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About Those Sobering Wine Reports

Two reports were released today that sound like grim times for the wine industry. The IWSR reported a decline in the amount of wine consumed by American drinkers for the first time in 25 years. And Rob McMillan’s authoritative 2019 Silicon Valley Bank wine report says the industry is over-producing and under-consuming, in part because Millennials aren’t drinking as much as their elders or are else drinking something else.

Obviously, we feel sorry for any family winery that is losing money or a grower who can’t sell her grapes, but we should note that business failures happen in the best of times. And before we starting wringing our hands about this being the worst of times, we should ask the question: Should increased consumption be the primary benchmark for a healthy industry? And I don’t say that as a resurrected abolitionist. I haven’t slowed my wine drinking one whit.

But I’ve always thought the financial industry rewarded companies too much for sales growth and not enough for quality of earnings. And I think the wine trade has fixated too much on how much wine sales grow each year in the U.S. by volume or value.

Whether we are consumers or sommeliers, isn’t it more important that the quality of wine across the board continues to improve, that people who have very little to spend can buy good wines at reasonable prices, and that winegrowers continue to be environmental leaders by improving the health and sustainability of their vineyards?

Which leads to a point that McMillan makes: The most important thing in successful winemaking these days is to have a good management team at all levels. Just as in the restaurant business, wine producers not only have to be talented, they also need to be good business people. Simply put, there are people who are making wine that shouldn’t be, both at the conglomerate level and at the small-family level.

And what about those pesky Millennials? McMillan rightfully says that the glass is half empty if you’re trying to sell wine to them today, but it’s half full if you see Millennials as an untapped market. Things go in cycles, as the cocktail business has proven. Perhaps Millennials will come to their senses and fall in love with wine  – but what if they don’t?  There seems to be no worry that because there is a decline in consumption that all of a sudden we won’t have good wine to drink. If anything, we will be able to buy great wines and good wines and okay wines at slightly reduced prices.

Of course, if you are an executive at a major importer or distributor, this isn’t good news. And if your pension plan has invested heavily in these companies, you might have to work a couple of extra years.

And I would be happy to drink a glass of Champagne or Napa Cab at this time next year to celebrate the fact that consumption has picked up again, that 2019 was just an alcoholic hiccup. But I would probably drink them anyway, even if there is no rebound. The wines would still be great, they would still be available, and the prices might be even better.

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