Those of us who drink and love wine take it for granted. We don’t give much thought to the fact that (stupid three-tier laws notwithstanding) we can get our hands on excellent bottles of wine from a thriving domestic wine industry by going online to order some, dropping by our favorite fine wine retailer, or stopping by a tasting room in wine country.
But that thriving industry (81% of which is in California) has some pretty big challenges ahead of it according to Rob McMillan of Silicon Valley Bank. I wrote about those challenges in my last monthly column for Jancis Robinson’s subscribers. To summarize, the growth rate of the wine industry has been shrinking for the last 20 years, and at the current trajectory, it will turn negative in a few years. Already, sales of wine under $11 have dropped by double-digit percentages for the first time in decades, while studies show that affinity towards wine drinking (versus beer, cider, hard seltzer, and spirits) continues to drop.
All Signs Point To… Pain
The people most interested in wine in the US are over 65 years old and they won’t be a driving factor in the economy (as customers) for much longer. According to one study commissioned by McMillan, the people coming up behind them are a little more than half as interested in wine. That signals an impending drop in demand the likes of which the American wine industry hasn’t seen since Prohibition.
That coming drop in demand is only one of the hurdles facing the American wine industry. We all know the pressures that climate change is exerting on the industry. In California, there continue to be too many acres of grapes planted both given the current demand for wine as well as in the face of what many believe is a coming crisis over water supplies in the state.
And then there’s the rising threat of neo-prohibition. Again, those of us used to having a glass of wine with dinner might scoff at the idea that our country could be headed back towards something as extreme as prohibition, but the signs are not encouraging. In 2018 as part of the revision to the national health and dietary guidelines, despite their own scientists’ recommendations to the contrary, the US Department of Health removed the guidance that moderate consumption of red wine could lower the risk of heart disease. Several other institutions and organizations followed suit, including the American Heart Association.
Two years later, at the height of the pandemic when attention was very much elsewhere, the Department of Health briefly allowed public comment on the idea of reducing the recommended healthy level of alcohol consumption from two drinks a day to one. The official guidance has yet to be released, but many think this reduced recommendation is coming. And just last week the European Union, to whom we often look for leadership in food health matters, narrowly avoided forcing all alcoholic beverages to carry effectively the same cancer warning labels that appear on cigarettes.
Americans are more health-conscious than ever before, and if sentiments build towards any level of alcohol consumption as unhealthy, it goes without saying that would be a very bad thing for the wine industry. Just ask the egg industry what happened when it was announced in 1968 (incorrectly, we found out decades later) that eggs were a significant source of cholesterol. I’ll give you the short version: egg consumption is still half of what it was in 1967, and losses to that industry are estimated to be in the double-digit billions.
A Call to Arms
So what is to be done? The entire American wine industry needs to work together to generate a rising tide that will lift all its boats. That rising tide should take the form of a national organization with two primary jobs: funding rigorous scientific research that could establish the truth about wine’s relationship to health and then broadly marketing wine (and potentially its health benefits) to the American public.
A study was recently conducted by the consulting firm McKinsey & Company, in conjunction with the Wine Executive Exchange and UC Berkeley detailing the why and the how of such an organization, as well as what impact it might have on the industry.
The study, which is freely available, makes for fascinating reading. Through analysis of comparative efforts around the world and in other industries, the study’s authors estimate that it could give a nearly half-a-billion-dollar boost to the industry, returning more than $9 in value for every dollar invested.
Some data in the report show a 14% increase in public demand for products directly attributable to similar efforts by the Cattlemen’s Beef Association and the Peanut Board.
So how would this work?
Basically, a majority (67% or more) of the industry would have to decide to create something called a USDA Marketing and Promotion Order. If appropriately funded and backed by enough industry consensus, the Department of Agriculture would then levy an assessment (read: a tax) on every wine producer in the industry, somewhere between 0.16% and 0.18%, or roughly $0.14 per case of wine sold, according to the study.
This budget would then be managed by a central organization and used to fund research and marketing specifically aimed at increasing wine consumption in America.
The Power of Real Advertising
Once organized and in place, a national wine marketing board would hopefully do for wine what Got Milk? did for milk. Right now the wine industry, which spent roughly $90 million on advertising last year, is being woefully outspent by the beer and hard seltzer industry as well as the spirits industry which spent $1.4 billion and $456 million last year respectively.
The suggested plan for this marketing and promotion order would result in an annual budget of $40 million. That’s not a SuperBowl commercial, but it could easily mean a national print, television, and social media campaign, and quite possibly the first country-wide alcohol advertising that wouldn’t be about a specific brand, but would instead simply be encouraging people to enjoy a glass of wine (and drink responsibly, of course).
The quality of wine-related marketing has always been woefully poor, with only a few notable exceptions, most recently the hilarious stunts of Elizabeth Banks for her canned wine company. The thought of having that kind of creativity applied to simply evangelizing the pleasures and benefits of moderate wine consumption leaves me a bit giddy. Heck even something that’s the wine equivalent of the perpetually staid “Beef. It’s what’s for dinner” would be good enough.
Everyone Needs To Back This Effort
McMillan and some of the folks who put together that study with McKinsey have gotten the ball rolling and started raising the funds required to begin exploring this effort. They’re calling their efforts WineRAMP.
What they need now is money and support. But it’s going to be a long road.
The primary issue facing such an effort lies in convincing a significant portion of the industry to tax itself when those same producers are not yet feeling the pain. Presumably, Gallo and Franzia and Jackson Family—those who make the majority of the wines under $11—would need no convincing. It’s your average producer of moderate to high-priced Pinot Noir or Cabernet Sauvignon—a winery that makes 5000 cases, doesn’t have too much trouble selling them, and (vicissitudes of COVID notwithstanding) isn’t feeling any pain at the moment—that will likely take some persuading to pay some extra taxes.
Many such producers reported that last year was the single best year in their history, thanks in part to the pandemic-fueled spike in online sales and trends towards premiumization (stronger interest in higher-priced wines).
The key will lie in making the case that unless they’re sold on the idea of wine, today’s younger and exploratory drinkers may decide that wine just isn’t as interesting or as good for them as the myriad alternatives. While interest in wine has historically increased along with the age and income of each drinking generation, this is far from a fait accompli and certainly not something upon which the industry, or an individual producer should take as a given.
Which brings us back to that near 50% potential drop in demand that McMillan’s study pointed to. That’s clarion call that should have every wine producer in the country heading to wineramp.org to sign up for updates, and seriously considering donating to the cause.
The time has come for the American wine industry to invest in its own collective future.