by Jeff Miller of Artisan Family of Wines (Seven Artisans, Sly Dog Cellars, Red Côte)
SVB on Wine posted an interesting blog on the projected state of the wine business in 20 years. It is well worth reading and can be found at: “What Will The Wine Business Be in 20 Years?”,
While there is much of interest in the post, I think the following quote sums up the gist of it:
My crystal ball sees that we will be far more international in our sales efforts, the Millennials will be the dominant consumer with the Boomers an afterthought, there will be more roll-ups of wineries to deliver great quality wines in larger volumes, we’ll apply unimaginable technology to production and management, there will be more hedge fund and family office ownership, the AVA’s outside the West Coast will find their stride with some being recognized internationally for their high quality unique wine production, and far from label consolidation, I expect to see double the number of wineries and labels.
To put this all in perspective, suppose you come up with a new idea for a superior toothpaste. You borrow money from your relatives, put together $100,000 or two, and start producing the superior toothpaste. Is it truly superior? Well, for all intents and purposes, it doesn’t matter. Your chances of beating out Crest and Colgate to establish even a small niche in the marketplace are someplace between slim and none, with none the far more likely alternative.
When you look at almost any product, you see the same thing. The combination of existing market share, marketing power, and the ability to force products into distribution by the existing leaders makes entry by new, small, competitors almost impossible. You can add in regulatory burdens which almost require a large entity to able to absorb those costs and spread them across a large production.
The wine business for who knows what reason has been far more resistant to this trend than most businesses. But more resistance does not mean anything close to total resistance. While there are many small players in the business, when you tally up the total production of small producers against large producers, it is impossible not to conclude that even in our industry, the big players dominate the marketplace.
So I think what the future is going to bring is a bifurcated marketplace. National distribution, which includes all major grocery chains, the larger wine and liquor outlets such as BevMo and Total Wines, and even most local wine shops, is going to be dominated by the huge wineries such as Gallo and Kendall Jackson.
Small wineries will continue to exist, but they are going to need to go smaller and smaller. In the food business, you see the giant companies such as McDonald’s dominating the large chain and national marketplace, and then you see your mom and pop local restaurant or deli that caters to a clientele that want something a little different, something a little less corporate, and something where there is some human connection between buyer and seller. The same dynamic is playing out in the wine industry as well.
I think middle sized wineries are going to have the most difficult time of all. Based upon our own experience trying to sell into national distribution as a smaller company, it is really really hard. The large distributors have little interest in the volumes that small wineries can provide to them. Why sell 10 cases of the small winery’s product when you can sell 1000 cases of Kendall Jackson? The smaller distributors that can be an outlet for the smaller winery are a dying breed.
So while I think SVB on Wine may be correct that in 20 years will you will see even more wineries than we do now, the vast majority of those wineries will be very small catering to local clientele, and relying largely on direct to consumer sales. While we may see twice as many wineries, I think we will see the market share of all but the largest wineries shrink.
I, personally, don’t look upon these developments with any glee. But, realistically, in a nation where everything is trending towards dominance by a small number of large companies, it would be naïve to think the wine business is going to be able to dodge the bullet.