Oversupply + Less Demand = Discounts

Silicon Valley Bank makes predictions

By OWP Staff

Silicon Valley Bank (SVB) released its “2020 State of the Wine Industry Report” on Jan. 14. Now in its 19th year, this annual study assesses current conditions and provides a unique forecast for the year ahead based on proprietary research and economic and behavioral trends.

Highlights and predictions from the 2020 survey and report include:

(1) Acute oversupply will lead to widespread discounting and give the U.S. wine consumer with the best wine retail values in 20 years.

(2) The 2019 harvest will likely produce normal to slightly below-normal yields in California, and below-normal yields in Oregon and Washington. The lower yields won’t help with the oversupply, however.

(3) The large millennial population hasn’t yet begun to embrace wine, presenting the wine industry with its largest growth opportunity.

(4) Approximately 71% of wineries reported 2019 was a good year; while 24% claim it was their best year in history. At the same time, an increasing number of wineries are reporting poor financial results.

(5) Winery owners’ confidence in current market conditions dropped precipitously in 2019, with 49% of respondents taking a pessimistic view, compared to only 1% in 2018.

(6) Oversupply with diminishing volume growth in demand will lead to vineyard removals and reduced returns for growers in most regions.

“Today, the wine supply chain is stuffed,” says Rob McMillan, founder of Silicon Valley Bank’s Wine Division and author of the report. “This oversupply, coupled with eroding consumer demand, can only lead to discounting of finished wine, bulk wine and grapes. U.S. wine consumers will discover unprecedented retail value in 2020 and should buy up.”

McMillan further notes, “The key to future success for U.S. wineries will be in cracking the millennial code to understand that evolving consumer profile. Today, there are winners and losers in the wine trade. The winners are those with solid management teams who are willing to evolve their sales and marketing strategies, execute quickly on a plan, [and] then evaluate success or failure to continuously improve.”

Find the full report at www.svb.com/wine-report. In addition, McMillan will present his findings on Feb. 11 at the Oregon Wine Symposium in Portland at the Oregon Convention Center — register at www.oregonwinesymposium.com