1 Wine Dude

Boomers And Busts: Sobering News For The U.S. Wine Business in 2013?

Posted on by 1WineDude

Anyone remember back in 2011, when we talked about the fact that Boomers – who by and large account for the vast majority of current wine sales – wouldn’t be around forever, and so the wine biz really needed to get off of its duff and start thinking about how it would court Gen X and Millenial buyers?

Well, I’ve got some bad news for those who’ve been ignoring that advice.

In the 2013 incarnation of Silicon Valley Bank’s annual State Of The Wine Industry Report presentation, a round-table style discussion between author Rob McMillan (from SVB’s wine division), Paul Mabray of VinTank, Tony Correia of The Correia Company and MJ Dale of KLH Consulting, who discussed the results of the report live in mid-January 2013. During the discussion (uber-interesting for wine geeks and insiders, probably not so much for normal people), McMillan (who is a nice and interesting guy, by the way, something I found out when I had dinner with him at Nickel & Nickel) discussed the sobering fact that the exit of Boomers from the wine market will be a potentially enormous blow to wine sales, and that the Millennial generation requires focus to help fill the expected gap.

To ease in the understanding of this, I’ve taken a graph from the SVB report and “enhanced” it so that the implications are more, well… transparent (click to “embiggen”):

In other words, Boomers don’t just exit the wine market “feet first” (though many, hopefully, will continue to love wine and keep on buying it until they shuffle off this mortal coil); they exit it in droves when they retire. The message is this: if you’re a wine producer who hasn’t been courting younger generations as well as Boomers (And as we’ll see in a minute or two, chances are good that you haven’t), you ought to be crapping a brick right about now…

In your denial, you might be retorting with something along the lines of this: “well, Joe, there will still be Boomers buying wine when they retire for good, and they’ll buck this trend. To which I’d counter: you’re living in a fantasy, and are ignoring the data.

Some Boomers are retiring on savings impacted by the worst economic meltdown since the Great Depression, which is exactly the scenario in which you do NOT want to be when starting to draw from your retirement funds – so much so that even many of them who have saved now feel financially and emotionally unprepared for retirement.

And many of them actually haven’t saved nearly enough: Boomers are now turning to credit card debt to help them maintain their homes and healthcare, and as a result of their debt, a frightening proportion of them now account for bankruptcy filings. If they’re scrambling to find money for those essentials, you can bet your ass that wine is going to drop off the shopping list for many of them, and that they’re wine spending will eventually mirror the graph presented above for the 65+ age group as the generations “shift right.” Millennials, on the other hand, have some time ahead of them to avoid the trappings of excessive debt; more importantly for the wine business, they also have a keen interest in wine that is just beginning to flower, and as their incomes rise they’ll theoretically have more money to spend indulging that interest.

“Ok, fine, I give up, I’ll court the younger generations, too,” you might be thinking. The trouble is, if you’re in the wine biz then you’re likely already years behind on that, and are waaaay behind the eight ball compared to the small amount of your peers who are already dominating on that playing field.

One aspect of this is, of course, using social media to bypass media and interact directly with people who are actually buying your juice. But most of you not only haven’t done that, you still don’t know how to do it. How do we know this? The SVB report provides a nice little graph on the sorry state of that, too (again, “enhancements” added by me):

It’s a sad tale that’s told by that graph: the majority of those surveyed in the U.S. wine business are saying that social media isn’t that useful. They’re saying that something that most Americans spend 3+ hours using EVERY DAY, that allows you to craft and control your own brand message and interact directly with your consumers is only marginally useful. Which to me means that the U.S. wine biz continues to get it very, very wrong in its application of social media.

For those of you who didn’t start early in that sphere, it’s probably already a bit too late, and you’re going to be paying people like me to help you figure it out and hopefully catch-up, when you could have been following our advice for free for the last few years and leading the pack with increased engagement of your customers.

If it sounds like I’m angry and frustrated, it’s because I am; it’s because I love the wine business and I want more for the wine business than this. I just hope the wine biz doesn’t ignore the data before it’s too late. So I suppose that in the end I can only look towards common sense, in the form of Common Sense, the series of pamphlets written by Thomas Paine:

“Perhaps the sentiments… are not yet sufficiently fashionable to procure them general favor; a long habit of not thinking a thing wrong, gives it a superficial appearance of being right, and raises at first a formidable outcry in defense of custom. But the tumult soon subsides. Time makes more converts than reason.”

Isn’t it time for us to accept the data, and get reasonable?

Cheers!

34 thoughts on “Boomers And Busts: Sobering News For The U.S. Wine Business in 2013?”

  1. I'm so happy that you called attention to this. I'm a 29 yo based in NYC, and I've often thought the same thing, more along the lines of "why don't more of my friends enjoy fine wine"? Of course, there is the cost issue for 20-somethings in limiting their fine wine experience and turning them off to the industry. This is particularly true for Bordeaux and Burgundy, which provide such a fulfilling and necessary education on fine wine, but are still largely esoteric and expensive for people in their 20s, who are often laden with school loan debt as well. And it's only been very recently in NYC that well-priced classes are now available to us to explore more unheard of producers and appellations.

    However, in terms of advertising, I have another concern. Given the amount of cheap sugar (in whatever form you'd like to name) that has become available, I argue that a large proportion of the younger generation have had their tastebuds predisposed to extremely sweet flavors. As children, soft drinks, highly concentrated juices – even ketchup – with excess sugar was something of daily intake, if not even more frequent. Thusly, it's had an impact on the types of wine we consume. I've heard many times from my peers that they prefer "sweeter" wines – which usually means they have little patience for wines with more complexity than a run-of-the-mill fruit bomb.

    This could mean trouble in marketing fine wines to young adults, who prefer more of the brands that don't bear much yearly distinction.

    I think you've highlighted an even deeper problem here of our food consumption patterns in general, with wine being perhaps one of the most endangered. However, I used to fall into the above category and I made an effort to change my tastes and appreciate the origin of "good wines" and also good food. It's initially bumpy, but the rewards are well worth it and I can testify to that!

    1. Thanks, S – sorry, responded to your other comment! As I mentioned there, the sweets thing might not be that big of a deal (Boomers have similar tastes – as does my generation, judging by my multiple cavities! :).

  2. S from Brooklyn, take it from a boomer who's in the wine biz: the sweet thing in young palates is an age-old situation, not unique to any generation.

    You have hit on what I believe is the real problem for the wine world, and that is price, especially int he U.S. As a culture on the financial and dominant wane, and at a time when almost permanent unemployment numbers on the high side, plus wine going into Costco, et al, it's obvious which companies will survive and which will be marginal.

    In my opinion, the cost of premium quality wine to any consumer has gone into its last stages of growth. Only the mega-corps can bring it down.

    Joe, I don;t think so-called social media has much effect at all on the situation, except that it may be a part of the "opportunities" that are weakening our culture.

    1. Thomas – well, I respect what you're saying but strongly disagree on the social media front; I just cannot see any situation where being able to talk directly with your consumers is useless or only marginally useful. In those cases, the brands *must* be misusing social media. In the fine wine sphere, it potentially means controlling your own brand message with younger consumers – that has *got* to have value.

  3. Hey Joe,

    Good article. It confirms what we have found in pretty simple research and looking at our subscribers’ interests. As an old (really old) friend of mine said over lunch just yesterday, “I used to drink fine Bordeaux, but I can’t afford that any longer. Now I drink plonk from the local market, and it all tastes the same.” It seems to me that there is a geezers market (no slur intended since I am one of them) for inexpensive ($10-$15) decent wine.

    As for social media, shame on those who don’t care to understand its power. They might be left to run newspaper ads for their wine; ads that might be read by a miniscule portion of the market.

    Cheers,
    peter
    WineNabber.com

  4. Joe,

    I won't argue online the complicated subject of using social media, which in itself should explain part of what I mean. We'll have to do that one day when we meet, face-to-face, in the real world of social interaction. ;)

    I'm not saying, however, that wine companies should ignore social media. I just don't give it the kind of credit that you give it and I believe that it will take truly innovative thinkers to make it work for them. The wine industry has proved somewhat lacking on the innovative thinker front…

  5. After reading the article, I have come to the 'personal' conclusion that 1) I'm 23 and therefore not that important in regards to wine buying, yet… and 2) because I am also a social media professional, I am even more irrelevant within the wine industry. Thumbs up to that! ;)

  6. It's a whole new era in the wine world; where an explosion of brands meets the fundamental upheaval in consumer communications, with an added "Funnel Effect" in the wholesale route-to-market. Wineries for the most part are still doing business as a decade ago, and that world no longer exists. Cultivation of consumers will need to be strategic, less ad hoc, and no question, will require more of a marketing investment. The Boomer/Millenial issue is a component of new era trends that need to be addressed. I will present on this topic at the upcoming Society of Wine Educators Conference in Orlando this summer.

    1. Monika – took the words right out of my mouth, except that I didn't quite understand all of your words… But seriously, this sums it up: "Wineries for the most part are still doing business as a decade ago, and that world no longer exists." Couldn't agree more.

  7. So here's the $64k question: If a winery is making wines with an average retail price of $35, and Gen X and Millenials aren't buying wine at that price point, how does the winery sell their product to this younger demographic? It seems counter-intuitive to spend resrouces marketing to a group that (financially) isn't able, or doesn't see value in a product at that price point, to make consistent purchases.

    1. PinotPusher – If one spent too much time on it, it would be counter-intuitive, I think. The trick is to continue to market to those who do have the money and are spending it on those wines now, and to start to delve into courting the younger generation now, or at least be seen by them as a voice of authority (social media channels have probably the biggest potential there). It's like an investment portfolio: you might be 90% stocks and 10% bonds now, but plan to migrate that portion over time to hold significantly more bonds; same with the marketing time spent on that younger generation, the percentage will need to shift as they gain more buying power and the Boomers lose more buying power. The trouble for me is this: tell the wine biz that they should be doing *anything* at 10-15% now, and they will generally devote exactly ZERO percent to it…

  8. I think this is a complex issue, with a wide variety of factors playing a part in wine buying decisions. It is obvious that wineries need to court the new generation of wine drinkers. Though what is not as easy to determine is how much time, energy and money wineries should invest in courting Millennials. GenX & the Boomers are purchasing about 74% of all wine. Most of the wines Millennials are buying are $10 and under. If a winery's least expensive wine is $20, how much effort should they make in marketing to Millennials, who are extremely unlikely to buy their wine right now? How long will it be before Millennaisl start buying $20+ wines on a regular basis?

    The financial status of Millennials is still up in the area, especially considering matters such as the high unemployment rate and high costs of college/grad school. It may take them even longer than previous generations to be able to afford more expensive wines.

    So I think the bigger question is not whether wineries should court Millennials or not, as it is clear they should, but what percentage of their marketing efforts should be directed to Millennials.

    2. Richard – it would be AWESOME if that was the question most wine brands dealt with, but they're largely still stuck on the “whether or not” stages of courting younger generations, and using social media to help do that. Eight years behind the times, by my rough calculation…

  9. You got it, PinotPusher. Unless the price of wine is addressed, nothing much will matter.

    It has always escaped me how an industry that wants wine to be a daily drink also fails to understand what a daily drink should cost–and until wine becomes a daily drink, the industry will suffer ups and downs and the whims of fads, as it seems to enjoy suffering, while it chases the next elusive age group, on or offline.

    Facts are facts, and the fact is that the cost of modern-day premium quality wine does not reflect modern-day collapsing incomes.

    1. Thomas – imagine if it was priced with high-quality beer, but at similar relative quality levels? THAT would be something. I'd argue that we are actually headed (*very* slowly) in that direction, actually.

    2. i agree there is a distinct difference between "daily drinkers" and premium/ultra-premium wines. we should remember that for many small wineries, the retail price of their wines is often tied to the price of the fruit they purchase. if i spend $5k/ton on RRV Pinot Noir, my retail price (after bottling, purchasing labels/closures/corks, production costs, etc.) is going to be near $50 a bottle to keep the winery profitable and moving in that direction.

      with the exception of 100 point scores, or conversely having to declassify a vintage (think Mendocino County 2008), many wineries aren't just making up prices based on what they think the market will bear for their wines. for those new to wine, either Boomer, GenX, or Millennial, this is often overlooked and can lead to a negative perception of wineries and their pricing.

      1. PinotPusher – understood. I've had a lot of winemakers tell me that if they charged less for a high-end wine, they'd be giving it away, effectively.

  10. Joe,

    I'm not much of a beer drinker. What is the average price of that kind of beer these days? I ought to know, as there's a micro-brewery about a hundred yards from my home–maybe I should go check…

    1. Thomas – you see six-packs of exceptional beers clocking in around $12-$15. Wines in that price range can be very good, but usually not quite up to that level of QPR in my opinion.

  11. Thanks for covering this important topic Joe – and for suffering through a 40 page report….. think I'll cut it down next year.

    I hope producers pay more attention to the Gen X-ers. That is where the growth is now while Boomers fade away. Millennials are the future …. but thats in the future. They certainly are loud though when it comes to digital. (They are softer in tasting rooms).

    If you are making inexpensive wine that is drinkable and without defect, then by all means market to Gen Y. That is your base. Those making fine wine need to wait for a bit still because marketing wont make Gen Y buy your wine. They can't afford it.

    Thanks again for the coverage. – Rob McMillan, Silicon Valley Bank

      1. To paraphrase Mark Twain, it's not the size of the dog. Its the strength of his bite. Gex-X might be smallish, but they have more bite from their wallets than the younger cohort.

  12. PinotPusher,

    Both Joe and I (and a number of others posting comments) know what it takes to produce and price wine. That's why I say that only the mega corps can address the pricing situation that meets with income disparity in the U.S.

    I learned many years ago that the excuse of cost of production does not land well on the ears of a large segment of the consuming public. As Fred Franzia famously said: no wine should cost more than $10 a bottle. He was not kidding; he knows the market and he knows exactly how you go about producing wine at its price acceptance level.

  13. Whether or how to exploit social media should be of little concern for vintners today. It matters not if they communicate the old-fashioned way or the new way when they are being outflanked, or haven't you noticed the rapidly expanding and diversifying beer sections in grocery stores and big-box markets? And lurking on the horizon, all the tea in China.

    1. Mike – I guess the point there is that there are bigger fish to fry at the moment. But building brand equity is one way to help the outflanking situation, isn’t it?

  14. Joe, I couldn't agree more! Even as a wine professional, I continue to get frustrated with the dated methods used to run this business. Breaking into the business as a 1-twenty-something year old and 2-female, has been an incredible feat, simply because the wine-world is still living in the past! I don't expect every industry to cater to my age group, but when the data is clear that we are the ones spending the money, then perhaps they should! It's always difficult to balance and cater to all of your customers, but it's a balance that is necessary, and unfortunately not many in this industry have found. It's an ever changing world out there – remember when the french scoffed at California wines and we proved them wrong in 1976? I say, get on the bus, or get out of the way, because sticking to your (dated) guns is going to leave you so far behind you won't be able to ever catch up!

    1. Meara – keep fighting the good fight! Eventually, people might pay us to show them how to do all of that stuff (which we showed them how to do for free when they weren't paying attention…).

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