Wines

Why the American Wine Industry Needs a Shakeup

Why the American Wine Industry Needs a Shakeup
Image credit: Chappellet

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The United States currently is the world’s dominant wine producer and the American wine drinker is its dominant consumer.

But that doesn’t mean we should rest on our laurels.

Between the web, agnostic millennials and the strong dollar, there's a huge opportunity for our overseas brethren to take over.

Silicon Valley Bank, which offers financial services to more than 300 premium wineries on the West Coast, recently released its 15th annual State of the Wine Industry Report.

And the results should be a wake-up call to American vineyards.

Thankfully, the Jug Is Dead

U.S. per capita wine consumption is decreasing for the first time, after more than 20 consecutive years of growth.

But, thankfully, that’s because our tastes are getting better. Jug wine is going the way of the dodo bird.

“We are willing to spend a little more for quality but that means we won’t be buying as much,” says Rob McMillan, founder of Silicon Valley Bank’s Wine Division and author of the report.

But if you’re looking for quality and value, it’s very easy to look outside our borders, especially thanks to our stronger dollar.

“I predicted back in 2006 that we would start to feel the impact of foreign wine on domestic sales," says McMillan. "You have perfect pricing information online and you can have the wine delivered instantly from almost anywhere.” 

This is not so much a concern for Baby Boomers. They're dying off and they just can’t drink as much as they age. Generation X, though, is forecasted to be the dominant consumer of “fine wine,” wine valued over $20, over the next 10 years.

Related: How South Africa Built a Booming Wine Business

And while Gen X-ers, those born between 1960 to 1980, probably do have a favorite label or two, they still will hunt for value. You can thank the recession for that.

So the wine industry better figure out a way to market to them here at home. And plopping words like “sustainability” on a label and using lots of cartoony colors is just not going to cut it.

Millenials Matter – Again

As their purchasing power continues to grow, Millennials, those born 1980s to 2000, need to be addressed as well.

While they also are looking for quality and value, anything goes right now until they truly figure out their taste preferences. That means wine, beer and spirits are all on the table. Gaining their attention may prove to be a struggle for smaller vineyards with low marketing budgets.

Bigger houses are using M&A to fill the void. E. & J. Gallo Winery bought Barefoot Cellars, one of the best-selling wine brands in the world. Originally targeted at women, with a fun colorful label, it has become a Millennial favorite.

High-end brand Wagner Family Wines created the Conundrum brand as its entry-level wine, retailingfor about $25, in hopes of getting them young and keeping them as their tastes mature. Then someday they’ll move up to their Caymus Special Select at $160.

Mercedes created its C-class for the same reason. “You have to have an on ramp and hopefully you don’t have an off ramp,” says McMillan.

Millennial winemakers are surfacing, too. Josh Phelps, son of winemaker Chris Phelps, and his childhood friend Carlo Trichero, whose family runs Trinchero Family Estates, have created their own label, Taken Wine Co., with the intent of making great quality wines at reasonable prices to meet their peers’ demands.

Even Farmers Need Social

To be fair, most of the older winemakers are truly farmers and many still don’t believe in using social media, if you can even fathom that.

“It’s the nature of the business though. They get stuck in their ways and don’t want to change,” says McMillan.

Related: The Top Wine Trends Expected in 2016

We do have to cut the industry some slack. Only 41 states are even allowed to ship direct-to-consumer. Up until 2005, a law that dated back to Prohibition prevented it entirely. So the industry is already way behind the times, says McMillan.

Maybe.  But that’s no excuse today.

Time to Wake Up

America is making great wines – and tons are still great values -- so we need to come together as a domestic producing group and tell the world our story.

“It’s not doom and gloom. It’s just a wake up call,” says McMillan.

The good news is there’s about to be a plethora of opportunity for some marketing gurus.

Napa Valley had three consecutive, large and awesome harvests from 2012 through 2014.

“And not all of that wine will make it into branded premium labels,” says McMillan, mainly because vineyards can’t dilute the market with extra wine and still command a higher price.

So there is entrepreneurial opportunity here to buy the leftover juice and then price it and label it in a way that appeals to Gen-Xers and Millenials.

That could be a great way to remind people that there really is quality and value in the States.

Look if Cadillac could figure out how to make its cars cool again, anything is possible.

Great wine should be a much easier sell.

Related: Drink More Wine. It's a Resolution You Can Keep.