Silicon Valley Bank’s latest wine industry forecast says the current correction, the most significant since the late 1980s, could last for several years as the industry deals with oversupply issues and attracts younger consumers.
The wine industry is experiencing a significant recovery due to falling demand and it may take several years to correct the overall increase in sales growth, according to an influential industry report released on Thursday.
Sales revenue for premium wineries (those that generally make wine retailing above $20 a bottle) fell an average of 3.4% through September of last year from the same period in 2023, according to a report from Silicon Valley Bank, now part of First Citizens Bank. This analysis came from SVB’s review of its database of vintner financial statements collected over decades.
Last year’s sales growth for these top-tier manufacturers was below the 0.6% decline for all of 2020, the initial year of the pandemic, which was the first such drop in sales revenue in more than a decade.
“We are in a demand reset,” said report author Rob McMillan, founder of SVB’s Wine Division, during a webinar on the report.
However, not all wineries are seeing the effects equally, the analysis found. The top quarter of the analyzed wineries saw an average increase of 22% in revenue last year, while the last quarter saw a decrease of 16% in revenue.
According to preliminary estimates cited in the report, overall US wine sales are expected to be down 1% to 3% in volume.
“The wine industry is undergoing significant change, marking the first demand-driven correction in three decades,” McMillan said in a statement. “We’ve been anticipating a generational shift for many years, and the data from the 2025 report reinforces the wine industry is now living that reality. Different parts of the industry will recover at different times, but we can expect a continued decline for some time before we achieve sustained growth.”
Long term issue
The correction is expected to be prolonged, with the industry likely to bottom out and return to zero growth around 2030, McMillan wrote. The premium business is expected to return to steady growth between 2027 and 2029.
The economic impact of the correction is significant, with premium wineries experiencing declines in revenue and increases in operating expenses. Interest expenses have also increased due to the increase in balances in credit lines and the increase in interest rates.
The previous demand-based correction that McMillan noted was 1986-1994, which saw growth spurts come to the fore as wine majors and anti-alcohol movements gained momentum.
“We’re not going to have the French paradox to get us out of this,” McMillan said in a webinar Thursday on the report.
Research on the health benefits and challenges of wine has been a hot topic among researchers for decades. Data on the “French paradox” of the lower incidence of heart disease among the French, despite greater consumption of wine, cheese and other foods, came to public attention with a 1991 “60 Minutes” broadcast. This has been credited with driving increased sales for red wines along with the planting of thousands of hectares of red wine vines, especially Cabernet Sauvignon.
The SVB report also noted that some white wines are enjoying positive or less negative sales growth compared to red wines, which have been the main growth drivers for decades.
Inventory issues
The wine business as a whole tends to overproduce, leading to an oversupply of wine, the report said. After the rapid buying of wine and other alcohol in the first months of the pandemic, retail and wholesale inventories were supported. Wineries are now cautious about holding inventory in an environment of reduced demand.
California and Washington in particular have significant oversupply problems, the report said. Bulk wine is plentiful and available at low prices, but buying activity has been sporadic.
Visit to the tasting room
Tasting room visits have been lower than expected and that trend is likely to continue this year, the report said.
The decline is attributed to changing travel patterns and preferences among consumers. The expected return of visitors after the “revenge trip” abroad after the pandemic has not yet materialized, the report noted.
Generation change
Older, high-spending wine consumers are being replaced by younger consumers who are trending toward a lower wine preference.
To mitigate the decline of older consumers, the industry needs to improve its approach to the 30-45 age group and improve its share of beer, wine and spirits in that group, McMillan wrote.
Young consumers (21-29) are more likely to abstain or consume alternatives to wine. The industry should target the 30-45 age group to reverse the decline in demand.
Price adjustments
Discounting is expected to continue as a strategy to address oversupply, the report said. Established labels may not need to discount their top line offerings, but can use other tactics to move volume.
The SVB survey found that 42% of growers plan to make a small price increase this year. McMillan wrote that such a move could be challenging in a market with ample summer supply and increased discounts to move unsold inventory.
Jeff Quackenbush covers wine, construction and real estate. Contact him at jquackenbush@busjrnl.com or 707-521-4256.