Adaptation: Thoughts on the SVB State of the US Wine Industry

by Ed Thralls, SVP Professional Services

I had the pleasure of participating on the annual SVB State of the US Wine Industry virtual event last week and it was certainly an eye opening experience. Rob McMillan, EVP & Wine Division Founder at Silicon Valley Bank, has been diligently providing annual industry insights for 23 years now, and is a key source of information for everyone running a wine business. You can read the report and watch the replay for yourselves, and below I offer just a couple key points, including data from Enolytics.

Adapt to Combat Headwinds

The headwinds were quite strong in 2023 and will continue into 2024. While a recession did not occur and is unlikely to happen in the coming year, the wine industry has experienced three consecutive years of negative growth, there is a significant anti-alcohol movement underway, as well as an “squeeze” on our target audience as older generations reduce their drinking and younger groups opt for substitutes, including RTD’s, cannabis and no/lo options.

It is clear why the charge of this year’s report was ADAPTATION. In order to thrive in such a competitive environment, the industry as a collective must improve marketing, think differently and rewrite the narrative. Obviously, we feel one tool that creates competitive advantage and differentiation is data analytics.

“Waiting for a fictive cohort to age sufficiently to discover wine or believing that our strategies ‘have always worked before,’ is toxic to adaptation when the context driving demand is changing. That is something the weakest businesses will do. Their lack of adaptation will cause a predictable outcome.”

- Rob McMillan, State of the US Wine Industry 2024 Report

Drop in Visitors Impact Club Too

We all know less visitors came to our tasting rooms last year. While tourists will once again return to wine country regions after all the revenge travel, there are simply more wineries to visit, of which most continue to host longer, private, seated tastings and more immersive experiences. Visitors can no longer visit more than two or three wineries a day.

But, a lack of visitors doesn’t just impact tasting fees and bottle purchases. The tasting room is still the number one source of wine club signups. Combine that with increased attrition last year, net club growth was negative for the first time in recent years. With inflation softening and the unlikely chance of a recession to occur, we expect that consumer sentiment should begin to improve in the coming months. The recommendation here is to develop and execute proactive club retention programs and look for ways to find new members outside of the tasting room, regardless.

Source: 2023 WineDirect x Enolytics DTC Report for Wine

On/Off Premise Tougher Than Ever

The wholesale channel, especially for small to medium-sized wineries, continues to struggle. Wine lists are smaller, there are less restaurants, and inventories are backed up. Distributors are unable to give attention to an increasing number of wineries. The playbook for the wholesale channel has changed and wineries will have to do more than ever before to help their distributors help them by hyper-targeting new markets and accounts that are the best match for their wines using, you guessed it, advanced data tools. Furthermore, they’ll do it by also combining their DTC data.

Source: SVB State of the US Wine Industry 2024/SipSource

2023 Overall Results

So how did we finish 2023, realizing much of the year was a struggle? At the time of the virtual event we did not yet have that data, but today we do. Net Sales for 2023 overall was down -2.1% vs. the prior year and while some felt optimistic that the year would finish strong and begin an uptick in positive growth, we did not see it as Q4 ended down -3.9% vs. 2022.

Source: 2023 WineDirect x Enolytics DTC Report for Wine (coming soon) 

Power of Data Analytics

Vineyard views, 90+ point wines, elaborate tasting rooms and a winery dog just get you to the table nowadays. How do we differentiate? One way to gain competitive advantage and differentiate is at the business process level via analytics. Marketing spend is no longer optional and it is well known that data helps develop and execute personalized marketing and communication strategies that can drive revenue. It is now a conversation of investment as opposed to an expense.

As evidence that wineries using data analytics can thrive, the chart below shows that wine businesses using Enolytics grew net sales in DTC channels by +5.9% in 2023 vs. the rest of the US (-2.1%) and grew wine club by +4.9% or 1.6x the rest of the US.

Source: WineDirect x Enolytics 2023 DTC Impact Data

For more insights on how the wine industry was impacted in 2023 and what to expect this year, keep an eye out for our Annual Wine Direct Impact Report & Analysis coming soon!