The horizon is cloudy, but the US wine industry had a surprisingly great year in 2021, with premium wine sales soaring and 29 percent of wineries calling it their best year ever. Ever!
There are plenty of warning signs about the future, most significantly that younger adults aren't taking to wine like their elders. But 2021 represented a welcome change for most US wineries from a decade-long slide in premium wine sales growth. In addition to the 29 percent of wineries who celebrated their best year ever, another 45 percent called it a "very good" or "good year", according to the annual State of the Industry report from Silicon Valley Bank.
| Related stories: |
| Boom Times Ahead for US Wine industry |
| Bad Year Turns Good for California |
| Size Matters: the World of Wine Bottles |
The annual report draws on many data sources, but its survey of wineries distinguishes it from reports based solely on overall wine sales, because a majority of wines sold in the US are made by a few big companies. Thus the experiences of the thousands of smaller wineries can be different from the overall market.
In fact, Rob McMillan, executive vice president of Silicon Valley Bank's wine division, said that overall wine sales in the US were flat in 2021, with fewer sales in restaurants bringing down good numbers from direct sales.
In this case, what really divided wineries was the price of their wines. Wines under $11 dropped in sales, while wines over that price point soared. The highest growth was for wines priced at $50 and above.
"Everything under $11 is in decline. The bad news is that that's 75 percent of the total wine volume," said Dale Stratton, managing director of Azur Associates.
Stratton said the dividing line of success has shifted upward during the pandemic; as recently as two years ago, sales of wines between $8 and $11 were growing.
"We're seeing this continuous move upward in premiumization," Stratton said. "At some point that well's going to run dry."
But wineries don't expect the party to stop this year. After a year in which few wineries raised prices, 72 percent of wineries say they plan to increase prices in 2022. Some of it is their own increased prices and supply-chain difficulties: 76 percent of wineries have had problems getting glass for bottles. But mainly wineries have discovered that 2021 was also a good year financially for the well-off customers who buy premium wines.
McMillan used the opportunity of his annual report to introduce an initiative that he, Stratton, and two other industry analysts have been working on: Wineramp, an organization created to develop an industry-wide marketing order, run by the USDA and paid for by assessments to wineries, similar to those for milk ("Got Milk?"), eggs and raisins (remember the dancing California raisins?)
Generational change
Demographic data shows that Gen X has caught Baby Boomers as the largest purchasers of wine. Millennials, though larger in number than Gen X, are only buying about 20 percent of wine sold in the US compared to 35 percent for Gen X. And Gen Z, which is just beginning to reach adulthood, hasn't shown much interest in wine yet.
McMillan told Wine-Searcher that the onramps to wine for young people are not working. Cheap supermarket wine isn't attracting them, and they're also not finding good wines by the glass in restaurants.
"You used to be able to get a glass of wine for $5 or $6. Not much more than beer," McMillan said. "But now a glass of wine is over $10. And for that, the restaurateurs come to the wineries and say, here's a price that I need. The winery says, I can hit that price. The wineries are producing something that is below their standard for the by-the-glass programs."
McMillan said the old assumption that people will drink wine with their meal has been upended. Restaurants have beverage lists now, not wine lists, and many people prefer to have cocktails with their meals. In fact, since restaurants reopened early in 2021, spirits sales have gone up while wine sales have gone down.
The report highlights the importance of diversity for the wine industry. Younger generations of Americans are more ethnically diverse than older generations, and McMillan says this means that continuing to market wine the same way will not work.
"If you acknowledge the fact that premium wine is being demanded more by the 65+ crowd, that generation is mostly European white. The proportion of diversity is less," McMillan told Wine-Searcher. "As you move down into younger groups, it's more diverse. The industry has just been working with what works. Since 1994, it's been great. Up until 2016 the premium industry was over 10 percent growth rate in sales. They've ridden that horse. But as they say in Texas, when the horse is dead, get off.
"We've got to reach these younger consumers," McMillan said. "And we've got to speak to them with what they want to hear, their values. We haven't done a good job with that. Environmental issues seem to be an increasingly important thing for many consumers. They want to know that you're doing good things to advance social causes and to improve your carbon footprint. Another thing I've been advocating for is transparency in ingredients. You gotta say what's in the bottle."
