Silicon Valley Bank’s annual Wine Industry report for 2010-2011 reiterates the prior prediction that the wine market will be slow to fully recover.
It predicts year over year sales declines for 2009, but also forecasts modest growth at the producer level in 2010. The growth prediction is tempered by observations of continuing economic softness and demographic shifts that are creating headwinds against a quick return to the business conditions that were considered normal prior to the third quarter of 2008.
“Our current research is showing that the wine businesses continue to be pushed in this economic environment, and there is no expectation that what was normal for the past decade will return in short order,” said Rob McMillan, founder of Silicon Valley Bank’s Wine Division and author of the report. “Defining a new normal and acting on that is more prudent than waiting for the old normal to return.”
Emerging demographic shifts in particular will impact sales and marketing strategies for fine wines as target consumers change spending patterns, and potentially exit the market altogether.
“For that segment of baby boomers who have seen their net worth drastically reduced and who have been the prime target of wine marketing for nearly 20 years, a $50 bottle of wine is now permanently out of the question for a normal purchase,” McMillan said.
Early reports for the fourth quarter of 2009 sales suggest improvement over the same period in 2008, an expected down year for the full year 2009, but positive growth in the fine wine business in 2010. However, true recovery will take time due to lasting, negative economic changes in housing, consumer wealth, consumer credit, business spending and restaurant sales, according to the bank.
“Not all the changes we’re seeing and expecting during an ongoing correction and recovery will be permanent and it’s not all doom and gloom, but everyone in this business should expect that the future will be quite different than the past decade in fine wine,” McMillan said.