US wineries must adjust to new $50 ceiling: report
November 24, 2009
By Richard Woodard
The era of the US$100-plus bottle may be over as the US recession takes its toll on Baby Boomers' wealth, according to a new report.
In the preliminary findings for its 2010-11 Annual State of the Wine Industry Report, Silicon Valley Bank warned that wineries need to adjust to a 'new normal' of reduced spending power – among the very consumers who have driven recent growth in the market.
'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 US$50 bottle of wine is now permanently out of the question for a normal purchase,' said Rob McMillan, report author and founder of the bank's Wine Division.
'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.
'Defining a new normal and acting on that is more prudent than waiting for the old normal to return.'
According to the report, sales of fine wine – defined as US$20-plus per bottle – were down by as much as 11% in the first half of 2009, although the market has recovered slightly since then.
Only modest sales growth is expected in 2010, leading the bank to forecast a 'price reset' with more sub-$50 wines on the market.
It also advised wineries to focus more of their marketing on the under-40s, pointing out that those aged 45-54 have seen their net worth fall by 45% over the past five years.
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