Rob McMillan, EVP and founder of Silicon Valley Bank’s Wine Division, writes one of the wine industry’s most authoritative annual reports that assesses current conditions and provides a unique forecast based on micro- and macroeconomic and behavioral trends. In this latest report, he says that successful wineries 10 years from now will be those that adapted to a different consumer with different values — a customer who uses the internet in new and interactive ways, is frugal and has less discretionary income than their generational predecessors.

This consumer rotation, along with several other indicators that point to reduced direct-to-consumer success, has specific implications for small wineries. Action is required now to stay ahead of these changes.

FORECASTS FOR 2018:

• Consumers are leaving the lower price segments in favor of better-quality offerings, but after more than 20 years of straight-line growth trends, total volume growth is leveling off. Retiring baby boomers and frugal millennials are driving a rotation of consumer preferences. Premiumization will continue, but softening is likely on the luxury end for wineries without preexisting strong brands.
• The premium wine segment will grow in the range of 4 to 8 percent, down from the estimate of 10 to 14 percent in 2017. For the industry as a whole, sales will rise by 2 to 4 percent, while volumes will increase slightly.
• Acquisitions will cool somewhat from the torrid pace of the past three years as many of the major buyers digest their recent purchases. We will still see foreign purchases of US wineries and significant transactions for vineyard properties.
• When 2018 totals are calculated, California will have crushed about 3.8 million tons of grapes, slightly more than in 2017. In the Pacific Northwest, Oregon will set another record in terms of yield, and Washington’s yield will slightly moderate.
• For more than 20 years, we’ve seen regular increases in volume and price. But sustaining routine increases may be difficult for wineries given the low-growth, low-inflation environment. Price increases will be hard to pass through in 2018, so overall pricing will be flat.

Click here to download the report.