Outlook sees consumers ready to buy pricier bottles
This will be a "breakout year" for the U.S. wine industry, with a surging economy driving demand and producers riding good supply after three strong vintages in a row, the Silicon Valley Bank (SVB) predicted in its annual report on industry trends.
Consumers will benefit from plunging oil prices, leaving us with more money to spend on wine and other essentials, while the strong dollar will make imported wines cheaper, the SVB's crystal ball gazers said. The report optimistically says wine drinkers have fully recovered from the recession and predicts they are ready to trade up to more expensive wines, especially those costing more than $20.
The SVB's annual report, released Jan. 20, is used by wineries (especially in California) to plan their business and marketing strategies for the coming year. It is also a window on our wine-buying habits during the past 12 months.
"Starting in mid-2014, wines priced above $20 a bottle broke out strongly higher," wrote Rob McMillan, executive vice president and founder of SVB's wine division. "Trading up is a clear trend again. Red wines in particular showed the strongest growth. We expect that to continue throughout 2015."
After nearly 10 percent growth in 2014, the SVB report predicted that this year's will reach 14 to 18 percent. Helping that increase: Direct-to-consumer sales will continue to be the fastest channel for most wineries, adding to profit margins by bypassing the distributor and retail levels. Prices in this fine-wine segment haven't risen substantially yet but probably will as demand rises, the report said. U.S. producers should be able to meet the rising demand, having recorded ample harvests from 2012 to 2014.
During the recession, restaurants saw wine sales decline as more people dined at home. Retailers reported that customers who had often spent $30 or more for a bottle of wine were discovering that wines in the $15-to-$20 range could be just as good. The SVB's data suggest that we are splurging again - either returning to favorite high-end brands or branching out into new areas.
On the low end of the price range, wines costing $9 or less declined in sales last year. The report suggests that the trend will continue, especially as the strong U.S. dollar drives down prices of bulk wine imports.
Oregon and Washington will see their wine industries continue to grow as more vineyards are planted and as quality and supply increase in the over-$20 segment.
Unfortunately, the SVB report focuses on the West Coast wine industry and does not cover trends in the "other 47," where the expansion has been greatest overall (at least in numbers of wineries) since 2000. So there is no discussion of how last winter's harsh weather affected the 2014 harvests in Michigan, Ohio, New York and the mid-Atlantic; nor does the report address the acute need for those areas to develop new sources of grapes.
The wine media has ballyhooed the advent of millennials and their impact on the wine market through their use of social media and their love of wines from nontraditional areas such as Virginia or other emerging regions around the world. The SVB report suggests that the millennials' impact has yet to be felt, however. The main buying power lies with wage earners ages 35 to 55, such as late boomers and Generation X. As millennials age, pay off their student loans and become more affluent, their impact will be felt in wine as through the rest of the economy. And we will read more about them in future annual updates from the Silicon Valley Bank.