The positive growth in premium wine sales is expected to continue in 2023, with the shadow of demand concerns due to the lack of wine consumption by consumers younger than 60. Concerns over health issues, difficult global economic conditions and the growing influence of climate change are impacting consumer behavior. However, there is a rider that the industry can still come together and solve the demand issues plaguing the industry by improving the trajectory of consumer adoption of wine, according to this report.

Here are some of the highlights of the report:

• The premium wine business continues to deliver excellent growth and returns.
• The sales volume is expected to stabilize in 2023 at current levels for the industry
• Wine consumption is growing primarily among consumers over 60 years old. Positive industry sales growth in the future will depend on corrective action taken by the wine industry to attract younger consumers who are increasingly choosing spirits, beer, alternative beverages over wine.
• Abstinence from Alcohol is also on the rise.
• The economy, availability of labour and costs, alternatives to wine, and water shortages are negatively impacting overall sentiment of winery owners.
• While a recession is expected, the industry is prepared to weather the storm due to 3 consecutive years of lower harvests, also reducing the fear of rapid discounting due to excessive inventory.

Supply

With results of the 2022 harvest size to be announced in March 2023, a third consecutive lower crop in California is expected, with the crush predicted only marginally higher than 2021.

At the end of 2022, overall supply was balanced in California. Impact from climate change, grape and bulk prices are expected to remain stable at the current levels of 2023. A larger 2023 harvest is likely with improved soil moisture from recent rains. A larger harvest would be unwelcome given current weakness in demand.

In California and Washington there would be hardly any new plantings while new plantings are expected to continue in Oregon, though at a slower pace.

Demand

Older consumers continue to have a positive impact on wine sales, with share of spend in the 70-to 80-year-old age band growing, even as this population declines. Engagement with younger consumers by the industry has proven unsuccessful to date. In fact, consumers below 60 years old are less interested in buying wine today than even in 2007.

The trend of extensive beverage menus in restaurants versus dedicated wine lists will continue to expand, reflecting the rising demand for spirits, alternative beverages and more exciting offerings.

Price

With 47 percent of survey respondents noting they will only marginally increase the bottle-price in 2023.the market is expected to be stable. Those making lower-priced wine will perhaps have difficulty in countering the cost of inflation, but it would be easier passing on small price increases in the premium market. In general, winery margins are expected to erode in 2023 because of higher costs of labor, insurance, bottles, materials and shipping.

Climate change is impacting growing conditions, causing some of the cost increases, with 53 percent of survey respondents reporting moderate or worse impact as a result of climate change. Thirty-nine percent of survey respondents noted an increase in insurance premiums and a decrease in coverage with three percent complaining they could not obtain insurance at any price.

About Silicon Valley Bank

Silicon Valley Bank (SVB) provides commercial banking services, expertise and insights to the technology, life science and healthcare, private equity, venture capital and premium wine industries. Founded in 1994, SVB Wine Division offers financial services and strategic advice to premium vineyards and wineries primarily in Napa, Sonoma and Oregon, serving clients in the fine wine producing regions along the West Coast of the United States.

For the full Report click here

The report aims to provide an assessment of the industry amid current market conditions and shares a unique forecast for the year ahead based on proprietary research and economic and behavioral trends among consumers.

Subhash Arora