The wine industry is recovering from the recession, but strong performance at the luxury end is masking slower growth in the less expensive market, analysts said Thursday at the second annual North Coast Wine Industry Expo Trade Show & Conference in Santa Rosa.
"Consumers are doing better, but slowly," said Rob McMillan, executive vice president of Silicon Valley Bank's wine division in St. Helena. "For us to see really strong growth rates, we have to get those middle-class consumers back actively engaged."
Baby Boomers, who drove the explosive growth of the U.S. wine industry in the 1990s, are retiring and will be progressively less able to afford expensive wines, analysts said. Younger generations have other interests, including spirits, and the rising Millennial generation, those now up to 30, are often more burdened with debt than older demographic groups.
"That takes away purchasing power for things such as wine," said Rick Boland, senior business consultant at the accounting firm of Moss Adams LLP in Santa Rosa.
In the short term, however, the news was largely good. Ben Stone, director of the Sonoma County Economic Development Board, said the region's economy is growing steadily, if unspectacularly, and he predicted unemployment will sink below 6 percent, considered a healthy range by economists. Nationally, the wine market is growing more than 4 percent annually, and locally Sonoma and Napa counties continue to be strong tourist markets.
"As tourism grows, so will our wine," he said.
Several speakers noted significant changes in the wine market that bear watching. One is the trend toward direct-to-consumer sales by wineries, mostly by wine clubs or sales in tasting rooms. That has become an ever more important way for small wineries to avoid the hassles of the complex and crowded distribution system that supplies most restaurants and wine stores.
Boland said his firm surveyed winery owners on the West Coast this summer and the most common issue for the 166 that responded was how to increase direct sales to consumers.
Most wineries in the survey also said they were struggling to maintain their profit margins. Except at the luxury end of the market, where demand is high, most winemakers are finding it hard to raise prices to meet increasing production costs.
"Everything is going up, but everyone's pricing power is not necessarily going up at the same rate," he said.