The annual State of the U.S. Wine Industry was released last week—an insider document that provides recaps, projections and analysis, which many in the industry lean on to understand trends. The report was founded by Rob McMillan, executive vice president at the Silicon Valley Bank, which famously crashed in 2023 and was acquired by First Citizens. The wine report survived and is now in its 24th year
The report is also appreciated for its editorial tone. McMillan infuses the text with humor, practical and unsentimental analysis, and also, sometimes, poetry, as even he admits this year in the introduction. He is also optimistic, even through statistics can be less so.
This year’s edition again acknowledges what is already known in the industry: Growth in the sector has plateaued at or around zero. The reasons are numerous: younger drinkers are drinking less or have gravitated toward low/no alcohol and other alternative beverages; there’s a decline in older drinkers; some parts of the U.S. region are overplanted and therefore production exceeds demand, a correction McMillan says will continue all through this year and into 2026.
The analyst isn’t all doom and gloom. In a webinar introducing the report, he said “I believe that this industry is going to evolve to something that is better than it’s ever been,” he said, “but it’s got to take an active step.”
But, he warned, “hope is not a strategy … and we can’t be passive anymore.”
Here are some key takeaways:
The wine industry will undergo a reset with a demand-driven market correction, its first in nearly three decades. To mitigate the waning in consumption of older consumers—from both death and a decline in drinking—the industry must rethink and realign its approach with the 30-45 age cohort, through marketing, repositioning and breaking through the competitive category clutter.
Consumers in the 21-29 year-old age group will continue to abstain or seek alternatives to wine throughout 2025, in parallel to a world-wide trend of lower consumption.
When 2024 totals are calculated, the report estimates that California, which produces 85% of all U.S. wine, according to Wine America, will have crushed 3.2 million tons, the smallest crush in the state since 2008.
The current oversupply will lead to pricing changes to move out inventory, particularly discounting in various ways, from sales via flash sites, private label sales and wines marketed under newly created negotiants—wholesalers who buy wine and/or its grapes and juice from producers and repackage and sell under their own name. (Not a bad thing—the French do this all the time!)
McMillan says that while established labels might now adjust their line pricing, they may offer other incentives such as free shipping to move inventory. “This will be a great era for consumers looking for good deals,” he notes, emphasis added.
The talk of tariffs on European goods under the new Trump administration may have a positive effect on the production side of the U.S. wine market, “push[ing] larger U.S. buyers who use imported bulk wine for domestic labels, into switching out to domestic juice.”
GROWTH TRENDS. Sales growth of premium wineries have dipped from a high of 18.6% in 2021, the height of Covid, to -3.4%. Notable peaks in the past 24 years were 28% growth in 2000, 25.5% in 2004, 19.8% (up from -3.8% at the beginning of the recession in 2009).
INSIDER OUTLOOKS. 28% of those surveyed noted that 2024 was a disappointing year, a 6% increase from those answering the question last year. 17% said it was “one of the most challenging years ever”-also a 6% increase. 21% said it was neither good nor bad, while 17% reported it being a good year—only 3% less than those answering the question the prior year.
The report uses the Michigan Consumer Sentiment Index methodology to gather insights about the prevalent mood in the industry, and found the index at a 10-year low point. Among those factors causing concern: the economy, labor, consumer demand, including substitutions such as RTD ($18B in annual sales), low/no alcohol, spirits, etc.; and water availability.
Producers in California’s Central Valley, which accounts for nearly 75 percent of all grapes used in wine production, had the bleakest outlook, with 73% reporting it was disappointing. In, Virginia, with the eighth-largest production in the U.S. (Wine America, 2018), 68% of respondents said they were feeling optimistic in 2024.
McMillan, however, notes the “averages don’t explain the situation for everyone.”
“Winery owners are resilient. Those who have been in business with their own properties with years of successful brand-building under their belt forged their financial strength over time. Those wineries will work their way through this challenging period and emerge out the other side with new opportunities.”
While few wineries surveyed reported their financial health as “very strong” or “rock solid,” 32% reported they were good and 21% described their financial health as strong.
“Wineries have staying power, which is a better description of the current state of affairs than the minor losses showing as a simple average.
This is part one of an ocassional series that will look at the SVB and other reports about the wine industry.
Read the full article here