Is the Wine Boom Slowing?

plunging graphTwo headlines caught my eye this week in part because I’ve been expecting this news for some time. Reuters is reporting that Constellation Brands took a sizable 3rd Quarter hit in 2017.

Constellation Brands Inc (STZ.N) missed Wall Street estimates for third quarter revenue on Friday and said wine and spirit sales for the full-year would be at the low end of a previous forecast, sending its shares down as much as 4 percent….The company said it now expects sales of wine and spirits, which include Robert Mondavi wines and Svedka Vodka, to be at the lower end of a prior forecast that already called for a decline of 4-6 percent for the full-year.

It might be tempting to dismiss the troubles of a large wine brand as irrelevant for that other wine industry—the small, artisan producers who produce most of the interesting wine that connoisseurs and enthusiasts like to drink, wines that seldom find their way to a supermarket shelf.

But Rob McMillan of Silicon Valley Bank reported on his blog today that 3rd quarter sales for family owned wineries were down as well:

What would you say if I told you that growth in sales for 2017 which looked pretty good through mid-year … hovering around 7%-9%, fell off the cliff in Q3 and came in for 9 months at 0.30%? That is zero-point-three-percent year to date for our benchmarks of Family Owned Wineries using financial statements….What if I added that visitation to tasting rooms has been going through a decline for the past 5 years?

What’s going on? Competition from craft beer, the cocktail craze, legalized weed, aging baby boomers? Who knows? McMillan’s full report comes out on January 18th. Maybe there will be some insight there.

But as I travel around the country visiting wineries, I find many fine, dedicated producers making great wine but operating on thin margins. Some are too small to survive an industry recession. An industry shake out of people who can’t compete isn’t always a bad thing, but if it leads to more consolidation with mega companies buying up smaller operations, then cutting corners and relying on marketing instead of quality, that will leave us with more homogeneous wines that taste alike, encouraging more people to turn to beer, cocktails or weed. It’s a vicious cycle that doesn’t end well for anyone who cares about wine quality.

So let’s hope for a rebound in 2018.

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