The Lost Wine Consumer of 2019

The SVB Annual State of the Industry Report diagnoses trends and makes projections about tomorrow. I write it as much for me as for the industry, because I think it's critical to stand away from the business every year and take a fresh look. It helps me and the SVB wine division take a consultant's approach with our clients and diagnose owner's critical needs. 

Normally there aren't huge surprises when I research, but this year, I came away with a cascading shock when I discovered the business wasn't anywhere close to where I believed it was. And every bit of research since has continued to add to the realization that the industry isn't only at a cross-roads, we stand a chance of losing the wine consumer altogether.

      Missing Millennial

The biggest surprise was the millennial consumer wasn't making ANY move toward becoming wine consumers. They were getting older with the oldest now 38 and the youngest 23. Their average age is now 30 and it's a big cohort. Some of them should have money and be gaining an appreciation for wine shouldn't they?

They should have grown in consumption share - even modestly in the past 5 years, but the data didn't support that assumption. That's a big deal and led to the next question: Why isn't the young consumer moving into wine as a beverage of choice?

The short answer is the wine industry is fading away from consumer consciousness. We aren't attracting interest from younger consumers. Wine just isn't connecting with them. It's expensive compared to craft spirits and beer which is an issue with this frugal-hedonist population.

The young consumer cohort is harder to reach because wine is being pitched as bad for you in anti-alcohol circles. It's suffering from negative-health messaging from neo-prohibitionists, at the same time the young consumer is more health conscious than all prior generations at the same time in life.

We have been slow to truly recognize the threat and respond. We are quickly becoming your parents beverage, and being your parents anything is always the kiss of death for consumer products. (Popular 1960's products, Popular 1970's products)

      Wine is Boring ...

To this young consumer with a short-attention span - activity, health, the environment, causes with an egalitarianism theme and fun are important both conceptually and as values. The wine industry is just not hitting any of those elements to attract their attention.

Our messages of long days, cool nights, special soils - the tired song of "I let what's in the bottle speak for itself," and our earlier crude attempts at counter-culture critter labeling isn't resonating with them. And as I discussed in the wine report, our wine clubs and tasting rooms are underrepresented in young consumers by a wine margin compared to the normal adult population.

Post-recession, as displays of wealth have become anathema to young consumers, the marketers of luxury products have taken note and luxury products are evolving in the mainstream, though still
struggling to attract young consumers.

Current estimates are that 17% of all luxury goods sales are on-line now, which is where more young consumers shop. Wine producers however sell less than 3% on the internet.

In fact since the early 2000's, when everything in retail started moving to digital sales, the wine industry went backward to tasting room and club. And yes I understand that was out of necessity, but the reality is - now we have to catch up when we chose to go backward. Flat out - we are massively behind on digital retailing concepts and digital support.

The millennial generation is past being counter culture now, and are looking to find a place in life, but what in your current business strategy is addressing the young consumer cohort? Does your label speak of any of their values? Is your tasting room approachable for them? Understanding that wine is intimating, is there a place outdoors at the tasting room where they can relax, play a game, get internet for free, and take on wine at their pace?

Can they afford your tasting fees? Do you ignore the young experimentalist, and focus on the grey hair people at the bar who dress better? What will you do in 2019 to crack the millennial code? Maybe you could add a little gold to your label to make it pop? <... sorry. I was getting a little hot and said that with dripping sarcasm which I'm sure you can tell. I couldn't find the right emoji. Let me take a break to cool off and have a beer.>

      ...AND Bad For You

And it turns out - alcohol consumption is being viewed as unhealthy by the young consumers now, with abstinence and moderation key words in their narrative.

As I noted in the Annual Report, the message of the health benefits of moderate wine consumption that is scientifically proven in hosts of studies, and adopted as part of the USDA Dietary Guidelines has now been removed without fanfare by the US Department of Health.

 And if you think neo-prohibitionism is bad here, you should take a look at Europe where you can't even advertise wine, prohibited with the same logic used when cigarette makers were excluded from advertising in sporting events in the US.

I remember when smoking was clearly moving out of the mainstream. While in the 1950's and 1960's it might have been viewed as a courtesy for someone to offer you a cigarette, in the 1970's and by the 1990's they asked you to stay outside altogether. the Surgeon General Warnings become increasingly restrictive, and local and state politics joined in taking on second-hand smoke, passing laws such as restricting smoking on your apartment balcony.

OK. We all know wine isn't as bad as cigarettes, right? Actually, wine is as bad as the opioid crisis in some minds. [Alcohol is Killing More People Than The Opioid Crisis, and Most are Young Women - Newsweek] At some point soon, we might start hearing about the negative health impacts of fermentation.

      Subtle Substitutes

What are younger people drinking? It starts with non-alcoholic beverages. Functional beverages like relaxation drinks, energy drinks, and ready to drink coffees and teas are gaining in popularity owing to their low-calorie contents and health branding. Sparkling water saw a 16.2% increase from 2015 - 2016. That's the kind of growth rate the premium wine industry used to enjoy! Millennial favorite LeCroix alone grew 72.7%.

LaCroix by the way is a marketing marvel, with massive Instagram followings and inspirited social media impacts, such as rapper Big Dipper's comical R&B-inspired single LaCroix Boi, which makes light of the cult-like following of the product by young consumers.

 

Other possible substitutes for wine include cannabis which we covered in the Annual State of the Industry Report and in a prior blog, but I discovered in researching this year's State of the Industry Report, that I had lost track of the magnitude of the potential degree of substitution from the full alcohol beverage market.

      Not Just Craft Beer 

As a person who grew up knowing beer sucked ... a result of the inattention of mass-beer producers who valued scale over quality - particularly in the 1970's and 1980's, I'd grown up less observant about the other alc. bev. categories.

Oh sure, craft beer was something that everyone noticed, but I probably talked about it somewhere in this blog and said something like, "It's not a threat. It's probably a gateway beverage that will direct younger consumers to wine as they age."

Mentally, I'm thinking people move AWAY from beer and toward wine. Turns out my concepts are slightly askew because today beer, wine and spirits are all well-made and as a result have consumers who move more fluidly back and forth between products.

Research from IRI shows that only 5% of regular alcohol beverage consumers stick with just wine, but the category I most overlooked was craft spirits.

      Spirited Competition

I understood before I started researching that the young consumer was into craft beer and spirits, but it seemed as a casual observer that craft beer had topped in growth rates. Spirits however turned out to be more impactful than I'd estimated. That hit home to me when I compiled the chart following from several data sources.

Why spirits? It starts with price. You can buy a 750ml bottle of Makers Mark for $28 in stores. It won't oxidize and contains a little over 25 one-ounce pours, easily lasting several months even for a regular drinker. Or, you can buy a $28 bottle of above average wine that will produce about 5 average size glasses, and you have to drink it all that night.

Our frugal-hedonist consumer knows math.

      Health Consciousness and Booze

But what about health? Shouldn't health be a concern with spirits consumption? Actually it is a concern.

The pitch from the liquor industry however talks about the purity of spirits and underscores responsible drinking.

They linger on the fact there are 71 calories in a serving of liquor and 123 calories in a serving of wine. They use mainstream media to talk about the craft component to distract from health questions, and in bars - the theme is on fresh ingredients that go into making cocktails, again focusing on the fresh, local and sustainable values of young consumers.

Add to that - bars have mixologists who can dazzle and amaze consumers with beautiful concoctions and a show. Where is the mixologist for the wine business in bars? Just one more place we are missing the mark.

Then there is a cultural component. Young consumers are spirits consumers. Like all generations, they are influenced by powerful visuals and leadership of cultural icons.

The spirits industry has many celebrity evangelists with their own liquor brands, proving their products are cool for the new consumer. The wine industry has a few who quietly have their own brands, but see if you can come up with a comparative list of heavyweight R&B ambassadors for wine:

• Diddy: DeLeon Tequila, Ciroc
• Dame Dash: Armadale Vodka
• Jay-Z: D’USSE, Armand de Brigna
• Drake: Virginia Black
• Birdman: GTV
• CeeLo Green: TY KU Sake
• Nas: Hennessy
• Justin Timberlake: 901 Tequila
• Ludacris: Conjure Cognac
• 50 Cent: Effen Vodka
• E-40: Earl Stevens Selections, E-40 Malt Liquor, Sluricane
• Jermaine Dupri: 3 Vodka
• Jeezy: Avion Tequila
• Snoop Dogg: St. Ides, Landy Cognac
• Fabolous: FLOH Vodka
• Lil’ Kim: 3 Olives Purple Vodka

How many of people remember when Orson Wells was talked into doing commercial endorsements for Paul Mason?

That commercial is funny today on several levels. Most don't know who Orson Wells was so it won't convince you to try Paul Mason. Chablis is America's most popular wine ... because Chablis is a region in California? It worked back in the day though, because Orson Wells was a respected orator and actor, and this was your parents commercial. It resonated with them. But today, nobody drinks your parents wine. 

Could wine become a joke like this commercial 40 years later? Will consumers say, I can't believe people drank wine back then ... I can understand spirits, but wine?

I'll ask again. Which cultural icon is endorsing wine and moving the needle for the millennial consumer? And don't tell me John Legend, Dave Matthews, and Dan Aykroyd are turning the heads of young consumers. Ok. Drew Barrymore maybe - just because she seems nice, and was cute playing the little girl in the hit movie ET in 1982 ... when the oldest millennial was one year old.

      Losing the War Before We Find a Bullet

The US Wine Industry has been in such a great spot for so many years, with increasing demand, higher volumes, and the ability to raise prices. That was the era of premiumization in wine, but it's near exhausting it's life cycle with volume growth closing in on zero and an inability to raise price.

There has been a war going on for some time, beneath our feet and I don't believe most of us were even aware we had enemies at the gate. We've been blissfully going about our days making wine, talking about hospitality and scores and focusing on clubs and tasting rooms.

I'm not convinced there are enough of us who today see the real threat of negative momentum that has come upon us. I say that with the knowledge that US wine sales hit a record once again. So maybe I'm crazy?

I don't think I am crazy though. As we learned from Danny Brager's presentation at the Unified Wine Symposium in Sacramento this week, the young consumer we are depending on for sales isn't feeling it with wine. Of the 47% of the regular drinking population, 2/3rd of those less than 28 have strong feelings about reducing their alcohol consumption. The number one reason cited? Health reasons.

So when I say we are at more than a crossroads in the top of this piece - that we stand a chance to loose the consumer, consider 2/3rd of the new consumers are taking action to reduce their consumption of alcohol.

And if there aren't enough of us see the magnitude of the problem today, we won't get to solutions fast enough and we need to move to solutions quickly.

We are in a war for the hearts and minds of consumers, and there is a lot of work to be done to connect with the millennial, evolve the anti-health message, and something I'll spend more time on later - totally change the way we sell and market wine.

   What's Your Opinion?

What do you think? Are you going to change your approach to the young consumer this year? Or maybe you believe I am over-stating the fear?

Please join this site in the top right-hand side of the page, and offer your thoughts below. I respond to everyone.



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