The 2024 SVB State of the Industry Report & replay is available for download

 

Nearly 3,000 attendees from dozens of the wine-producing countries of the world tuned in on January 18^th to hear from Rob McMillan, EVP & Wine Division Founder, Crimson Wine Group CEO Jennifer Locke, industry innovator Paul Mabray, and Enolytics SVP of Professional Services Ed Thralls as they discussed the trends and findings identified in SVB’s 23rd annual State of the US Wine Report. 

Watch the Replay: SVB State of the Wine Industry - 2024 Virtual Event (youtube.com)

 

Read the Report Here: State of the US Wine Industry Report 2024 | Silicon Valley Bank (svb.com) 

Recognizing the Need for Change 

The key findings indicate that the alcohol beverage market across the board is in a period of change, driven by evolving consumer dynamics, including the aging of older wine-focused boomers, who are being replaced by a new set of primary consumers who drink across categories, drink less wine, and consume less alcohol.  

“With the current messaging about alcohol as it relates to health and wellness, premium wine is well suited to meet the prevailing guidance around benefits and moderation,” said Jennifer. “We don’t have to reinvent what we are making; we have to retell our story and tell it collectively.”  

 Key Takeaways

Premium wineries experienced mixed success during the past year. The value of premium wine is still growing, but we anticipate volume sales will finish lower this year. The industry will need to find collaborative solutions to link wine attributes with the segmented values of newer consumers to increase demand while at the same time finding efficiencies in sales, marketing, and production to retain margins.

  

Minor headwinds contributed to the mixed outcomes at premium wineries. 

Direct-to-consumer volume sales were lower in 2023. Tasting room visitation dropped for the second straight year leading to lower premium sales through nine months in 2023. However, strong 2023 holiday sales should lead to positive growth in value at year-end. 

Consumer demand for the total wine category continues to decline. 

As reported over the last several years, in addition to wine, U.S. consumers have been drinking across categories such as ready-to-drink (RTD) options, spirits, beer, and cannabis or have been abstaining altogether. 

There is an oversupply of planted vineyards, given current sales volumes. 

Conditions are ripe for overproduction, which may lead to inventory excess in more price segments, discounting, and eventually price reductions. Pressure starting from the grower will create inventory bulges and drive higher-than-needed inventory turns in 2024.  

The 2024 SVB Wine Report will be released Thursday. Last chance to Sign up!

  Register here for the videocast, replay, and copy of this year's report.

In 1992, I wrote the original SVB Wine Division Business Plan in which I said,

"U.S. table wine entered a seven-year period of declining volume in the late 80s. Industry observers attributed the decrease to changing consumer attitudes concerning alcohol consumption, health concerns, drunk driving issues, and overall changing tastes as consumers drank less but better wine."

Despite that gloomy soundbite, I got bank approval to start this first-of-its-kind focused wine division. Why create this business for the bank with all the gloominess? I believed and predicted the premium wine industry was about to take off, driven by the boomer generation.

I did pretty well with that prediction.

I Need Your Help with the 2024 State of the Industry Survey

It's been quite a roller coaster ride over the past six months. The banking industry has undergone many changes; my bank was no exception. Given our specific challenges, I didn't think this day would come again. So, I'm happy to report that we are today launching the 23rd annual State of the Wine Industry Survey. It is open now through October 22.

The survey this year has been streamlined and shortened. Given the current state of the business, I eliminated several less relevant questions and added a section on data management from which I hope to get a baseline of where we are in our data management and use practices. From the new questions, my goal is to compile a collection of helpful resources that survey participants can utilize to help navigate the current lull in consumption.

2023 SVB DTC Video Replay, and DTC Report

The 2023 Videocast is in the books, and what a performance from some of the smartest people in the business who do DTC all day, everyday. Thank you! 

• Susan DeMatei, President of Wine Glass Marketing, 
• Andrew Walleck, COO of Wine Access, 
• Jessica Kogan, Partner of Connect the Dots Collective.

What a remarkable collection of talent. 

Each panelist shared openly about their views, offering incredible insights and ideas to help the industry and your winery move into the next decade of the business. Some of the highlights:

Sign Up for the 2023 SVB Direct to Consumer Report Release & Videocast

    Much better than some might think!

Wineries selling in the premium and direct to consumer sector have experienced positive outcomes. Looking back over the past three years: 

• 2020 was the toughest year for direct sales in the last ten years due to the COVID-19 pandemic. The closure of tasting rooms and restaurants made it difficult to sell premium wine. I'm glad we're past that whole mess! 

• 2021 was a huge rebound year for wineries selling direct. The rollout of vaccinations, reopening, and the early stages of travel normalization improved the market opportunity. Hospitality as a whole had a very good 2021 as you probably noticed with hotel prices soaring during the year.

• Compared to the best year of the decade, 2022 may not have been as good, but for those who sell DTC, business was still quite successful. By the end of 2022, the Peer Group Financial Database of Silicon Valley Bank reported that the premium segment had a sales growth of 13.8%, and three-quarters of wineries in that segment saw an increase in revenue.

• Narrowing down to the DTC channel, tasting room purchases increased in most wine regions. The wine club also accounted for a larger portion of sales for the average winery. Additionally, wineries producing under 5,000 cases reported that their direct-to-consumer sales continued to grow and now make up 81% of total sales. The average bottle price also saw growth, and most regions reported an increase in volume. This is especially noteworthy for the west coast, which experienced three consecutive years of light red wine yields.

   

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

Layoffs in Wine Country

Following the takeover of Silicon Valley Bank by the FDIC on March 10th, I found myself needing to take a break from watching the news for several weeks. Our company had become the main subject of every news outlet, and unfortunately, it was for all the wrong reasons. The constant coverage of the "ugly news" was difficult and painful to endure. The experience only added to the already stressful situation for both employees and clients.

Now that things are back to normal in the wine division, we're happy to get a break from all the ugly news updates. It is starting to feel like we're settling into a new routine, but nothing lasts forever.

Will there be a Silicon Valley Bank DTC Report this year? It's looking doubtful.

Without greater participation this last week, there will be no SVB Direct to Consumer Report produced this year.

It's always difficult to get survey participants. This year the effort had a higher degree of difficulty because the bank failed. I'm sure you heard that news. 

Three weeks later though, we were purchased by First Citizens Bank, and we are today operating as Silicon Valley Bank, a division of First Citizens Bank. 

During that dark period when we were being run by the FDIC, we literally had hundreds of people encouraging us to find a way to continue producing the gratis information we've done for more than 20 years. Because of that encouragement, with the ownership question behind, we decided to produce the Direct to Consumer survey and report, a month later than usual. It was the industry encouragement that was the deciding factor. 

The SVB 2023 Direct to Consumer Wine Survey is Open!

For those following closely, you will notice that I've changed the headline slide back from Rob McMillan on Wine, to the prior blog title of, SVB on Wine.

For most, hopefully it's obvious why I've done that. But for those who haven't followed the rollercoaster, SVB was taken over by the FDIC on March 10th. That was the end of the old SVB. 

But after a couple failed auctions, most of the legacy bank's assets were sold to First Citizens Bank, who decided to run the acquired bank as a division, and retain the name of Silicon Valley Bank. So we died and have been reborn! 

What Ended Up Happening to SVB's Wine Division?

 

Photo by Maksym Kaharlytskyi on Unsplash

During the SVB meltdown last month, I wrote each of the first three weeks regarding the ordeal we were experiencing to keep interested parties apprised. There was a lot going on, and an infinite number of possible outcomes for the Wine Division. There was no assurance that the thought leadership we provide the industry would continue.

When the FDIC owns you, they don't ask what you want. We could have been sold to one of the largest banks, in which case we would have been absorbed and lost our flexibility and identity. It was possible we could have been split up and sold by divisions, or if there was insufficient interest, they could have sold off loans one at a time. None of those possibilities took place. What ended up happening to SVB's Wine Division?

I wrote the last post a month ago, right after the bank was purchased by First Citizens Bank, where I said: 

"From everything we are seeing at this early stage, we're starting to believe we've somehow landed in the best outcome imaginable for our clients, employees and our community." 

The Eulogy for the SVB Wine Division

    I'm not dead yet!

Fear of the unknown is a real thing. I think it's a self-protection response. Fear puts all of your senses on high alert as if a threat were imminent. In that state, and with an absence of real information, you theorize what's happening, then make up your own story of what you would do if one of the many permutations you imagine came to pass.

When the FDIC took over the bank almost three weeks ago, everyone imagined or feared the worst. It was the unknown in all its glory. 

This has been uncharted territory for all of us - clients and employees alike. How many have experienced a run on a bank? If you operate a business, what are you supposed to do to develop a plan? Google, where all truth is located, had "bank run" trending. There's your answer.

Living in two worlds

 

MORPHEUS:  You take the blue pill... the story ends, you wake up in your bed and believe whatever you want to believe.  You take the red pill, you stay in Wonderland and I show you how deep the rabbit hole goes.

After decades in banking, I thought I'd seen everything. But last week, with a jolt to my system, I was unfortunately proven wrong. This would turn out to be one of the worst weeks in my life. I kept thinking I must be dreaming this!

Silicon Valley Bank: What comes next?

Processing

Those who've read this blog before may notice the headline slide has changed from SVB on Wine to Rob McMillan on Wine. I know I don't need to explain that change. 

This is a horrible message for me to have to write. I was asked to stay silent the past few days by SVB but now that the die is cast, I thought I should sit down and share what I know.

To start with, my employer, formerly known as Silicon Valley Bank, no longer exists. I'm still processing the whole thing, as most people are who are associated with the bank. 

On Friday morning, clients, employees, bank suppliers and shareholders all awoke to the same news: SVB has been taken over by the FDIC. For everyone involved, there is a range of emotions to process; fear, anxiety, anger, and so much more. I'm personally cycling through all of the same emotions.

The 2023 SVB Annual State of the Industry Report will be released January 18th

 Register here for the videocast, replay, presentation deck, and copy of this year's report.

Within the 2022 SVB State of the Wine Industry Survey run last October, we asked how 2022 went and got the following response. (See headline slide) 

Forty-percent of respondents said that the year was one of their better years or their best year ever. Fully sixty-five percent said it was a good year, and those results are very close to those from 2019 when we asked the same question. 

Industry Sentiment Index Turns Decisively Negative

 

We've created a Sentiment Index and have run with the idea in our State of the Industry Report for the last 6 years, gaining some interesting insights along the way. The headline slide is an early read of how the industry participants feel presently, as well as an indicator of the relative impact of pain points and success factors. 

Where Is the DTC business headed?

 

The answer to the blog title is the point of the Annual SVB Direct to Consumer Videocast, which is taking place this coming Wednesday, June 15th. 

You can sign up to receive the SVB DtC Report, receive a link to the live presentation, and a post-conference link to the videocast replay ----> [HERE.] 

Internet Sales are dramatically higher, but how do we know?

 

Selling Wine in a Pandemic

What an insane past few years! But doesn't it feel wonderful to be moving into spring and at the same time into the endemic phase of this crisis? With fewer mask mandates now, maybe we'll be able to smell the spring flowers! But before we linger too long on the warmer days ahead, we still have some work to do. So let me take you back to the start of this crisis in 2020 when the COVID case numbers began picking up. 

At that point in time, I wrote a piece called Selling Wine in a Pandemic which is one the most-read pieces I've posted. I wrote it on March 15th, 2020 - a date that is etched in my mind and probably yours if you live in California. 

If you don't recall, that was the date Governor Newsom first issued the shelter-in-place orders and closed tasting rooms, restaurants and bars. I finished writing that blog on March 15th in the morning, but by late afternoon, I had to go back and update it when news of the lock-downs came out. 

There is good news to talk about!

 

 

Last week I had a call from a friend in the wine business asking for a meeting to discuss the Annual SVB State of the Wine Industry Report. I had no real idea what he was going to say.

When we met, he told me he appreciated what I presented in the report but didn't like the stories he'd read in the news. He thought some were overly critical and missed the positive things happening in the wine business. He asked me if I should be more positive during interviews to cast a better light on the business.

From his perspective, the industry is doing really well. That's because he sees the industry from the vantage point of a business that is hitting the cover off the ball. And to his view, a very large part of the premium wine business reported 2021 was one of, if not their best year ever!

How much did wineries make in 2021?

We all became unusually preoccupied in the U.S.starting somewhere around March 15th, 2020. I don't know about you, but the picture above was how I felt at that point in time. Since then, all of our thinking and behavior has evolved in a myriad of ways, and some of that evolution is permanent.  

I'm hopeful we are nearing the end of this queird social, economic, and health experiment. After getting sucked out of our realities by the COVID tornado, I think we are finally on the glide path that will land us in Oz. I know it won't be Kansas anymore when we lift from our comatose fog. It will be something different and probably in Technicolor. But whatever it is, it's going to be better than the last two years!

Anyway, with all the distractions since 2020, I've been remiss in posting this blog. In my defense, I thought this post probably didn't matter given the other issues we were all facing. But the smoke is clearing, the vaccines and boosters are helping, Omicron is waning, so just maybe I'll be able to shake someone's hand again without running for alcohol sanitizer.

To the point of the blog though, top-level the answer to the title question is "more than you expected."

2021 will be the BEST YEAR EVER for a lot of Wineries!

 

SVB Wine Conditions Survey

Problems are Opportunities Waiting for Solutions

This is the last week to participate in the Annual SVB Winery Conditions Survey. It will close Friday, October 15th.

There is no information like this available anywhere in the wine business. We take on this initiative annually at a substantial cost, but we give it all away to the industry. This data is used by Associations to apply for grants, by academia for research and in V&E classrooms, as a benchmarking tool for all wineries, and as part of the research we do to prepare the Annual SVB Wine Report. That said, it's impossible for me to provide the information without you dedicating the 15 minutes needed to complete the survey. 

There are always interesting surprises along the way, and this year is no exception. 

As I prepare to begin the writing on the SVB State of the Wine Industry Report, I am aware of many headwinds such as supply-chain problems, fires, smoke, the unprecedented drought, low soil moisture that will be a larger part of 2022, short supply of labor, rising input costs, water rationing, issues with property insurance, dealing with mandated vaccination policies, travel restrictions, and what will likely be declining overall volume sales for the total wine category this year.