What's the next business issue facing the wine industry?

Rabbit Island Sunset, Hawaii

I enjoy looking at vacation photos, especially now that COVID is no longer a problem. I’m presently taking a much-needed vacation where I’m spending time admiring the stunning Waimanalo sunsets on the island of Oahu. While I don't post many pictures on social media when I travel to Hawaii, or on cruise vacations I do enjoy learning about the history of an area and sharing it.

As I sit here with my curious green friend, gazing at Rabbit Island in the distance, my thoughts turn to the US Wine Business and its future. Some might find this a strange topic to ponder while relaxing in Hawaii and I would unfortunately have to agree. But this is what I enjoy.

Many people believe that the wine industry is cyclical, and while true particularly in grape growing, there are also distinct periods in the industry that are characterized by unique events that don’t repeat themselves and shape the industry. Those eras typically last from seven to 10-years.

THE LAST GENERATIONAL CHANGE

During the 1970s, there was a growing interest in premium wine. It was the start of consumer evolution from the WWII era consumers who preferred beer, jug wine, and cocktail parties, to boomers who were making their own alcohol discoveries with wine coolers, which pointed the generation toward premium wine.

During the 1980s, the United States dealt with high interest rates and inflation, resulting in a strong dollar. Imported wines such as Mateus, Lancers, Blue Nun, and Reunite benefited from the dollar strength and grew in popularity in the US.

THE LARGEST POSITIVE CHANGE WAS DUE TO PURE LUCK

Of greater concern in the 80s was the significant challenge posed by the anti-alcohol movement, which led to a decrease in demand. The trend reversed in the mid-90s due to a strong economy but more importantly, the emergence of the French Paradox and the Mediterranean Diet, and Arthur Klatsky's research on the J-shaped curve. These studies each suggested that moderate wine consumption had health benefits. 

In 1994, the demand for premium wine saw a sharp rise, driven by the belief in the science supporting moderate consumption. The anti-alcohol movement took a temporary backseat, premiumization became a thing, and winemaking became the dominant industry issue. If you made good wine, it almost sold itself. This golden era lasted about seven years, during which time the number of wine producers mushroomed in the US.

The end of the 90s boom came quickly with the Tech Recession and 9/11. Distributors also concluded they couldn’t sell wine from all of the new producers who had started during the period and began moving away from smaller wineries. With supply and demand in balance in the early 2000s, the main competitive issue shifted from "Can you make good wine?" to "Can you sell your wine?"

THE BUSINESS GOT TOUGHER

That period lasted about seven years, while the premium industry tried to process the depth of the shift in approach by the distributors. Wineries started to develop new direct sales strategies. It was an uncomfortable time, but we caught a real break when Free the Grapes helped push a favorable ruling in Granholm v. Heald through the US Supreme Court, allowing for the opportunity to ship wine direct to all states.

That phase ended after the 2008 recession, with the premium industry fully adopting the direct-to-consumer approach. The dominant issue had shifted again from “Can you sell wine” to “Can you sell wine direct.” The introductory phase of direct sales continued for about eight years when the industry started to deal with slowing sales growth.

The new dominant competitive issue has once again changed, now to the quality of management. There are still many paths to success, but it is dependent on the management team’s ability identify and to execute a plan. With industry sales volumes now in decline, we are starting to see winners and losers. Seven years into the most recent industry change, we find ourselves due for another shift in the competitive issue.

WHAT COMES NEXT?

What will the factors be that create success in the next decade? It might be an improved opportunity for even modest-sized wineries to utilize data and find actionable strategies. Maybe we will see wineries crack the code of selling directly into more states without asking the consumer to come to your tasting room first. Or maybe the industry will decide to combine forces with interested parties to advertise the category?

We mentioned several forces that have changed the industry over the past 50 years that aren’t cyclical. But we are at a period of time that is an echo of the 70s and 80s with the rotation of new consumers into their prime buying years and the exit of the prior cohort. We are also once again dealing with messages - often times biased science, from the anti-alcohol coalition. It’s unlikely we’ll luck out with the French Paradox part deux this time. 

What's Your Opinion?

• What are your expectations for the next decade in the wine business?
• What events will shape the business?
• Do you see something coming that will spur consumer demand for wine, like the French Paradox?

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



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