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State of the US Wine Industry 2026 Videocast

Recorded January 2025

Rob McMillan, EVP and founder, Silicon Valley Bank Wine Division

Good morning, wine world. Welcome to the 24th annual release of Silicon Valley Bank's State of the Wine Industry Report. It's hard to believe it's been 24 years. It seems like 24 to me anyways.

I'm always impressed with the number of countries that turn in because when we started this report, it was just literally for our clients. That's what we were trying to do, and it just kind of took off.

Today we have people from Australia, Belgium, Brazil, Canada, Chile, France, Germany, Hungary, Israel, Italy, Japan, Lebanon, Mexico, Moldova, Netherlands, New Zealand, Portugal, South Africa, Spain, Sweden, Switzerland, UK and of course the good old USA.

Before we get started, I've got a couple of housekeeping rules.

So if you look at the bottom of your screen, there is a closed-captioning feature. If you want to click on the live transcript button in that bar, then you can join in on the Q and A. You can talk about anything you want in the Q and A. We have 10 people, something like that, 10 people in the background that are all experts in the wine industry that work at Silicon Valley Bank And they will be answering your questions.

With that, let you introduce the panel. Allie, you start please.

Alison Smith Story (Ali): Hi, Rob. Thanks so much for having me on this year. I have been long-time fan of the State of the Industry Report, and what an honor to be here. I'm Ali Smith Story, co-founder and owner of Smith Story Wine Cellars based in Sonoma County and also a board member for the California Family Winemakers Organization.

Rob: It's a good organization.

Ali: Thank you.

Kaleigh Theriault, Director of Thought Leadership, Beverage Alcohol Vertical, NeilsenIQ: Hi, Rob. Kaleigh Theriault here. Really excited to be on this, like, esteemed panel. I am with NielsenIQ. I've spent the last 5 years focused on the total beverage alcohol industry, so I'm excited to bring a little bit more of that industry lens to the conversation today.

Peter Young, business consultant to the wine industry: I'm Peter Young. Thanks for having me, Rob, and pleasure to be with you guys. I'm a business consultant to the wine industry.

Rob: We have people representing all of the pieces of the industry. We have a small,-winery person, we have the big data person, and then we have the consultant person and then we have whatever I do. So I think we'll probably cover everything pretty well.

Before we start, I just want to address an industry thing that just needs to be addressed. So we like to use the term doom and gloom a lot. And in this last couple weeks, I've had so many people that have come to me—and actually in the questions in the sign-ups that we ask for—so many people had said, oh can you just not have any doom and gloom, you know, can you not talk about negative things? You know, we work in a wonderful industry. It's just, I mean, that's why we're all attracted to it. It's a great place to work. But doom and gloom is kind of a way to say, don't pay attention to the data.

You know, it's just doom and gloom. Somebody had a bad day, and I really want to try to get away from that because we really need to evolve as an industry, and we can't have people saying, well, it's just doom and gloom. It's not just doom and gloom. These are facts. These are data points, and it's something that we all have to accept in order for us to move forward. We can't actually come to solutions until we really understand the problem, so it's really important that we get by that.

I really want to move—oh another thing people have said to me is, we don't want hope dashed. And I understand that. I think that's a good thing. But the way I think about hope, and if you guys know me and have heard me for a long time, I like to say hope is not a strategy. And when you think about hope, hope is like, gosh, I hope I get married. I hope I'm a millionaire. I hope it doesn't rain.

That's passive. And we can't be passive anymore. In prior years, we had, you know, we had demand growth like this, and if you were passive, you had a problem, you could just wait a year or 2 because it would fix itself. But when you have flat growth or down growth, it's not going to fix itself.

So I really want to transition our industry to belief. You know, I believe that this industry is going to evolve to something that is better than it's ever been, but it's gotta take an active step. Everybody's got to have their own strategy. There's no prescriptive solution for what we're going through, but we'll talk about some as we get through this.

So I hope that wasn't too direct, but I'm looking for an active approach to fixing these problems. I'm looking for belief.

Now, Silicon Valley Bank, we know what this industry is about. We've been doing it for a long time, and we are doubling down. So our belief is so strong that early in the last couple years, we've added two—pardon me—almost 10 net-new employees to the wine division, and we're opening up, actually we just opened at the beginning of this week a new office in downtown Napa. So we're making the investment in sticking this out and to help everybody get through that, and so we do believe. That's one of our active things we're doing.

With that, why don't we start with the first slide, Paul, if you don't mind. And so I am going to stay away from doom and gloom for a second and look at this. So there are things that are going well right now, and here's a list of them.

Wine RTDs, those are just growing substantially. No and low-alcohol people are, I think that's been over-hyped a little bit. It's a very small category, and I think there's limits to how far it can go, but, you know, that's something to talk about too. In our peer group analysis, we have the top quartile of—these are financial statements, so wineries. And, you know, they're actually growing, the top quartile is 22 percent. The bottom quartile is down 16. So it's not, you know, great news, but it's okay.

RTDs are growing like a rocket ship still. I think this is an interesting one, is private label. It's really hard to get your arms wrapped around private label because they don't all report so you know, trying to figure that out is a little difficult, but Surkanda did some estimates and I think they came up I think they came up above 10 percent. When you look around—anywhere between let's say 6 to 14 percent growth rate, s I picked nine as a middle one. Another one that's interesting is club and wholesale clubs like Costco, Trader Joe's another one example.

So that stuff that's grown 8.3 percent, the convenience channel which we're going to have to have talk about too, that's growing nicely. And then wine-based cocktails, that's depletions, 1.4 percent growth. And then if you look at the wine between the 15 to 25 off-premise, that's not growing but it's growing at a better rate than a lot of other things. And then when we look through just the different varietals things that are that are growing: white blends Prosecco, Pinot Grigio, Sauvignon Blanc, all have, you know, better growth rates.

So when I look at that list, what I see is something that's really interesting. If you followed what I've been writing for quite some time, you know that my general thoughts are that we're going through a consumer rotation out of the baby boomer plus-60 crowd into everything else. And so that's a major piece/

And if you look at the boomer crowd, you know traditionally Cabernet, Chardonnay—and those are still the best-selling varietals by the way—but now you're seeing growth rate out of different places. You're seeing convenience, you're seeing clubs so you're getting better value. So that's the fingerprints for me of everybody else that is starting to impact the chain, so we are actually beginning this transition. We are in a demand reset is what we're in, and a lot of people I think woke up this last year in 2024 and said, hey you know what, things are difficult. When did that happen? And I think many people were more or less surprised, but the feeling now is well, when are we going to get out of this? And we will talk a lot about that.

But really when you go back and you look at the data, this started—and the first indication I saw Nielsen data at lower price-point wines was in late 2014—it was more obvious in 2015.

In 2019, I wrote a piece in the state of the industry report, the introductory section, where I called out that the next 5 years, I thought that the growth rates were going to be moderated and we should think through because the underpinnings of the industry were changing and we needed to evolve what we thought.

And I think that ended up being, you know, I couldn't predict Covid of course, but I think it was a spot-on prediction. This has been coming for a long time, we've been in this correction for a long time, so we have less to go than you might think to get out of it.

Let's go to, let's see, the next slide, Paul, is just volume. Just looking at volume for a second.

So this is Shanken data, and their prediction are for 2024 category-wide—this category, you got big wine, you got small wine, you got premium, you got higher productions, this is the whole category—so it's kind of dominated by higher production wineries, but it's down 2.4 percent and that's not too far off of what we have for the premium wine industry too, it's being off about 2.4 percent. So you can see we've got 4 years of negative growth And it's going to show up in other data that we'll go through. But Paul, if we can go to the next slide, please.

So this is I think an interesting slide from our survey. And by the way, thank you everybody that helps us with the survey. We had near-record response rates this last year. I think people are interested in finding out data and information and so we had near-record response rates. So thank you for everybody that did that.

This is annual. We just asked the question in the front of the survey, you know, how was your year? Just a real basic question. And you can see each year, you know, pick like let's say a good year. A good year has gone from 26 percent to 20 percent to 17 percent, so it's dropped a little bit.

And then if you look at disappointing years, grown from 11, 22 and 28 percent. So we do have that trend that people are saying it's a little more difficult, but all in all it's pretty much a standard bell-shaped curve. We've been running through 25 years of great opportunity and growth. And so now that we're in more of a kind of a normal business state, more mature let's say, a standard bell-shaped curve is probably what you should expect.

And the next slide is one I think that's even more interesting to me anyways, and that is the financial strength of the industry. Now, as I mentioned, we have peer-group analysis. We have financial statements that we can put together, agglomerate and figure out what's going on with the premium industry. It's financials, it's not survey, it's really good data.

When we ask people though, how was your year, sure, it's not as good as it was. In the same way it looks like it's kind of falling down a bit. But there are far more people that believe it's good or better terms of strength. You might say, well, that's an over-evaluation. But when you look at the peer-group data, the industry is pretty strong financially.

It's not going to go away. Nobody has to worry about that. By the way, I hate when people say, we're not going away. Well, that's not even a question. So the industry is pretty strong. We have brands that have been around for quite some time. They've built up equity. They have ways of doing business.

We have models through sales and the channels that they go through, DTC. So we're much evolved. If we're a mature industry at this point, we're much evolved. And yeah, we're going to be pretty strong. And so I'm really pretty positive that we're going to be able to get through this in a fine manner.

And then if we can go to last slide, slide 20. So you've to, Paul, go pull up slide 20. And so this is probably the best place to jump in the conversation.

Total table wine consumed, this is from California Wine Institute. And when you look at this, there are two kind of lines that are obvious and the one is in the left it's between basically it's the 1986-to-1994 time frame, about an 8-year time frame, where we that was our last demand correction.

And so for a lot of people, you haven't been through a demand correction. And so the reason I bring that up is because things don't behave the same way. As I mentioned earlier, you can't wait for things to fix themselves. You have to find something active to do, and it's more difficult. But you can get through it.

Now interestingly in that last demand correction, the reasons that we corrected were one, we had a rotation to consumers from my parents' generation that were beer and spirits consumers largely. They drank jug wine. To my generation that didn't drink beer or spirits, we gravitated toward premium wine. And in the same breath, we had an anti-alcohol industry that was maybe not as put together as it is today, not as well-funded as it is today.

But you know, this is like Mothers Against Drunk Driving, and largely during that time we talked about things that were abusive in alcohol, and I think that that's a fair conversation to have. I don't think any anybody in the industry supports abuse, supports the health issues that come from that.

But when you look at where we are today on the right side, you can see where we started to kind of tip and change into this correction mode. And it's interestingly for kind of the same reasons. We have a rotation to consumers, and you have the big anti-alc industry that's super well-funded.

WHO, it's one of their top priorities. They have over $8 billion in the annual budget and by the way, you know when you have the cancer list, the WHO is the one that is in charge of the cancer list, they have an organization, it's a different organization that actually maintains it.

But alcohol is one of their top priorities, and so do you think that they would remove us from the top category, which is the same as radiation, asbestos and cigarette smoke? They're not going to take us off that list, but it's crazy. And so in some form or fashion, what we need to do as an industry is figure out how to get through that one element. I didn't spend a lot of time in the report this year talking about that, but I talked about it in the four prior reports. And so those are linked inside the report, and you can take a read of that. Nothing has changed all that much. It's just evolved a bit.

But I think even as an industry, I find people having a hard time saying, you know, moderate consumption of wine leads to better health outcomes. Better mortality. If you look at the report that came out from the National Association of Science and Medicine in December, that's what it said. So that's a government report.

Now we know that there are other reports that came out that are different. And I think that's wonderful because having those two reports at the same time just shows you that this is a political fight. And if we ever, get to a point where we have to litigate something, I don't think we can be silent. I think being silent has not been the right approach. I understand the difficulties in actually talking about health and wine. But I think it's about time that we figured out the right way. There are ways to message this.

Now we're not going to get back to where we were in that last downturn, where we had French Paradox come in and Arthur Klasky's work and the Mediterranean diet, which is popularized and still talked about in USDA dietary guidelines. So we're not to get lucky and have that again. In some form or fashion, we've gotta figure out a way to at least not be invisible. We can't put our head under the covers and expect that things are going to go away. They're not.

And so we have to collaborate. I really encourage the industry to work together in this because our strength is actually in the numbers. And if we can act together, we can change the message. We can change the messaging. We can change a lot of things. In the same way you looked at the recovery that happened in 1994 and it took off for 2025, we can do that, but we have to be willing to make those efforts.

So that's my opening. That was long, and so I'm out of breath.

Peter: That's what a lot of viewers I think were asking about was who can we look to lead that conversation around health. We have folks like Dr. Laura Catena, who put out In Defense of Wine, which collated a lot of the facts, which is helpful, and Felicity Carter doing investigative research. Are there other resources that people can look to or support to push that conversation around health more in our favor?

Rob: Yeah, it's difficult because as everybody knows, if you are a permit holder, can't talk about health benefits, really, and alcohol. But there are ways around that. In 2021, me, Danny Breger, Dale Stratton and MJ Dale tried to put up a USDA marketing, we were well through it. We were ready to go. We had $2 million that were pledged and $400,000 raised.

And we were ready to go, and in a very short time a few loud voices got together and decided that we weren't going to have that. So that was going to be one of the things that we focused on was to try to not—I don't think we need to get out there and actually try to disprove anything. I think we just have to present the other side of the science. We have to have a repository where people can whether you're legislators or somebody from the press or just curious researchers from universities, a repository to say, well here's the science. We don't have to run the research. We just have to you know, put a spotlight on what's really already done, and it's good science.

So that's going to have to emerge. That's going to have to evolve in the industry in the next few years. But let's go, Kaleigh, would you mind taking slide 6? This is right up your alley.

Kaleigh: Yeah. I'm glad you were talking about the correction that's happening and a lot is going on with this changeover of consumer. And one indicator of that comes through in our retail sales data at NielsenIQ. And we do track the on-premise bars and restaurants, and we also track the off-premise, which is what we're focusing on here, looking at those different price tiers. And for those that aren't familiar, we track the retail takeaway, that third tier.

So what are consumers actually purchasing in our off-premise channels? We'll include things like grocery, mass, drug, dollar, convenience, liquor stores, things along those lines. And what we find—and you can pretty easily see where the green takes you on this slide—is that there's this sweet spot that exists within table wine specifically, between that $15 to $20 range, where there was some growth occurring in 2023, and then as we neared the end of 2024, started to face some declines, but still much healthier than the total wine category.

And we've started to see that push up a little bit into the $20 to $30 range too. So there's this really sweet spot premiumization that exists. But the one thing to keep in mind, I think, about retail sales is that we're not necessarily talking to a wine consumer there, we're talking to a wine shopper.

And so it's a person that is going into the store to make the purchase, but they might not be the one that's going to take that bottle home and consume it. They might be getting it as a gift or using it for hosting for a dinner party and whatnot. So we see this sweet spot where people feel like they're getting a good value and a good quality wine right around that $20 price point.

And retailers also see an opportunity to promote around that $20 because there's like that psychological threshold I think that exists in our minds at the shelf that, you know, $20 feels like that good value. So we definitely see that coming through here in the data, but noting that there are other areas of opportunity that pop up that are more brand driven too.

Peter: Is that dominated by the big brands in that category or is it, you know, can anyone have a $20 wine and be successful?

Kaleigh: Yeah. Typically, it'll be a little bit more dominated by those larger brands that have that distribution, that breadth of distribution that comes through in this data. And retailers are likely to use some of those recognizable brands as that traffic driver, but it is good to be near that other bottle that might be promoted or similar, and somebody might look at it and say, hey, this isn't something I've tried before, but it's around that similar price point. And so they might be opting for that, and it might be an opportunity to take to take hold of that.

Rob: And the direct-to-consumer channel, which is also coming—Sovos ShipCompliant came out today, and they pointed out that direct-to-consumer was down about 10 percent, I believe that was the number. But the price points that are in that direct-to-consumer channel are much higher, and those are going well through that channel.

So this is more the big premium wineries—or, pardon me, the big production wineries—that are doing this, but this is part of the production chain that I want to talk about today because as we get through this, I'm having people ask me consistently, how long is this going to last? And as I mentioned earlier, 25 years of having a just a great market of consistent growth, that's what people's instincts are. It's again like things might fix themselves. But you've got to really understand, so in order for me to show to kind of lead you to the points that I've come to with how long this lasts, I've gotta kind of walk you through a few points.

The first one is that I look at is okay, if you believe what I've said and that is that this is a rotation to consumers, then boomers are, I like to say sunsetting, I prefer not to say the D word, but they're sunsetting at 2.6 million annually, and that is expected to grow to 4.4 in 2037.

Now, 2037 isn't when everything is going to get better—we'll in much better shape long before that, and the reason is because we're already seeing the consumers above 60 slow down in their consumption patterns, whether it's medicine or whatever, they're slowing down.

So it's not going to be 2037, I come out with somewhere between 2029 and 2031, but we'll go through some more slides to kind of show you how I'm thinking. Let's go to slide 7 if we can. So—thanks, Paul—so this is a slide that is on wholesale alcohol like the title says, wholesale alcohol inventory and turnover. It's from US Census Bureau, and the blue line in the middle, that's sales growth.

The area that's all light blue, brilliant blue, whatever you want to call it, that is inventory size, and so there's a number on the top, it says 1.68, that was the peak in terms of inventory-to-sales-turnover ratio. And 1.68 was not good. You can see the growth, probably something around 1.4, 1.3 is what you're really looking for, and arguably in flat-growth environments probably less than that because you want to have enough to get by. If you're flat, if you're zero growth, then you could argue even one to one is fine, but I think you need to have a little bit more for consumer selection, it's definitely not 1.6.

There are predictions last year that people thought that we could clear that inventory back up out of wholesale within 3 or 4 months, and that was predictions made last summer. This is a chart that I made in December, but there's been an update to that. Now we're back up to a turnover ratio of 1.65 again. So we're not clearing that channel, and the only way to clear that channel is going to be price. Price is a tonic for oversupply, and so I do expect to see pricing come down, I expect to see promotion.

It's not all about price, by the way. In getting to this, we have to use all of our Ps in marketing, I can't remember them all, but it's you know promotion price, place, packaging and then I think of Doc, Happy, Sleepy, Grumpy. I I can't remember the last ones, but to get that cleared, it's going to take at least a year just on that one part of the chain. That's at least a year to get fixed, and right there we're 2020 and it may be into 2026, I believe as well before we get that change because we're going to have to actually see inventory start to move a little bit.

Ali: You know Rob, what really oversupply in a warehouse really is just a seller full of lessons, and I think we're at that point, you know, what are those lessons that we can look into and lean into and really take some action on that to move those wines through?

Peter: We definitely see the big distributors chock full, and they have contracts with the big companies that are forced to buy wine, right? So they're forced to take that wine, and they're unable to sell it. And even SKUs or wines that are brands that are doing well and selling through, there's just no space in those warehouses to take them in.

Rob: There's stuff that's moving through the warehouses. As I've talked to distributors, they have brands that are moving just fine. And as I mentioned in the premium segment, top quartile, you know, saw 22 percent growth, which sounds exorbitant, but that's data from financial statements. So there are parts of the industry that are doing okay. When I look at it, it's wineries that have a mission. They have a buttoned-down management team. They run their companies by data. They're not afraid to try things. So that's kind of the description of a successful winery as I see it.

And especially they're not afraid. I saw the other day some winery in Sonoma decided they're going to go to $0 tasting fees. And, you know, does that make sense? And there was a long discussion from different people, oh that's dumb, that's great, that's dumb, that's great. But my thing is, look, let's try things and let's encourage experimentation. You try something, you get back at it, you look at the data, you figure out how it went and you make adjustments from there.

Let's go to the next one, Paul, slide 8, and we can talk about how long this is going last. So I believe that we're kind of in a flattened U-shaped recovery.

And so we went through effectively the restricted business reopening and the normalizing business, a lot of that, with increasing negative growth, which is a really bad thing. But that's where we really were tumbling, and it's not a happy time. Now we're starting to you can see that over the last so long and at least depletions, we're starting to hit a flattening spot where although we are hitting what appears to be a bottom, it's in negative-growth territory. And so the next step that we're looking for after that is getting back to zero growth. And that takes about a year because by definition, this is trailing 12 months.

And so when you get to your, at the end of a period, if you're still trailing at 7 percent or 6 percent negative growth or negative depletions in this case, by the time you get to the 12th month, now you start or the 13th anyways, you're looking at better comps that back it up. So if you're still trending at that same rate, you're going to get back to zero pretty quickly. So that's another year in there somewhere, so again the way I look at this it's probably not a year, not a year or 2.

What else should we talk about? Let's go to slide 9. That's just one more slide that will kind of display.

Looking at off-premise, you can see the off-premise volume is flat. I do believe that we're trending now toward volume and value for wine, starting to trend about the same growth rate now, and that would be expected in a discounting environment when you have the value growth above the volume growth. If you get to discount, you've gotta see those two come together, and so that's actually part of the healing process. And it's part of what's, we're gonna have in my opinion the best consumer market probably in my lifetime. I remember the last consumer downturn, and I put what I thought was going to last for a long time, I put about 10 cases of wine that I got for really cheap in my cellar, which was in my sub-floor. And that lasted me about 2 years.

But you know, we had this opportunity to not necessarily drag in new consumers, but as we'll see in a slide that's following, maybe appeal to a consumer that doesn't consume wine as often as other things.

But again, what you see off-premise we see that flattening. And so that's a good sign. Kaleigh, on-premise, you want to speak to that?

Kaleigh: Yeah, on the on-premise side, we can see that declines are tracking with where off-premise is. But on-premise has struggled since Covid, especially within that premium wine space, knowing that fine-dining establishments are really big for the industry, and having that sommelier on staff to really talk through all the wines.

Post-Covid recovery, a lot of those fine-dining establishments closed, and so we have definitely seen a decrease there, which is impacting some of the consumption. The other piece of it is how the consumer is changing, and we see that younger consumers are leaning into experiential bars and restaurants. So things like axe throwing or golf-related activities or something a little bit more.

Rob: Are you saying we should have tasting rooms with axe throwing?

Kaleigh: Maybe don't mix the two necessarily one for one, but we do see a lot of consumers that are leaning into more than just going out and having a social moment with their friends, but making it an elevated experience and having a little fun while also consuming. And so I think wine has an opportunity to better put themselves into those experiential occasions where something like ready-to-drinks have really found an area to thrive in.

Rob: Yeah. And ready-to-drink is something that's been a little more difficult I think for the wine category to get into. You can have a ready-to-drink cocktail and it works just fine. You don't have to put your nose into it to actually taste it. You can have that little hole, but it's all fine. But most of your sensory on taste is actually in your nose, and so for wine we want to smell it and it adds another hurdle, let's just let's call it that.

Peter: For on-premise we had an email thread about pricing. How much do you guys think pricing has to do with the decline in on-premise?

Kaleigh: Yeah, pricing is definitely like another indicator of what's happening here, where price can't really go up anymore, especially in the on-premise. We looked at some numbers in advance, it could range anywhere from three to five X on a markup for a consumer.

Peter: Three to five x retail.

Kaleigh: Retail. Compared to retail. So they might go into a retailer and find a bottle for that that $20 price point, but in a bar or restaurant, they're going to be paid just about that same amount for a glass of wine. So there's definitely a significant gap there that exists for the consumer when they're in like a bar or restaurant.

Rob: Yeah, and that price seems to have accelerated in the last years, let's call it 2015 on. The price increases have increased. I remember when somebody was complaining about a $10 glass of wine, but one of the issues that happens I think with the on-prem stuff right now is that if you're a larger wine company and a chain says, hey, we need this at this price, then you go ahead and you make it.

But until now anyways, that kind of wine quality hasn't been around there. So we're really not helping ourselves by having those kind of wines that are made for restaurants, let's say, and you know charged at a—you still want to make your margin.

But this is a market. People say, well, what are we going to do to get the wine or the pardon me the restauranteurs to lower their price? And it's not the way it works. It's not the way it works in a market. But we, you know, we do have to compete against spirits and beer.

Ali: I love what Karen MacNeil recently said about a bottle of wine at a restaurant. You know, you were all paying, you know, for a great Negroni at $20, $25 dollar craft cocktail. But if you take a $70 or $80 dollar bottle of wine and divide that by four or five glasses, that kinda evens out to the same price of that cocktail. So I think we could all be doing it better, just educating the consumer that it's wine math, it works out.

[LAUGHTER]

Peter: It's also more of a shared experience, where you're having that same experience with the people you're dining with and not having your own cocktail that's different from what everyone else is having.

Ali: Absolutely.

Rob: Well, and I'm not gonna share my cocktail with anybody. You got a question over there that we can dig into?

Peter: Yeah. People really wanna know about the no-low market. And is that real? How big could it get? Kaleigh, you have any thoughts on that?

Kaleigh: No-low, definitely a buzzword, especially since we're in dry January. I think some people call it damp January. We need a better name than that.

Ali: Terrible January.

Kaleigh: For those that aren't—I think the Wine Market Council is leaning into Joy January, but there's more happening around that. But we see this this idea of moderation happening across consumers where they're cutting back. They realize they might have drank a little more than they wanted to during, you know, the at-home periods.

And over the past couple of years, they've made some decisions to, you know, I'm gonna have a couple premium drinks, two to you know, one to two premium drinks, pay about the same as what you would for those five value drinks, but they're leaning into that premiumization idea, which in turn drives moderation.

And then there's the non-alc world where I think we can all admit beer has really nailed the non-alc flavor that consumers are expecting when they open a can. But the non-alc wine space is definitely an area of opportunity to continue to work on, and I know technology has come a long way in the past couple of years with the dealcoholization process, but there's still a ways to go with that. And I think it's not the solution by any means. You can't just put out a bunch of no and low alc and think that that's gonna bring the consumer in, but it's one area to further, you know, get some recruitment in that space. And no could be an opportunity for consumers that want an occasion to not drink as much but they still get that flavor experience.

Peter: And a lot of the no-low producers that I've spoken with for the podcast that I have is that the consumer is actually not the non-drinker. It's actually the drinker, and they might drink that in between having a regular glass of wine. Like a decaf coffee. Instead of cups of coffee in a row, they layer in a non-alc in between.

Kaleigh: The term is zebra striping for that. Now, I don't know if you've heard that. That's just where it's going. I have no idea where that one came from.

Peter: That's a Gen X term.

[LAUGHTER]

Kaleigh: But we actually see that in our purchasing data is that 93 percent of the buyers of nonalcohol products in traditional retail still purchase alcohol-containing products. And so it's not necessarily the sober consumer or somebody separate. That is a case. That is a use case for it. But it's somebody that's looking to moderate during different occasions. And maybe during the middle of the week, rather than having a glass of wine or, you know, a beer like they normally would, they're opting for a non-alc because they still like that ritual of it without the alcohol.

Ali: And I like an analogy that I heard from VinePair podcast. You know, they talked about beer and then, you know, you can pull up to the bar with your buddies, have a beer and then take a break from drinking alcohol. Instead of slamming water, you just order a nonalcoholic drink. Yeah. And so my hope is wine becomes that too, just maybe slow down that process and hydrate. So I think that's another kind of win. It's not an either-or.

Rob: I think the math for no-low is still out, and the reason I say that is because the cost. First you have to make the wine, then you have to dealcoholize it. And that changes the quality. There are good no-low wines out there, they're you know they're drinkable, they're good.

But there aren't a lot above $20, and in order for you know the smaller wineries to actually get involved and not make it a distraction, you know I appreciate when you have a tasting room that somebody makes something that's dealcoholized or nonalcoholic, let's say that way, for designated drivers and that kind of thing, I think it's a great thing to serve.

I don't know that we're going to get there immediately, where a small winery can actually make money on a no-low product. And as I said, it's a distraction too. Today, it's the territory for larger producers to make money in.

Let's continue on with for a second Paul, let's go to 16.

We're trying to figure out, and I think a lot of people have been trying to figure out what's happening with inventory in the wineries. And so as we think about where we've been so far, we've talked about retail and we see that that's in the red territory, but there's some sections in there that are worth looking at.

We looked at wholesale, wholesale is just packed. It's the biggest package, if that's a term, that we've ever seen. And then let's take it back another step and let's look at where premium wineries are. And so when we interview, what we find is they say inventory is 44 percent is moderately in excess of what we need. So I don't think we're in gross oversupply in the premium market.

We have the financial statements so we can look at it. It's closer to where we were in 2019 and remembering that we had acute oversupply in 2019, but we got out of it in a heartbeat because fires destroyed a lot of wine, that was part of it, but Covid in 2020.

So we got of that pretty quick. And then so wineries inventory were kind of stretched through 2021, 2022, and you had producers that were stretching their inventory across those periods.

Now we've had a couple of vintages that are larger size, and without question we have had a lot of growers that have been struggling in this last year or 2 in particular in the premium side, we've seen in the lower price-point wines we've seen more of that.

But in this last harvest, we've seen pretty much every region have oversupply. And it's kind of hard when your industry is this packed up with inventory. The grower is the one that suffers the most because that's the beginning of this chain. It's like a, how did I phrase it up last night? It was like a slinky.

Ali: Like a Slinky, yeah.

Rob: In order to clear this inventory through the whole chain, what we've got to do is get the retail side going. We've gotta get the DTC side going. And once that moves, then you have the opportunity to improve, let's say, the wholesale side, back to the producer side and then you know finally back to the grower.

Now if we look at—I have a slide in here somewhere about, where was it, growers, must be the California bulk market—so let's go to 15 for a second.

Ali: Right on top.

Rob: Yes. Thanks, Siyadi, for providing this material, all the good work you do in data research too. So this is California bulk wine market. And you can see where we were in 2020, and you can see how we dropped—and this is a bunch of different varietals on the left and on the right it's total. So we're getting back to a place of juice that is getting near to where we were in 2020 just before the market did what it did with Covid. So we're oversupplied, and what's gonna happen I believe is we're going to see not across the board but in many cases we're going to see prices for grapes contracts, they're gonna have to drop. Not all at once because that's not the way producers do things, producers have you know staged contracts, you got a third that roll off this year, third next, a third the one after that. And so we're going to see prices for those contracts change. And this is just part of the market, although it's a very painful part.

The producers are going to have to negotiate lower prices because they're going to have to get in and some of those, some of their wines, some of the—again, not across, this is generalization—but some of the wines are going to have to be discounted. And so to protect their own margins, they've got to lower the inputs.

And the other thing is not just lowering inputs, but it's finding ways to be more efficient. I mentioned earlier about when you look at the wineries that are doing well, they're finding new ways in efficiency, and using data is one big help from that. So this is where we are, we have this big, big backup in inventory.

And so let me get to what I put together. I think it's slide 22. What do think, Kaleigh? Do you want to talk about 21 first?

Kaleigh: Yeah. We can talk about, you know, the different age—

Rob: Yeah, why don't you talk about 21? Yeah, I feel like I'm yapping too much.

Kaleigh: Yeah, I asked us to look at this slide before we dive specifically into the wine information because I think it's good context to remember that there's not necessarily a wine drinker, a spirits drinker, a beer drinker anymore. It's moreso a total alcohol consumer, and this slide is looking at preference. So if somebody was able to choose one category first, what would it be?

And we can see that wine in that light blue sort of falls to the lower end, especially among those younger demographics. And we could easily brush off Gen Z as, oh, they're gonna come along eventually. They'll enter the category when they get the chance as they age up, but they're drinking alcohol, and they're leaning into certain products that are flavorful and have alternative packaging a little bit. So there's definitely an opportunity with wine specifically to take note of what the other categories are doing to be the preference, and how can we look at these younger consumers and recruit them prior to just waiting for them to age up because maybe they won't age in like other generations once had.

Rob: Yeah, it's a pet peeve of mine that we've taken this approach, and I've even heard it said this last year, all we need to do is wait. We just need to wait for the young consumer to age and start to have family incomes and establish in their careers, and then they're going to come to wine like the like the boomers did because they because they always have come, and that's hogwash. Because that might have been what the boomers, did but that's not what my parents did. My parents didn't go to wine, they were beer and spirits drinkers, and I as a boomer rejected what they were doing. I went my own way with wine. And so to think that somebody's age changes and they wake up and say, I'm gonna be a wine consumer, that's just a fallacy. It's not the way it works.

Peter: So It does depend a little on where you sit in the market. So for the bigger players who are after volume, going after the younger consumers and creating products like RTDs based on wine and other things could be a good avenue to drive innovation and that gateway in, like the Bartles & James or Zima or whatever it was we had growing up.

But we are seeing, the Wine Market Councils did some research, and millennials are starting to pick up on wine consumption. Partially I think that's due to, they had delayed wealth formations as we talked about, but also family, delayed family creation, right? I've got little kids now, and I don't go out to bars and clubs very much anymore if at all.

And we have dinner parties at home, and that kind of occasion to have something elevated and interesting, wine can play a big role there, and I think that's the target market where we're not waiting per se, but we're trying to capture those moments and create those special moments with people together in that connection for the premium side particularly.

Ali: Gathering is important.

Rob: Yeah, I think occasions is, Dale Stratton, I don't know, probably 15 years ago, he said to me, you know, we have a generation coming up that's multicultural, and we're going to miss the occasions, and I thought, come on. That's just throwing in a buzzwords. Damn, but he was right.

You know, we've gotten to this point where we're losing out on the occasions. I thought for sure that, we've all thought, I think wine is part of food. Wine goes with food. If you go to a restaurant, you might have a cocktail to start if you like alcohol like me. But you're gonna order a white wine, probably a red wine too, because wine goes with food.

And I thought, you know, that would always be, but you guys are all aware, you go into these restaurants now and we have beverage list not wine list anymore. And this happened for a number of different reasons, but that's what's happening with demand right now.

You see consumers now pairing craft cocktails or the sommolier's or the restaurant owners are making craft cocktails to prepare with their food pairings.

So we don't have that advantage anymore. We're kind of cutting through that. And we we've got to re-find the occasions under which we'll we'll be successful.

Peter: To your point, there's a lot more occasions these days too as we become more multicultural. Next week is Chinese New Year, there's Hispanic things, we have Diwali. There's lots of different occasions now that we can think as an industry, how do we get wine to be a part of that.

Rob: Yeah, and Jackson family is, I don't know if it's a WNBA or NBA they they partnered with, I can't recall.

Peter: Both I think.

Rob: Was it both? And I applaud that because that's mixing up a very popular part of the culture—the whole culture, really. And that when you start to figure out, hey, LeBron James drinks wine and there's so many NBA players that actually have their own winery. If we could leverage that kind of exposure somehow, that's one opportunity to kind of get more interest in the category.

But I think consumers younger than 60 have a difficult time envisioning, you know, I'm going to have a picnic. Oh, let's bring wine. I think, let's have, we're going have a picnic. Oh, okay. Well, I'll go get some RTDs. I'll get some beer.

Back in my day, you brought a bottle of wine. If you're gonna have a nice picnic, you brought a bottle of wine or two or three or four. And so we're losing those occasions.

Ali: Even people are staying home more. I think Covid created that environment, but when you think about wine, throw on a record, open a bottle of wine, invite a friend over. I mean, that's truly the magic of wine that can allow that that special occasion to happen on a Tuesday night or a Sunday night. So there's that as well.

Rob: I don't have any problem with any night personally. I'm an equal-night employer for when it comes to my wine.

[LAUGHTER]

Peter: On that, should we talk about hospitality because a lot of people in hospitality, I think, are trying to incorporate other senses in. Be that visual or audio that you can expand the experience of wine by creating music pairings and other things.

Ali: Absolutely. I mean I think one of my favorite Sonoma County tasting is the Medlock Ames. You know, you have the silent disco almost going on with earphones, headphones, and a tour through their own vineyards. And that's a really neat experience, one that hasn't been done too often before.

But even small producers, we're limited. I just got a quote for $20,000 for AV equipment in our tasting room to do something cool. Wow. Sorry. That's a lot of wine we'd have to sell to provide that special camera. But, you know, our people are telling us they want experiences and they want fun and they want to be curious about why they're in wine country, and I think that's what we need to lean into as small producers.

Rob: Beyond that, I've said for a long time that the tasting room model is dangerous to just continue to focus on that. We've gotten to this point where DTC, we just say DTC is a better return and it is, but we saw what happened during Covid and, know, club sizes start to drop because you're not getting the sign-ups. We are getting more sign-ups through electronic means, you know, web-based sign-ups. Last I checked, think it was 13 percent of club sign-ups came through electronic means, so that's good.

But I think we have to continue to look around again try new things, and I've said for a while that if it was me, I would go find a community somewhere. Maybe it's my favorite vacation spot, maybe I have relatives that live there, maybe I went to college, I don't know if it's got friends, whatever. It's a spot that you enjoy and there's a population of potential wine consumers there that you can tap, and you can find sommeliers that are you know willing to do a little gig at night because they're stuck being concierge at the Hilton during the day.

And so I think the labor is out there to do it. I think it could be done effectively. You can get somebody involved really and be the face of your winery in these other towns, dig into the nonprofits in those towns, really start to become a part of who they are, and I think that that's another way that the premium industry can expand.

Peter: And by using the data, right? Using your data of where you have a target market and where you have some base to build off of because going in cold is going to be very expensive.

Rob: Yeah, and analytics and customer vineyard both are groups that can provide that information for you. And so talk to them.

Let's go to slide 22. This is probably the most important one for me to talk about. So I was trying to get at the answer to the question, how long is this going to last? And so I had to create some sort of a model to go after to figure it out.

Fortunately, the Wine Market Council—by the way, in the notes to the report, there's a link to the Wine Market Council. I encourage you guys to join, it's very reasonable and they're doing really great work But this is where I got the background data for preference. And so we know, as Kaleigh said, that consumers drink across categories.

And so I just stripped out all the nondrinkers in the population base from the Census Bureau. This is each individual year, population size by age. Those boxes at the top are deciles. So it's 21, well actually the first one's 21 to 29. And the next one that's 8.3 million, something like that, 8.4. It's kind hard to see. That would be 20 to 29.

Peter: Thirty to 39.

Rob: Pardon me, thank you, 30 to 39, so that's what the boxes are. But I was looking to see you know what the what the opportunity is for consumers. And so what you can see in that red box, that's where we are today with the preference being really high amongst the older consumers, that 60-plus, and what we're going to see over the next 10 years anyways—it's great that boomers are living longer, I appreciate that fact—but you're going to see that mountain melt a little bit. You're going to see the numbers of consumers drop, and you're going to see the preferences drop as well.

And so we have this unfair exchange, and this is why we keep seeing prices drop. It's not that the industry isn't making something that's desired. We've never made better wines in the history of winemaking. The products are just fine. But we're missing out on attracting consumers that actually we think we have to get new younger consumers. They're not wearing footed pajamas and having Garanimals or what are those snacks, I don't even think they make them anymore, but my kids growing up they had those like Oscar Mayer snack little things.

Ali: Lunchables.

Rob: Lunchables, yeah, you throw them in lunch box instead of making a sandwich like my mom had to do.

Ali: That's what RTDs are.

Rob: They're not that age anymore. They've been, to Peter's comment, you're talking about people that are in their careers, they're starting to have children. In some cases it's maybe later 30s, but certainly the careers start seriously at 30. So when you look at that green spot, that's the preference. And so the way I look at it is, it's the theoretical number of consumers that would likely want a glass of wine over other beverages at any given point. That's kind of what I created here.

It's just theoretical, but it says what I was interested in seeing. We're exchanging that red box for the left side that has no box, the 20 to 29, and it's not a fair exchange. So that's where the first thing is happening.

And so if I look at that, do I want to go attack the 21 to 29? I go with Peter's comment, that's where we've had the gateway wines made by the larger producers all the time, for as long as I've been a wine drinker. That's where you found those producers be successful is those gateway wines. They're still having some success in that category, but we need that to be better. Everybody needs to be better, but that's where they need to be better.

Ali: The quality needs to be better there. That's what I believe. That's what's lacking, I think, is those gateway wines are not really representing the quality of wine that thousands of boutique wine producers are putting out.

Rob: Well, Wine Market Council did some work on it, and I think that was the second reason. I think price was the first reason, and taste was the second reason. But you're dealing with neophytes, and I remember the first time I tried a beer, I couldn't believe why anybody would drink that.

Prior to that, I used to drink wine, but that was when I was in my teen years, I would sneak it from my dad's gallon jug that had been sitting next to the garbage disposal and it oxidated probably for 2 weeks. I didn't like that either, by the way.

So, you know, we do have to provide a product that consumers are gonna want. And I personally believe, and I've said this before too, just before Covid when I was up in Washington speaking and on stage, and I hadn't planned it, but I liked the way I ended the speech. I said, wine, it's what the young consumers want. They just don't know it.

And so when you think about wine, all of the different things that are—it's green, you know the location where it's simple, at a simplest point it's grapes, yeast and little sulfides maybe, or not. But it's very simple, so it should be easy for a consumer to understand.

As one of my friends said when we were talking about this a couple years ago, he said, for God's sake, wine is plant-based.

Ali: It is.

Rob: And so that speaks to what we really need to be doing with that, again, that 30- to 45-year-old crowd. That's where they've tried wine. We go back to that slide again.

Peter: It's gluten-free too.

Kaleigh: Should be sugar-free.

Rob: Yeah, slide 22. That's where you see in that green box, it's consumers, and this is work that the Wine Market Council there and the preference, I just put it into Census Bureau stuff. And so you can look at this and you can say, okay, they have a preference. We just have to move that preference needle 1 day a month from beer and cocktails over here. I hear every now and then, people talk about kind of like depreciative marketing. Our wine is not is, our wine is better. It's healthier. It doesn't have poison in it or what. It's just outlandish things, and that's just not the way we wanna market. That backfires on the whole industry, including the people that make those claims. So I encourage if you do that, please stop.

Kaleigh: I think it's the sugar conversation has been big amongst consumers and, like, RTDs have shed light on, you know, oh, I don't want any sugar added. And that's across the total store.

But now the wine industry, there's a couple of like pinning against one another of, well, we don't have as much sugar as like another brand. Well, that brand also doesn't add sugar to it either. The consumer doesn't know that, though, that it's just naturally sweet necessarily. They think that if it's really sweet, then you're adding sugar to it because that's how their sodas are and everything else that they're consuming.

Rob: Yeah, it's just not the sound bite you want to leave.

Kaleigh: Yeah.

Peter: So to that point, is doing more ingredient nutritional labeling positive then for the industry?

Rob: Well, it's a lot of work—again, Wine Market Council's done work on that—and the work that they did kind of said it didn't really matter as much as people thought. But I think people do care about calories, probably sugar in particular. And I think a label is a good idea personally. We're trying to find ways to put QR codes on labels, which I think is distracting more than anything else. But, yeah, I'm for transparency.

Kaleigh: Yeah, and people aren't necessarily spending a whole lot of time at the shelf either, and that's one thing that we look at through some NielsenIQ data is that, you know, some of us go in and we're on a spirit safari or wine shopping, but a lot of times they're purchasing for a same-day occasion or pretty close proximity to, you know, consumption. And so they're going in there. They already plan to get the category that they want. They know they want that wine, and they grab it off the shelf, and they go. They don't have a whole lot of time to compare labels or let me scan all these QR codes, and so it's also making some of those claims pretty simple.

Peter: We need an AI app that, like, you have the camera on the shelf, right, and you put in your parameters. I want no sugar, no whatever, and then.

Kaleigh: But it might come to that too.

Ali: It's probably already there.

Kaleigh: Technology, yeah.

Rob: Well, I know that there was one application they were trying to figure out how to do, and they actually, last time I checked, had an initial funding and I think they got through another round, I don't know if they kept going, but you can figure out with a camera what wines are on the shelf and how to replace them. That was their thing.

There's all sorts of creative people in this industry, and there's two reasons why I think we have such an opportunity is because A, we have just creative people—on the sales side, tasting room, the sales side, we just have creative people. They're gonna figure this out if given the opportunity, and instead of saying, well, who's done that before, don't think that way. Give it a shot, see what happens.

The other thing is—and I said this probably 10 years ago—I said I'd worry about the wine industry and where we're headed, except we haven't marketed to the other 49 states.

[LAUGHTER]

I'm talking about the premium you know side of it, of course, but the opportunity is there to really get out and change the way we market, and we're starting to see the industry do that.

And so I think that a lot of this is in our own control. If we wanna collaborate, if we wanna get together, we wanna work together, if we wanna cooperate with our neighbors. And by the way, you know, your ABA associations, if you're trying to cut costs, don't cut there because that's the place where the conversations happen. That's the place that marketing takes place and promotes whoever you're with. And that's maybe not collaborative in the entire category sense, but I as discovered trying to get the USDA marketing order going with my colleagues, trying to get this industry to work together is like herding cats. But today we're all struggling from the same headwinds, we all have to figure out answers, all have to figure out ways to differentiate ourselves, differentiate, I didn't say that very well, you guys know what I mean. We have to find ways to do that and provide our own sort of space to why people should buy our wine, of course. But we need to, I think we just need to do it together. There's strength in those numbers. Let's see.

Peter: A lot of people were asking about the potential of tariffs and what impact that might have on our industry. I don't know you guys have any thoughts on that.

Rob: Well, I didn't cover—I think I might have said a sentence in the report about tariffs—because when I wrote the report in December, the discussion was coming up about tariffs. So as I talked to a reporter, the way I frame up tariffs is that for our industry, we're the consuming country.

Largely, it's gonna take a foreign wine, and foreign wines are growing. Some of them are still growing, while the domestics aren't. So if you put tariffs, that might change that that algebra a bit. So it could help. On the same token, we have a lot of people in distribution that are sale that are selling imports, you know, that are US companies. And so that hurts them. It also hurts exporters. If you're a particular exporter of size, that's where it could hurt you as well.

We don't know, retaliatory tariffs are part of the equation. We don't know what's gonna happen. There's a conversation about Canada this morning, the new Prime Minister talking about what he's gonna do, and one of the things he said, I think he said we're gonna remove it from the shelves.

So I don't really have a, it's kind of hard to be all that forward on it because we don't have a full understanding of what that might be or even if it's gonna happen. You just never know. What's said doesn't always get done, so we'll see.

Kaleigh: And it's something that the total beverage alcohol industry is looking at too with imported beer and the different imported spirits as well, so it's definitely top of mind but I think more to come on that front.

Rob: Yeah. The retaliatory side of it, the last time we were in—and I can't remember the exact reference, but it had something to do with Airbus and Boeing—so somehow we ended up with tariffs from France because of that dispute. So it's, I don't know, there' s a lot—

Peter: It was France and not Italy, and the Italian wines benefited because of that because they were relative value. The Italian wines grew faster than French wines, and—

Kaleigh: Italian wines are definitely having a moment too, specifically Prosecco, which you talked about in the beginning, Rob, with like opportunities that exist.

I think Prosecco is not only that celebratory, like, bubbly drink that sort of is like an RTD but in a bigger bottle, but Prosecco has done a good job of expanding the occasion into a cocktail in the on-premise and has become, spritz has become a staple on many menus. Looking for that. And so I think there's other opportunities there too for wine to, could you come up with some potential cocktail that will then get somebody to experience it without having to dive necessarily into some of those higher-priced wines that definitely taste, that nail the flavor.

Ali: Well, I just read a release that I think Rack & Riddle is introducing a Calsecco, you know, to really expose the California, the American market to Prosecco that we make here on our own land. So that'll be exciting to watch, I think.

Kaleigh: Yeah, makes it way into—

Ali: Yeah, I'd love to start an evening with a spritzer. Are you kidding me? That's great.

Rob: Well and that's the stuff where you know if you look at those kind of things like Prosecco and figuring out how to make cocktails out of Prosecco, that's the kind of stuff that an industry association can do. They can spur demand by talking about things like that.

Going through business school, we had this discussion about baking soda, how baking soda went from being basically nothing to a way you could put a box in your refrigerator and it keeps the odor away. I don't know if it really did because our refrigerator still stunk growing up, but my mom started putting them in the refrigerator so.

Ali: They buy it for a refrigerator, yeah.

Rob: But that's the kind of stuff that a larger industry marketing org—and I'm all for that, as you guys know—I think we need to support a USDA marketing order still. If anybody wants, we have all the work done. So if anybody else says, I'm not gonna do it, but I'll help.

Ali: Cool.

Rob: Again, if we wanna go that way, but I think that would be great. We're not gonna run I guess, like I said, we're not gonna run into luck again and have, you know, a new French paradox just hit the airwaves. We might find—

Ali: Just maybe. Just maybe. Taylor Swift loves Sauvignon Blanc.

Rob: Did you ever see the Taylor Port challenge on TikTok? Did you ever see that?

Peter: That explains it, yeah.

Rob: So some people may know that I mean, it was crazy just watching these TikTok videos. I had to go get a TikTok account because I had to—

[LAUGHTER]

Rob: Because I didn't have one, but I had to watch this and it was just incredibly funny. But yeah, port started to take off just because of these this silly Taylor Port. I don't know who started it. I don't think it was a marketing firm.

Ali: It was random.

Kaleigh: It's organic, and we saw that come through in our, especially among Gen Z and it was like, well, what's Taylor Port wine doing differently than and it was some of that organic side of the things that have been happening.

Peter: What is port wine?

Kaleigh: Well, that was the other piece of it too. What is that? Yeah. But, yeah, consumers were leaning into that a bit too.

Rob: They were just saying the table port challenge, by the way, was not the way you should consume wine, or we don't condone it. Yeah. Yeah. Yeah. It's, you know, that's the part of the alcohol consumption side that's not, moderate is what we all need to talk about.

Ali: Rob, I wanna mention, you mentioned that you've seen an increase in wine club sign-ups coming through websites and ecommerce. So I think that is where I think boutique indie wineries have a real advantage is having a level playing field, having a digital footprint, and just reminding and marketing to our wine consumers, if you love a wine, go find their website, you know? Join their club. It's a savings. I mean, it's really the only place that you can count on a little bit of a savings, whether it's on shipping or twice-a-year shipment.

So I think we all could be doing a better job in how to find some premium wines because, you know, there's that balance right now that I think, right, small wineries can't super afford to send a lot of their wine out through, you know, distribution channels these days.

Rob: Regionally we see Temecula, Santa Barbara, they have—I forgot what they call it, but they're districts where they're going to tax wine sales by a penny or half penny or like that and then put that into a marketing budget for the region. I think that's a good idea. I think Napa always does a great job. Visit Napa Valley is a very interesting group. They have their website. If you're looking for a place that, by the way, that has, children are welcome, children are accommodated. You've got lawns that they can roll around on and still let the parents play. You can find that on that site. They have them listed. And so making it clear, it's hard to get people to come specifically to your site, but in a region you can actually drive them to your site.

And again, this is cooperation regionally, and we don't want to like pull from each other. We want boats to rise together. That's the idea.

Ali: Collaborating with each other I think is going to be key. You know, we love to send our own customers to a great winery we know in Colorado or Texas or Arizona or Virginia. And I think that's really important to continue to have those conversations and how we can help each other.

Rob: I saw one, I might have mentioned it in the DTC symposium, but we had one of our clients that I thought did something I never thought I'd see, but they actually went and participated with three other wineries and gave each other their—there might be a legal issue here with selling people's, because I think there's privacy issues with giving emails away, I don't know how they exactly can—

Ali: We can offer benefits to others, yeah.

Rob: Let's say that they got through that hurdle. But they shared their club members and the four wineries altogether. The result of sharing the members was that all four ended up having more members when it was done, and their sales-through club went up.

It's kind of counterintuitive. I know everybody thinks, well, I'll give you everything except my club list. We're very cooperative, you need a tractor no problem, you need a welding torch no problem, know you need a hand with something that you know no problem. You know sales list, no. But there's an example of somebody doing something out of the box and it worked.

Peter: And no one buys just from one winery or goes and visits only one winery. They're gonna want to know, who else should I go to or who else do you recommend? If I like your wines, what other wines would I like?

Ali: I think reciprocal memberships right now are a really cool concept, and it's working. We're seeing that for sure.

Rob: Say that again?

Ali: Reciprocal memberships, so think about—

Rob: Tell me about that because I don't think I know about that.

Ali: Well, maybe you don't yet. So it's kind of like when you're a member of a country club or a Citicorp situation and you travel to New York but you live in Chicago, you have a reciprocal club.

So the same can be said for wineries, sharing those benefits without sharing private data and content. Just exposing another place to enjoy wines that actually you know should be enjoying.

Rob: Collaboration is the key. It's hard to do this stuff alone. There's too many wineries, and you can't get enough eyes all at once. So getting some group to actually pull that together in a larger way is secret to success, I believe. I said it last year in the state of the industry report, I used Darwin's message about survival of the fittest. And it wasn't really about whoever's strong is going to survive. I mean, going into those wineries that are well off financially that have a plan aren't over-leveraged. They'll have an easier time. But the survival of the fittest really had to do in part with species that work together, and I use this a lot—if you've heard it before, sorry—but it's like the wildebeest that all huddled together to stay away from a predator. Which one is gonna do better surviving, the ones that stick together or the wildebeest that's outside that herd? They get picked off.

So in the same way, I think that it's just so much better to again collaborate and share ideas. We all copy each other in the industry, that's kind of normal. But why don't we help create as well? I think that'd be awesome.

Peter: We have ideas, and you need a filter to what actually works and is authentic to your particular brand and winery. Not just because it works somewhere else that it's going to work for you. I think that's a big mistake.

Ali: And it comes back to your data. You've gotta analyze your data and your customer. You've gotta have to be obsessed with your customers on all levels and really meet them where they wanna be right now. And maybe they're sending kids to college and they can't come to wine country. Well, hey, gather your friends. We'll fly into Houston and really be a part of your world there.

And we've been doing this for a long time as independent wineries, but I think right now it's even more important to matter to them. So yeah.

Peter: And to your point of digital, mixing that digital with in person, but whether that's in wine country or at their home is a huge advantage to actually converting.

Ali: Absolutely, yeah.

Rob: I know we had some questions about tasting fees, and I brought this up in DTC. There was, did I mention this earlier about Sonoma or was that last night? We had dinner last night where we go over some of this stuff. But a Sonoma winery took their fee back. So zero fee. Did we talk about that already?

Ali: A little bit, yeah.

Rob: So you know, yeah, that's right. So that's kind of an idea. Is zero gonna work? I don't know. But I really think that looking at the periods of times in your tasting room that are slow and figuring out how to attract people, it's not just about price, you know, it's about price promotion. You want to bring in those consumers that maybe are on the edge and they understand wine, but how do you actually get them to your tasting room or how do you get to their front room? One of the two, that's what we have to do to improve our success rate in that.

Ali: So many layers there. I mean the cost of travel these days, you know, is I think playing a big role in why we're seeing a little bit slower visitation. And I think everybody's starting to realize that. I'm a super fan of the Sonoma County Snoopy airport, and often, put that online and tell everybody, hey. Fly right in. It gets you 45 minutes away from the Napa Valley, 10 minutes from Hillsburg. You're an hour from San Francisco. You know, what a great spot to have, and it's smack dab in the middle of wine country north of the Golden Gate Bridge at least. That's important.

Rob: Let's see.

Peter: And for hospitality, visitation is down I think around 7 percent is what analytics said through Q3, but it's not equal everywhere. Napa and Sonoma is down a lot more, places like Virginia or Santa Barbara, where their customer base is more local, are actually flat just down a little bit relative to that.

Ali: More population down there too. And we're seeing experiences play a bigger role in revenue creation at the tasting room, at the wineries, special occasions, other things brought into the winery that aren't normal.

We do lots of creative things as little guys, but I think collectively, I think that could be a fun nontraditional. It's not a barrel weekend. It's a bring-your-dog-to-winery weekend or something really fun that's not been done before.

Rob: We've gotta try things. That's the way we find success. Why don't we talk about slide 19 for just a moment, Paul, if you don't mind bringing that up. I'll talk about this in our final slide.

So this is the wine industry sentiment index that we run each year. We've been doing it for about 10 years now. And we use the Michigan Consumer Index methodology, where you get three answers that either impacts me positively, negatively or neutral. And then so what you do is you take out the neutrals and you subtract the positives from the negatives and this is what you got.

So I think it's an effective way, and if you look at the far right side, you can see that the overall mood of the industry is low. The industry is, as a matter of fact, it's a 10-year low. It's the lowest of all time. So that's where we find ourselves today.

And as we start to wrap up, I just think again that what I'm looking for from the industry is, you know, I want to move away from the notion that doom and gloom isn't something we should—I just don't think we should talk in those terms because we shouldn't exclude information. We should look at information as being the thing that's going to drive our success. I've gotta tell you, from my own point of view, when I get criticism of what we do from a client service standpoint, you know, I'm all over that. I love getting that feedback because I want to improve. And my entire team back in Napa, Sonoma and Oregon are just the same way. We're just maniacally focused on client care.

So I want to know where we're screwing up because nobody's perfect. And we have to look at the data, we have to be clear-eyed about it. We don't have to linger in it, but we've gotta understand the path. Unless you understand the issues, you can't solve the problem. And we're gonna solve these problems better together than apart.

We've really gotta get to the point where we move past this, oh, don't kill hope. You know, because again, hope is passive. You know, it's I hope it doesn't rain. I hope I get married and things like that.

But I want the industry to move toward belief. I want us to start to figure out what the action items are. They're gonna lead us to the place where you can look at the data and say, I don't care what the data says. This is where we're headed because I believe that we're going to do X. That gets down to your basic strategy and execution.

And we can't wait anymore to expect to see the industry just like convert and go back to where it was or have the French paradox save us. This is going to take some effort. And as I've been through all this data with you, it's somewhere between 2027 and 2031, and the growers are going to be the last to recover and have supply and demand equal out. And I think that's probably going to be 2030 before we see this all get back in that Slinky way all the way back to the grower.

So there's a lot of work between here and there. But I believe in the industry, we at Silicon Valley Bank and First Citizens Bank, we believe in the industry and have made the investments. We're going to continue to do that. We're going to continue to do our thought leadership and hopefully help the industry survive and thrive. I was going to say thurvive and srive, but survive and thrive.

With that, we're out of time. Thank you so much for joining us today. Thank you all my panelists for sitting in with me and backing me up on this. I couldn't talk for an hour-and-a-half and beyond that, you guys have a lot more practical experience than I do anyway. So thank you guys for being here.

Ali: Sure.

Rob: Let me see, got some closing thoughts here, guess I need to read this.

You can access the new 2025 State of the Wine Industry Report on our website at svb.com. A replay of this virtual event will be available on our website and also shared out to all attendees and registrants next week.

And again, I so much appreciate those that participate in our surveys because without those surveys, we can't get the information to you in this way. And our survey respondents, by the way, I probably used a half-dozen slides from the survey in this, but the survey respondents got 100 slides almost. So you get data back from which you can benchmark yourself against, I didn't say that right, but you can benchmark yourself against that data and find your own ways to be successful.

So with that, thank you for your participation, for all the questions you've had in the background. I'm sure that's been a really interesting thing. And we'll do this again for the DTC seminar when that comes up, and I hope to see you guys all on the television or at Silicon Valley Bank soon.

About the Silicon Valley Bank Wine Division

Founded in 1994, SVB's Wine Division in specializes in commercial banking for premium wineries and vineyards and the industries that support them. With the largest team of commercial bankers dedicated to the wine industry of any bank nationwide, SVB's Wine Division has offices in Napa, Sonoma and Oregon serving clients in the fine wine-producing regions of California, Oregon and Washington.

Disclosures

This material, including without limitation to statistical information herein, is provided for informational purposes only. The material is based partly on information from third-party sources that we believe are reliable but have yet to be independently verified. For this reason, we do not represent that the information is accurate or complete. The information should not be viewed as tax, accounting, investment, legal or other advice, nor should it be relied on in making an investment or other decision. You should obtain relevant and specific professional advance before making any investment decision. Nothing relating to the material should be construed as a solicitation, offer or recommendation to acquire or dispose of any investment or to engage in any other transaction.

Silicon Valley Bank, a division of First Citizens Bank & Trust Company, is not selling or distributing wine or wine-related products. Through the online informational platform SVB Cellar Selections, Silicon Valley Bank provides material to employees about a variety of premium Silicon Valley Bank winery clients and their wines. These communications are for informational purposes only.

Silicon Valley Bank, a division of First Citizens Bank, is not responsible for, nor is it a participant in, the sales of any winery products in any fashion or manner and makes no representations that any promotion or sales of alcoholic beverages will or will not be conducted lawfully. Further, Silicon Valley Bank disclaims any responsibility or warranty for any products sold by wineries or other wine industry service providers.

Silicon Valley Bank provides banking and financial services, along with industry insights to vineyards and wineries.

The views expressed in this report are solely those of the author and do not necessarily reflect the views of Silicon Valley Bank, a division of First-Citizens Bank & Trust Company, or any of its affiliates. Matthew Owings, Rombauer Vineyards, Janie Brooks Heuck, Brooks Wine, Kristin Marchesi and Metis Mergers & Acquisitions are independent third parties and are not affiliated with Silicon Valley Bank, a division of First-Citizens Bank & Trust Company.

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