US wine consumers are set to enjoy the “best wine retail values in 20 years” due to oversupply and shrinking demand, a new report has said, as it warns producers that “the supply chain is stuffed”.
The Silican Valley Bank‘s State of the Wine Industry 2020 Report report blamed a number of issues, including oversupply along with the failure of the industry to engage with new consumers and adapt to consumer changes.
Author Rob McMillan said the problem did not lie in speculative over-supply but in the failure of producers to provide was consumers want to drink – despite the rising quality of wine in the US.
“We’ve never made better wine. But based on the industry’s current results, making great wine isn’t good enough for the consumer today. We are increasingly missing the mark on consumer expectations, and our results show it,” he said.
He warned the industry was heading into a ‘new era’ in which “the trend and mantra of premiumization that pushed volume and price higher for the past 25 years is nearing an end.”
The report stated that with many wineries in California and Washington not meeting their growth expectations following the strong 2018 harvest, tanks were already full at the onset of the 2019 crush, prompting greater discounting across the supply chain.
“By April, distributors, who were noting consumer sluggishness, started asking wineries for even higher promotional allowances. Growers in the meantime kept lowering prices to attract buyers and sell uncontracted fruit. But by harvest, there were grapes left without a home across all regions of California,” McMillan said.
“This oversupply, coupled with eroding consumer demand, can only lead to discounting of finished wine, bulk wine and grapes”, he continued, pointing out that even the smaller 2019 harvest was not enough to correct the oversupply.
He warned that this could lead to the demise of many vineyards in California, prompting those remaining to implement great efficiencies.
“The dominant competitive issues will shift to management strength and the decision-making ability of teams and organizations,” he said.
The industry also needs to address the desires of the new consumer, which vary substantially from the baby boomer conusmer that has driven wine growth in the last 30 years.
“The industry should rightly be concerned,” McMillan said. “We aren’t engaging with the millennial consumer, and boomers who have driven wine sales for the last 30 years won’t live forever.”
“We have to market and sell wine with evolved messaging. And we must change the direct-to-consumer model, which depends on the consumer coming into your winery.”
Although he pointed out that better quality wine selling at a lower price might prompt the new millennial consumers to beocme more consistent wine buyers, it was clear that “the US wine industry needs to adapt and
change its focus and direction.”