The Wine industry is taking an international hit, with it now being called, “the worst time since prohibition for fine wine producers”. With three main trends all converging, the wine industry is taking a serious hit. First, let's understand the industry as a whole.
The global wine industry is a rapidly growing market. Valued at $157.6 billion in 2018, and with a huge increase in demand for wine, the market is driven by the health benefits and premiumization, along with innovation in flavor, and a more advanced global distribution network. Customers are pushing for more exotic flavoring, which is creating innovation and growth, resulting in a CAGR of 5.8%.
The highest demand market is in the Asia-Pacific region, with China leading as the highest demander, followed by Australia, then Japan. Hong Kong is also seeing growth, as it has no import tax on wines, which is driving the market. Brazil and Argentina are looking at large growths for the industry due to an expanding middle class and large marketing campaigns. The global market is very competitive due to many domestic producers, but a few of the biggest world companies are Constellation Brands, Treasury Wine Estates, and Accolade Wines.
The Wine Industry is facing three distinct threats—one being a generation that is changing its preferences. In the Silicon Valley Bank’s report, Rob McCillian warns of two converging trends: raising bottle prices and Millennial indifference. Millennials are distinctly not buying high priced wines. This industry depends on people “maturing” into it, so this could be a problem that sets the industry back for a decade or more. This leads us to the next threat—the wine industry is on a down cycle. This means that they are facing lower sales than usual, and are pushing for more innovation.
The last threat is nature. In the United States, Napa Valley, California is the top wine producer. Vineyards spread across the Valley and multiple high-end wines are created there. Over the past few months, wildfires have spread across Northern California and spread into Northern Napa Valley. The results were thousands of lost vineyards and wines. One vineyard reported a loss of 10,000 bottles. With the growing season already tough due to the pandemic and generational change, this was a devastating blow to the market. Many farmers commented that they were grateful to have anything left and that they would rebuild.
This could have lasting effects on the industry due to the nature of these setbacks. While the economic cycle will begin to slowly trudge back up, the disinterest and thousands of destroyed wines will not return so easily. Since wine is normally aged, the impacts of these natural disasters most likely will not be seen for a few more years. But currently, many farmers are facing great losses that haven't been seen before. While most are hopeful for what the future may bring, others are still mourning the loss of a harsh year.