findings of the annual Silicon Valley Bank’s State of the U.S. Wine Industry Report.
“The age bands over 60 are responsible for most of the growth in still wines over the past 25 years,” the report reads. “Amazingly, their share of spend is still growing. The median boomers [those born 1946 – 1964] are now on the other side of their normal retirement age of 66, and the spend in that cohort will have to decline unless they somehow get a reprieve from death and taxes.”
Rob McMillan, EVP and founder of the bank’s wine division, said that he thought recession, if there is one, would be mild, although emphasizing, “That’s my personal opinion and not the bank’s.” Even if a recession occurs, he is optimistic. “Recessions we’ve had before were ones with excess wine supply,” setting off what he characterized as “a race to the bottom.” But, he said, “If we have a recession, this year, it will come after three light harvests.”
The report, written by McMillan from extensive industry surveys, featured what it calls seven tailwinds and headwinds. The tailwinds are:
- “The premium side of the business continues to deliver excellent growth and returns.”
- The industry has never been better prepared for a recession, should one occur.
- Three small, high-quality harvests augur more good than bad.
- Technology support to help solve industry problems “has never been better.”
- “The typical consumers of premium wine are sitting on more than a trillion dollars of COVID savings.”
- “The growth in the non-California wine community across North America continues,” resulting in “improving wines… being grown and made throughout the country.”
- Unlike industry as a whole, “there are still buyers and sellers on what is a surprisingly strong M&A [mergers and acquisitions] market for both vineyards and wineries.”
The seven headwinds McMillan sees are:
- Negative volume growth is predicted for 2023.
- The fact that older Americans are the only source of growth at present is discouraging.
- While younger consumers continue to drink alcohol, wine’s share is diminishing.
- “Neo-prohibitionism is alive and well.”
- Production costs continue to rise, and finding labor “at any price” is difficult, causing wine margins to erode in 2023.
- Climate change continues to provide risks, often unseen ones.
- “The wine industry isn’t working together to solve the obvious demand problem for wine growth.” As McMillan noted in an online presentation of the report, “The way to get growth [without increased sales] is by taking it from your neighbor, and that’s not where we want to go.
For a copy of the report, go to https://www.svb.com/trends-insights/reports/wine-report
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