“We have 10,000 [Baby] Boomers a day that are hitting retirement. And they’re being replaced by financially disadvantaged people. The tradeoff isn’t good.”
That quote is from Rob McMillan, senior vice president of Silicon Valley Bank’s (SVB) wine division and one of my favorite perspectives on the economics of the wine industry. (Economic analysis isn’t the sexiest part of wine, but I follow it. Great winemakers can bottle poetry in their cellars, but if they can't sell it, they won’t make wine the next harvest.)
McMillan was speaking in Sonoma about his annual state of the wine industry report, which SVB released a few weeks ago. What I like about his analyses is that he recognizes that wine sales trends are more than just which variety or region is in vogue. He thinks big picture, which means he looks at both the current economic conditions and long-term demographic trends.
The lead item in this year’s report is that sales growth slowed last year, from 9.9 percent in 2016 to an estimated 4 percent in 2017. That’s still growth, but it’s slowing. My colleagues at Impact Databank have reported a similar trend: Wine sales continue to grow in the U.S., but not at the rates we saw a few years ago. (When you don’t count sparkling wines, the growth nearly vanishes.)
The overall economy continues to grow steadily, if not dramatically. And McMillan suggests that a generational shift may be playing a role in wine. The Baby Boomers have been powerhouse wine consumers since the 1990s. But now they’re retiring and looking at life on a fixed income, which means they’re spending more frugally. “When wine club staff ask why a member is leaving the club,” states the report, “increasingly the answer is ‘I’m retiring.’"
But what about all those Millennials? Is the problem that they prefer spirits or marijuana to wine? No, the data shows that Millennials do like wine. But they have a problem: “The unfortunate reality is that while Millennials have by all accounts a better appreciation of wine compared with the other cohorts at a similar age in development, their appreciation has not reflected itself in fine wine consumption yet because, to buy anything, a person needs to have both the desire and the financial capacity to purchase.” Millennials who came of age in the aftermath of the Great Recession are especially limited financially.
What about my generation? Yeah, us. Over here. Hellooooo! Generation X. We’re here. (Sorry, it’s just that we get ignored a lot.) Well, we’re actually doing pretty well. Most of us started work during the financial boom years of the 1990s. And today, we are increasingly buying more premium wine. Problem is, there are a lot fewer of us than Boomers or Millennials. (There are about 50 million Gen Xers, while both the Baby Boomers and the Millennials each have around 75 million members.)
SVB projects that Gen Xers will become the largest generation by wine consumption in the U.S. in 2021. The report projects that Millennials will take over in 2026.
All of which means that the average wine consumer will be changing a lot in the next eight years. Wineries will have to work hard and work smart to retain older customers, while also trying to attract new ones. How can they meet the challenge? That’s a question for another blog. In the meantime, I’d love to hear your ideas.