The American Wine Industry Has an Old People Problem
The state of the American wine industry is grim, according to a closely watched report that annually analyzes its trajectory. Winemakers and advertisers are missing out on younger consumers, the report says, by failing to produce wines that fit their budgets and neglecting to reach out to them with targeted marketing campaigns.
“State of the U.S. Wine Industry 2023,” which has made recommendations for more than 20 years, found that the only area of growth for American wine was among consumers over 60, said its author, Rob McMillan, executive vice president of Silicon Valley Bank in Santa Clara, Calif., and a longtime analyst of the American wine industry. The biggest growth area, he said, was among 70- to 80-year-olds.
As it has in recent years, the report urged the wine industry to do a better job of appealing to younger consumers, who have many more beverage options today than baby boomers did in their formative years. Among those are craft beers, small-production spirits and craft cocktails, hard seltzer and other new beverages, like hard kombucha and cannabis drinks.
The problem, in Mr. McMillan’s view, is not so much wine itself but the marketing. He believes that the wine industry as a whole has to take steps to inspire curiosity and intrigue about wine, and to highlight aspects that he said would appeal to younger generations.
Specifically, he said the industry ought to emphasize the environmental sustainability of wine, and should embrace transparent nutrition and ingredient labeling, which the industry has resisted for years, to attract those concerned about health and wellness.
The pessimistic prognosis extends and amplifies last year’s report, which focused on millennials, who have not shown the same interest in wine as boomers, the prime consumers of wine.
New data from Sovos, a company that helps wine producers comply with the myriad shipping laws governing 50 states, allowed Mr. McMillan to track 80 million consumer transactions since 2007 to paint a clearer picture for the 2023 report. He said consumers younger than 60 were even less interested in buying wine today than they were in 2007.
“It’s worse than I thought,” Mr. McMillan said in a phone interview. “I thought we would have made some progress with under-60s. I’ve been talking about this problem for seven years and we still haven’t reacted.”
It’s not that younger consumers don’t have the money to buy wine, Mr. McMillan said. He cited an annual report on luxury goods by Bain & Company, a consulting firm that says the luxury market is experiencing healthy growth and attributes this to spending by millennials (those born 1981 to 1996) and Generation Z (those born 1997 to 2010 or so).
Sales of bottles costing more than $15, roughly what the industry refers to as “premium wines,” did quite well, with “excellent growth and returns.” The biggest current problem is with wines under $15, what Mr. McMillan called “the production side” because, in the United States, at least, most brands under $15 are mass-produced.
What’s missing, Mr. McMillan argues, are enticing introductory wines, bottles that provide the sort of “aha” moments that will draw consumers into learning more about wine and perhaps finding a lifelong pursuit in seeking the same pleasures. He cited wine coolers, wines mixed with carbonated water and sold in cans or small bottles under brands like Bartles & Jaymes, which he said were instrumental in introducing baby boomers to wine in the 1980s and ’90s.
Nowadays, the report said, this small-serving category has been co-opted by hard seltzers and ready-to-drink cocktails, though it did suggest that wine in cans was an opportunity to build sales.
“There has never been a wider gulf between the success of the production side of the wine business and that of the premium side,” the report said, but it warned producers of higher-priced wines not to be complacent. “Those issues impacting lower-priced wine will eventually impact premium producers too if nothing alters the current consumer trajectory.”
Most people on the business side of the wine industry read the report, as Silicon Valley Bank is deeply connected in the wine industry and is often a source for loans and financing. Whether people act on the findings is another matter.
Last year’s report proposed an industrywide marketing campaign along the lines of the “Got Milk?” promotions of the 1990s. But the initiative was stymied when some in the industry objected to mandatory contributions that would have financed the campaign.
Not everybody in the business agrees with the report entirely. Carlton McCoy Jr. — a millennial who is a managing partner of Lawrence Wine Estates, which owns estates in Napa Valley and Bordeaux — doesn’t entirely trust the Sovos data, which tracks transactions directly between producers and consumers. He believes it underestimates the number of younger people who are engaged with wine and buying in stores or restaurants.
“I’m not sure if 30 years ago we tracked the wine-drinking habits of those in their late 20s to late 30s,” he said, “but no one that I work with that is in their mid- to late-60s drank wine until after they were 30. I feel the wine industry is evolving to appeal to many different demographics.”
Mr. McCoy said he found it exciting that the wine industry is diversifying how it is selling and marketing wines under $15, including packaging, labeling and tone of marketing.
But Mr. McMillan said the wine industry is failing dismally at advertising and promotion, which plays an important role in sparking consumer interest in wine. He cited figures showing that $122 million was spent on wine advertising in 2021 — far less than for beer ($886 million), spirits ($533 million) or flavored malt beverages ($328 million).
What advertising there was, he said, was directed at older consumers, “selling white-linen hospitality and gracious living, with a nod to the lifestyles of the rich and famous in many cases — information that’s interesting to wine geeks and consumers over 60 but probably not to the vast majority of potential customers.”
“That message is at best wasted on a younger crowd,” he said. “At worst, it’s turning them off.”
Marketing to younger consumers ought to amplify sustainability and social responsibility, Mr. McMillan said, subjects that wine is well-positioned to highlight. Health awareness is an area where wine has already showed some success, with so-called clean wines, a largely meaningless term meant to imply healthfulness, doing well.
Hard seltzers, he said, with a clear message of “no added sugars” and few ingredients, have excelled with health-minded consumers. Unlike wine, seltzers are required by the Food and Drug Administration to add a nutritional label to their packaging, which Mr. McMillan said works to their advantage. The wine industry has long resisted requirements for ingredients and nutritional information.
“We lack the transparency our consumers are demanding when we refuse to even put calories on the label, and that is a huge marketing miss,” he said.
Mr. McMillan asserted that young people are skeptical about inauthentic and opaque marketing. I haven’t seen evidence suggesting this is truer of younger generations than anybody else, but visiting a wine bar in a bigger city offers some support. The patrons are often young, and they are drinking wine. Often, it’s natural wine, mostly imported brands, not “clean wines,” which are often examples of opaque marketing.
I will go further about the appeal of natural wine. Perceived healthfulness is important, but authenticity and a spirit of unpretentious fun are the most crucial elements. If boomers portrayed wine as a reward of what Robert Mondavi used to call the “good life,” — epitomized by prosperity, bucolic surroundings and abundant leisure time — natural wine is seen as a feature of any life. It’s a staple of daily living rather than an aspirational symbol.
Mr. McMillan suggested an ideal sales pitch for wine: “Our wine is made from organically farmed grapes and contains natural yeast, natural and added sulfites for freshness and less than 1 percent residual sugar from the harvested grapes. A five-ounce serving has 140 calories.”
This pitch is attractive. It lacks only one element: price. I can guarantee that few, if any, West Coast wines farmed organically and made with natural yeast will sell for under $15, a price that, even if younger consumers are buying luxury goods, is essential for drawing in new consumers.
Back in the early days of the pandemic, I recommended 15 wines all under $15 a bottle. Only two were American: one from the Finger Lakes of New York and the other from Oregon. In my regular 20 Under $20 columns, it’s increasingly difficult to include West Coast wines without repeating past selections.
Plenty of inexpensive American wines are out there, of course. But for the most part, they are not particularly good and the winemakers find it difficult to compete with imports, particularly from historic wine-producing regions.
The reasons are clear, in my opinion. Land, especially on the West Coast, and labor are more expensive in the United States, particularly in places appropriate for making wine. Much of the inexpensive wine in California comes from the Central Valley, a hot, flat expanse devoted to quantity over quality. Many of the wines made there are mass-produced, inexpensive knockoffs of higher-status wines.
Consumers looking for American wines might see expensive, labor-intensive cabernet sauvignons, chardonnays and pinot noirs made to exacting standards from Napa and Sonoma, for example, and inexpensive cabernets, chardonnays and pinot noirs made with technology and artifice to mimic the expensive bottles.
By contrast, Europe is full of family-run wine businesses in little-known appellations growing unknown grapes that are well suited to the land. These wines express heritage and tradition, and can often be produced at lower costs than American wines of similar quality.
But they are at a disadvantage. If young people, or anybody, really, with little experience in wine, want to order a glass of wine in a restaurant, they are more likely to order a glass of familiar chardonnay, or even a mass-produced Italian pinot grigio, rather than, say, a grillo from Sicily or a baga from Bairrada in Portugal.
As a result, Americans might be paying $15 to $20 for a mediocre glass of wine, which is sad, as wines by the glass are a perfect introductory opportunity. Or, that money might go toward a world-class cocktail or craft beer, which represent better values.
The American wine industry is eminently capable of producing good, distinctive and moderately priced wine. It will come from lesser-known regions with little-known grapes. Small producers in California do it every year, though it’s hard for them to sell their bottles for $15 or less. Unfortunately, they are the exception.
Wine, like network television in a streaming world, will probably never play the same central role for younger consumers as it has with older people. But it can do better.
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