| The sound of clinking glasses is likely to get louder and more frequent as the year goes on.
Prepare for lift-off as one well-known expert predicts boom times ahead.
By W. Blake Gray | Posted Tuesday, 27-Apr-2021
Strap yourselves in, US wine industry, because you’re on a rocket ship that’s about to blast off.
That’s the prediction from industry analyst Rob McMillan, and it’s notable because McMillan has become best known in recent years for his gloomy long-term forecasts for wine.
But now, McMillan, executive vice president of Silicon Valley Bank’s wine division, said he expects wine sales to skyrocket over the next 12 to 18 months, with growth rates the industry hasn’t seen in decades.
“Every analysis I see just keeps talking about pent-up demand,” McMillan told Wine-Searcher. “You’re seeing it in travel. The TSA is back up to pre-pandemic rates in processing passengers. People have the desire to buy things, and they have the capacity. And on top of that, you have the stimulus from the federal government. That’s a significant amount of money to throw at people.”
The term “roaring ’20s” has been tossed around, but McMillan thinks a better parallel is 1947, shortly after the end of World War II, when American military members were back home, aware of their mortality, and taking part in a fast-growing economy.
“In 1947, it wasn’t that long after Prohibition,” McMillan said. “It took a long time to get vineyards back in the ground. Bringing back people who knew how to make wine again. In ’47, consumption went through the ceiling. It doubled. The next year it dropped right back through the floor. At first I was wondering why. Then I saw a chart from the spirits producers, and [consumption] didn’t drop. It occurred to me that the reason it dropped the next year for wine is that we drank everything. We can’t turn the spigot on and make more wine.”
That raises an obvious question. McMillan has been reporting for years that younger drinkers are choosing spirits or hard seltzers over wine. Assuming that everybody wants to drink this year, why would they choose wine?
“There is some indication that the younger consumer is just beginning to show some interest in wine,” McMillan said. “Especially Millennial consumers.”
McMillan said the next 18 months will be filled with events where wine is traditionally considered more appropriate than spirits or beer – in particular, weddings, which are often held at wineries.
“Call around to a catering or wedding event space. Ask them what it looks for for their availability,” McMillan said. “You’re going to find they’re packed. You have occasions that were put off last year. A lot of people just postponed their marriages to a different time. All those events that got postponed, people are going to want to do it in the next 12 months, on top of the ones that have been planned anyway. But I see that as a temporary thing. This is a celebration. It could be an opportunity for more lasting growth if we are able to do the right thing and get the younger consumer seriously interested in wine as a product. Then it could last.”
McMillan said he expects the highest growth rate to be in wines where popular sales are now: more than $10, but less than $100.
“We’ve had a lot of wineries in the last few years that have come out of the chute with a $75 wine. Now that’s $125,” McMillan said. “They say that’s what the market will bear. Well, what will the market bear? We don’t have many wines anymore where you have to wait three years on the waiting list just to be offered the wines. I think you’ll see rationalization of some of these expensive wines. On the bottom side of the market, the indication is still that the consumer’s looking for better wines and pushing price up. The growth rate is still good on $11 and above. The growth rate is negative on $11 and below.”
One thing to keep an eye on regarding wine prices, and all consumer goods, is inflation, which hasn’t been a real issue in the US for more than 40 years, long enough that people have forgotten what living in an inflationary era is like.
“One of the interesting things people aren’t tracking enough right now is employment,” McMillan said. “We can’t find employees for tasting rooms. You hear the same complaints from restaurants and hotels. This is what the [Federal Reserve Bank] wants. They want to drive unemployment rates down so we can see growth in wage rates. Even before the pandemic, restaurants in the Napa Valley were closing because they couldn’t find staffing. Now you’re finding it difficult to get the hospitality workers and the line cooks back into that market. I had one (winery) client who said he can’t find anyone, he’s going to go into Whole Foods next and offer the bag clerk $25 an hour.
“Higher wages are part of inflation. The fed is looking for higher wages,” McMillan said. “They’re looking for a little inflation. Wages get pushed into corks and barrels and everything else that goes into making wine. It becomes an inflationary cycle where everybody pays more for goods and services. The expectation from the fed is that we’ll get real wage growth for people at the bottom who haven’t had it for so long.”