China wine exports
Wine exports to China will remain flat. In 2013, Xi Jinping became president of China and immediately began an anti-corruption campaign focused on eliminating illegal gift-giving within the government, greatly affecting the sale of expensive watches, luxury cars and the world’s finest wine. At the time, California might have stepped in and taken wine-market share, but did not. Instead, France kept hold of its dominant position, while New Zealand, Chile and Australia were finding ways to develop free-trade agreements with China that included no levies on their imported wine. At the same time, China increased taxes on wines made in the United States, and by 2017 U.S. market share of China’s imported wine sales had dropped to less than 3 percent ($82 million), whereas Australian wine exports to China topped $1 billion and France reached nearly $1.5 billion. With the continued uncertainty around a trade war with China, expect these trends to continue.
a slowdown in consumption
The slowdown in wine consumption in the U.S. will continue. According to Silicon Valley Bank, wine sales in the U.S. have been nearly flat for the last few years. Part of the dynamic is generational, with many of the Baby Boomers slowing consumption while younger people are shifting away from wine toward alternative “relaxants,” such as beer, spirits and cannabis. Some of the youngest are even turning to virtual reality as their preferred method of escape.
Consumers will increasingly be on the lookout for new and different wines. The sale of canned low-alcohol wines has jumped 43 percent in the past year, with younger drinkers driving the trend. Many of these wines have additions to them, such as lemonade or other fruit juices. And although the category remains small, expect the selection of wines packaged in tinned six-packs and the range of flavorings to increase in the coming years. Though Chardonnay, Cabernet Sauvignon and Pinot Noir are not going away anytime soon, consumers are looking for non-traditional varieties and continue seeking red blends, orange wines or pétillant naturel (pét-nat, for short), the last two of which have lower alcohol than traditional options.
the cannabis green wave
Vintners will continue testing the waters of the cannabis green wave. California legalized the sale of recreational marijuana on Jan. 1, 2018, but the rules and regulations of its sale and use continue to evolve. One of the key complexities is that cannabis remains a Schedule 1 drug at the federal level, possession of which can result in a prison term.
In July 2018, the California Alcohol Beverage Control (ABC) issued a wine industry advisory on the subjects of alcohol and cannabis licenses. Winery owners can own a license to sell alcohol and one to sell cannabis, but the two cannot overlap—that is, a winery or its patrons cannot legally sell, taste, test or consume both wine and cannabis at the same location. Yet last month vintner and director Francis Ford Coppola was the first major California wine producer to launch a smokeable cannabis product. Recently, Constellation Brands purchased Growth Corporation, a medicinal cannabis producer in Ontario, Canada, that trades as WEED on the Toronto Stock Exchange—and then purchased more. It’s not clear when Constellation will launch a cannabis product in the U.S., but my bet is you won’t have to wait long.
growing your business
Acquisitions will continue, albeit at a slower rate. It’s clear from recent wine-business success stories that the best way to grow your wine business is to acquire existing wineries, purchase brands or buy vineyards. By doing so, a company gains real estate and also efficiencies (instead of having six companies with six winemakers, CEOs, HR directors, you can have one of each). Companies can also get a bunch of inventory and existing accounts out of the deals that they can leverage to sell their other wines. Of course, there is a moment when this strategy stops working as well (like in a downturn or in a category that is losing favor — Toys ‘R’ Us was once such a purchase), but for the time being expect such activity to continue in the world of wine.
competition will remain fierce
Roughly 90 percent of wine sold in the U.S. comes from the 30 top producers, and more than half the wine sold domestically comes from E&J Gallo, The Wine Group and Constellation Brands. That means there are more than 12,000 U.S. wineries, each competing for the remaining 10 percent of sales. Consequently, wineries will increasingly have to find innovative ways to attract and retain customers.
Is the future rosy or bleak? Depends. The wine trends for 2019 may seem stark at first, but those innovative and opportunistic companies that remain vigilant and build a sense of non-complacency into their operations will likely survive and thrive. As for wine consumers, life has never been better, with prices likely to hold and quality to increase.
Wishing you and yours a healthy and successful 2019.
