I got my hands on a wine consultant's takeaways from a recent "state of the industry" presented by Silicon Valley Bank, and thought I'd share. I was interested in how different the recent trends are vs. the broader secular story of growth in the United States, particularly the aspects I've put in bold:
"The wine industry is at a tipping point: Volume has flattened. Over the past 4 years:
· GenX demand has grown
· Boomers are flat
· Millennials are showing no growth
Millennials are likely suffering from inability to afford luxury products (indulgence gap).
Profiles of target consumers:
· Millennials are debt strapped (student debt, many are working jobs below their education level)
· GenX are gainfully employed (biggest current earners)
· Boomers are retiring; change in lifestyle, income, diet
Is this permanent?
Millennials creed: Live large but carry little.
Experience-based services are the fastest growing product category of all
Does premiumization have a future? Prices can’t rise when volumes are flat or falling.
Millennials in on-premise outlets are focused on activities, not alcohol. (e.g. ping pong, bowling, axe throwing, darts). Large supply of fancy drinks are more appealing and interesting than wine, utilizing dry ice, smoke, sparkle, flame. What’s the equivalent for wine?
Cannabis is likely not materially affecting wine at this time. Only 13% of the millennials have used cannabis as a regular part of their recreation. Much smaller % for the other two major demographic groups.
Tasting Rooms
· WA, Napa, Sonoma traffic is down
· OR, VA are up
· NY is mixed
Millennials don’t like conspicuous consumption or wealth.
Most successful TR’s are activity based, by creating an “engaging” environment, (e.g., picnic tables, corn hole type games, walks through the vineyard/cellar.) Sitting or belly up to the bar is not attractive to this group.
...
there is about a five-year window to address this issue of no growth."
It's interesting to think of how the "experience" economy can evolve for wine. Now more than ever, the conversations I overhear in groups when deciding what wineries to visit revolve around the ambiance and amenities at the wineries. Malibu Wines in Los Angeles has become an absolute hotspot of a 'third place'.
ReplyDeleteThis could translate over into wine being sold as a part of an experience to drive higher volumes or price points, as to Silicon Valley Bank's point, there doesn't seem to be a lot of growth in average txn price for millennials buying wine at retail storefronts.
Building off the notion that tasting rooms have been successful when there is an activity component, tasting rooms are also adopting unique POVs (not exactly an activity, but a focus on a unique experience when visiting the tasting room).
ReplyDeleteFor example, Prisoner Winery prides itself on it's gothic experience offered to guests in it's tasting room. It has a dark, castle-like exterior and a prison / industrial tasting room. The experience it offers is in stark contrast to that of many other wineries in Napa.
To connect it back to what was discussed in class, I found it fascinating that Prisoner Winery is owned by Constellation. While the position themselves as a unique, one-of-a-kind experience, they are owned by one of the largest wine conglomerates in the world.
You can read more about Prisoner Winery here: https://sf.eater.com/2018/11/14/18088382/prisoner-wine-tasting-room-food-saint-helena-napa
Thanks Tyler for this post. I want to build off of two topics you highlighted: cannabis and the focus on activities.
ReplyDeleteWhile living in Atlanta, there was an emergence of numerous on-premise activity based outlets. These venues were extremely popular with millennials. However, while the venues all had a service bar, most of the venues offered around 5 wines. The bars instead offered numerous house cocktails that were "only" offered at their venue. So even though, there were often times that me and my friends wanted to get a nice glass of wine while partaking in our activities, there was often not a wine that we liked offered. This to me was very interesting because I wondered if it was the venues deciding that they wanted to focus on house cocktails because of better margins and to draw consumers for an "unique"drink or if it was distributors not thinking the venues were best for a wider range of wines.
The other piece that is interesting to me is that while "cannabis is likely not materially affecting wine at this time", what the impact will be in the future. For instance, as more and more states legalize the use of cannabis, what the impact will be. In addition, thinking through the demographics of wine drinkers and cannabis users and determining if cannabis users are often hard liquor drinks or wine drinkers or both. Since currently, there are people who majorly drink hard liquor and others wine and some are switchers between the two depending on the context. This will help better determine what future impacts of cannabis will have on the wine industry.