There are voices in the grape industry that, when they speak, everybody listens.
One of those voices is that of Rob McMillan, Founder of the Wine Division at Silicon Valley Bank who predicts tremendous opportunities — and challenges — for wine growth this year.
“The general consensus currently is that we are, on the whole, in balance in the market with the ability to get contracts enhanced from where we were last year when we were at the point of acute oversupply,” McMillan said. “Things have moved so rapidly. I’ve never seen a market move from that level of oversupply to balance in a year. It’s unprecedented.
“That giant pendulum swing was the result of both the pandemic and wildfires, both of which are, hopefully, not repeatable events,” he said.
In a recent webinar on wine industry trends, McMillan, along with Paul Leary of Assemblage Strategy Group and Josh McKinney of Ekos management software, discussed how wineries need to embrace this current season of change to propel future growth.
“When COVID hit and shelter-in-place orders went out, there was a 65% growth in off-premise wine sales almost overnight,” said McMillan. “The sudden impact of the coronavirus put wine and toilet paper in the same category of hoarding and pantry stuffing. One of the good things about wine is that even in a recession, its recession-proof and e-commerce buying bloomed. The year started with 1% on-line sales and ended at about 10% — and that’s quite a shift.”
“The challenges of 2020 have expedited the need for wineries to embrace e-commerce, digitize their operations, and appeal to millennial and Gen Z audiences,” said Ekos CEO McKinney.
“There is an opportunity here where wineries can play a larger part in a DTC (direct-to-consumer) world,” added Leary. “We need to change the way we engage based on a pandemic era 350% growth rate in the number of on-line buyers with the greatest number skewed toward older Boomer consumers. When it comes to alcohol purchases, on-line engagement was much greater than forecast and that kind of delivery will stick. We’ve seen ten years of growth in a matter of a hundred days, so we have to come to grips with these kinds of changes.”
A party mood?
Utilizing data from the Wine Institute, McMillan noted that when prohibition ended, increases were recorded in wine consumption. The end of World War II started a rolling libation party with returning GI’s. “I expect 2021 going into 2022 will be a similar party mood as businesses continue to re-open and consumers can now get out of their house and kick up their heels,” he said.
In a conversation with The Grape Line, he further noted: “The current market still shows uncontracted vineyards out there, a situation like the housing market. If there’s an oversupply of homes, the house with the extras will sell first. Likewise, the grapes to be contracted first are the better venues with better reputations and proven economics. Wineries or vineyards long in the tooth with volume trailing off may choose this time to replant and in the North Coast, about 5% of the vines have already been pulled for replanting.”
His prediction for future demand calls for a different path in contrast to pre-pandemic direction. “We have a rebound economy, likely looking at a couple of years of sustainable prices,” he said.
For those that grow the grapes that go into the bottles, “I have to be optimistic with all the forecasts of high GDP growth during a recovery and the fact that wine drinkers are still going to find their wine.”
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