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Premium Wine Growth to Slow?

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Editor’s note:  This week Silicon Valley Bank predicted that the growth in premium wine sales will slow again in 2019.

They attribute this slowing to retiring baby boomers and millennials’ delay in becoming wine drinkers. Rather than trying to interpret or analyze their position, Taste California Travel has opted to bring you the bank’s opinions as published in a press release issued Wednesday morning:

ST. HELENA, Calif., Jan. 16, 2019 /PRNewswire/ -- Silicon Valley Bank (SVB), the bank of the world's most innovative companies and their investors, released its 2019 State of the Wine Industry Report today. The 18th annual report assesses current conditions in the wine industry and provides a unique forecast for the year ahead based on proprietary research and economic and behavioral trends.

Highlights and predictions from the 2019 report show that while full-year 2018 sales will again close at record nominal levels, the growth rate of sales continues to decline as a result of generational consumer shifts:

•             The premium wine segment – which we define as above $10 per bottle – will grow in the range of 4 to 8 percent in 2019, roughly flat from the 2018 sales growth estimate.

•             For the off-premise retail store channel, which accounts for the majority of all wine sales, sales by value will grow between 0.5 percent and 2.5 percent. Volume sales will deliver a growth rate between negative 0.5 percent and positive 1.5 percent.

•             Millennials aren't yet embracing wine consumption as many had predicted. Lower spending capacity is a major component, but cannabis legalization and a cumulative negative health message surrounding alcohol are combining to temporarily stall the wine consumption among young consumers.

•             Baby boomers, who still lead in total wine purchasing, are moving into retirement, adjusting to living on a fixed income and declining both in number and per capita consumption.

•             The M&A cycle is approaching a natural end and will slow noticeably in 2019 as many of the major buyers continue to digest earlier purchases and execute on new brand strategies.

•             Bottled imports will take additional market share from US producers.

•             Grape and bulk prices will drop noticeably in the California market in 2019.

•             Overall retail pricing should be flat in premium wine as the industry works through sluggish volume growth and a slight surplus of wine. There should be some limited price reductions in the $15-17 bottle price range. Wine below $9 will continue to shrink in volume and value.

•             Oregon will be the bright spot regionally as consumers continue to find consistently good value in the region's offerings.

"Despite the positive year in 2018 and 25 years of great growth for the US wine business, I believe sales growth forecasts for the next five years should be tempered," said Rob McMillan, founder of Silicon Valley Bank's Wine Division and author of the report. "The fundamental underpinnings that created the industry growth are changing, which means the tactics that were relied upon to ride this wave of success to this point will slowly prove flawed without business adaptation. To continue its growth in the years ahead, the US wine industry needs new direction and a changed focus."

McMillan notes wineries need to deploy new and undiscovered direct-to-consumer marketing strategies in order to find this growth – online and in person. Going forward, brands will have to be built in more regions by bringing an experience to the consumer, instead of expecting that they come to the tasting room.

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