subscribe: Posts | Comments      Facebook      Email Steve

Millennials and Napa Cabernet: An uneasy relationship

23 comments

 

The most interesting part of Silicon Valley Bank’s new report on the future of the wine industry concerns its predictions about Millennials. As Baby Boomers age and die off, Millennials will become the U.S.’s dominant wine purchasers, but “The big issue with millennials is they’re the largest buyers of international wines. They’re also really good with buying the discounted bottles,” said the bank’s founder, Rob McMillan.

International wines and discounted bottles. Hmm. That’s good news for South America, Australia and old Europe, and also good news for California companies like Cameron Hughes, Gallo, Bronco, The Wine Group and others who sell inexpensive wines. But what are the implications for high-end wine, particularly Napa Valley Cabernet Sauvignon?

They can’t be good. Millennials didn’t grow up worshiping at the shrine of Bordeaux, which is the model that Napa Valley mimics, and so far they [Millennials] haven’t given any indication they’re in the thrall of the cults. And why should they be? Millennials pride themselves on their independence. They’re not as hidebound as their parents, and they’re a lot more open to new experiences. Nor are they as hung up with matters of prestige and conspicuous consumption, which are two phenomena that–like it or not–are associated with the allure of cult Cabernet Sauvignon.

There are so many anecdotes about high-end Napa wineries having difficulty unloading product. Like the old saying goes, where there’s smoke, there’s fire. Triple-digit Cabs took a real hit during the Recession, and there’s no evidence that they’re recovering now. What I hear through the grapevine is remarkably consistent: retailers who traditionally dealt with expensive Napa wine tell me they can’t even give it away anymore.

Here’s a bullet quote from the Silicon Valley Bank report: “Today we find ourselves at a crossroads, one in which the younger consumer is being trained to believe luxury purchases should come with a discount, and wine is as good or even better coming from foreign sources. With Boomers hitting retirement age, we have a real question about the ability to increase wine sales when older generations who are willing to pay for a good bottle simply can’t consume the volumes they used to, and younger generations can’t afford a good bottle but could consume more.”

That’s an uh-oh moment for the cults. But there is a potential bright spot: “But as Millennials age if they develop the capacity (income) to buy wine, and if their appreciation for wine is strong as reported in the press, they will be the long-term growth opportunity we can anticipate in the business out past 2020,” McMillan writes.

That’s a big “if.” Actually, two big “ifs.” It means that a generation that grew up on Madonna, Pixar movies, Friends and the Internet is suddenly going to turn 40 (starting around 2022) and then develop an infatuation with Screaming Eagle, Colgin and Bryant. Exactly how is that supposed to happen? Why? Isn’t it easier to think it won’t? Besides, even if their income rises so high that they can afford triple digits for wine, why should Millennals restrict their appetites to Napa Valley? McMillan repeatedly stresses the “international” orientation of Millennials. They would look abroad for prestige wines, further eroding the market for high-end domestic wine.

Ever since I started visiting Napa Valley, in the late 1970s, it’s been clear to me that the vintners up there, who are a smart bunch, looked to Bordeaux as their model and inspiration. They wanted their wines to have the worldwide prestige of Bordeaux–and they also wanted Bordeaux prices. That tendency only grew more pronounced in the 1980s and 1990s. Today, it’s the prevailing model in Napa Valley.

But could it be based on a false assumption? That assumption was, if Bordeaux could do it, Napa can, too. However, history (and markets) are replete with singularities. Bordeaux came of age when good wine was scarce. Because the Bordelaise, and the Englishmen who drank their wines, were masters of the export trade, which was then a virtual monopoly of the English by the 18th and 19th centuries, Bordeaux became the lingua franca of great wine, for the wealthy white landowners who could afford it,

Do any of those conditions exist today? There is no monopoly of trade. Instead, we have free trade across the world, making it much more difficult for any one product or region to dominate the market. A few gatekeepers can no longer influence whatt everybody else drinks. And good wine is no longer scarce. It’s ubiquitous. You can’t swing a dead chicken without hitting a bottle of something tasty. Nor are most consumers any longer wealthy, white, or landed gentry. There also is the problem, in Napa Valley (to which I alluded the other day in this post) that Napa is not proving to be adept at new forms of communication. There’s a growing hideboundness affecting the culture up there. Of course, we do hear from the “Next Gen” of Napa winery families that they’re concerned about this or that, and intend to craft a message that relates better to average people. But this article, which appeared last week in the San Francisco Chronicle (and has been widely ridiculed, even in Napa Valley), suggests that the Napans may have an uphill battle in their quest for Millennial credibility

Have a great weekend!

  1. Interesting article. In Portland, the younger generation is interested in two kinds of wine: obscure foreign wines and local wines. I think one problem cult Napa cabs are facing is that they are losing the battle for local amongst the younger crowd. Why would a 30 year-old buy a $200 bottle of Napa cab that his dad drinks if he can pay $30 for a hip new wine from Paso Robles or the Santa Cruz Mts? Much like classic rock, Napa cab believes itself to be the greatest, but the next generation has moved on.

  2. You may be right about the millennial disinterest in Cult Cabs, but how many cases of those are there? Couldn’t be too many, and it’s hard to imagine that there is not a market for the 5000 cases or so of Cult Cab, no matter who the current “Pepsi Generation” is..

  3. gabe, I’m not sure I agree with the comparison to classic rock! I know lots of people in their 20s who love Sixties music, in addition to rap. But I take your point.

  4. Eric Hall, there’s a lot more than 5,000 cases of expensive Napa Cabernet. It’s easily in the tens of thousands of cases. I once counted more than 300 Cabs over $100 I’d tasted in a single year.

  5. Roger King says:

    A lot of this hinges on the reality that over 80% or asset wealth is held by the population over 50 years of age. Today that is the BB, down line it will be the X’er and further down line the Millennial and past that the next labeled generation. Matters of taste and perception will undoubtedly vary over these generational shifts but one constant that will NOT CHANGE is the simple demographic of age driven wealth accumulation that brings about higher spending capacity.

  6. Bill Haydon says:

    I’ve been saying this for several years now. When these consumers hit their mid and late 30′s, they are not going to suddenly fall in love with Napa Valley Cab and Chard. That Aglianico drinker will move onto Brunello and Barolo for special occasions. That Muscadet drinker will move onto Premier and Grand Cru Burgundy.

    And this movement is spreading beyond both the younger demographics and the major traditional European wine markets of NYC, Boston, DC and Chicago. I was in the warehouse of a boutique, medium sized Ohio distributor of wines from every wine region in the world a couple of months ago. This is a company that I’ve been familiar with for fifteen years. I’ve watched it grow from essentially a one man local operation into a two-state operation covering half a dozen metropoliatan areas with over a dozen sales reps. It’s an exceptionally well run company that has steadily grown through good times and bad. In this warehouse, inventory was about 75% imported. Now, Tom Wark would tell you that this evil distributor was ignoring his customers and doing this out of some spiteful vendetta against Napa Valley. That would be one (albeit imbecilic) scenario. A far more plausible explanation is that this businessman is reacting to his market and the desires of his customers. He’s adjusted his supply (and inventory dollars) to meet demand.

  7. I think the problem is far worse. Millennials are buying cheap and a lot of foreign wine. That’s not a Napa problem. It’s a domestic wine industry problem.

    We don’t produce the wines that go into <$8 bottles anymore. It’s not economic. We fill those bottles with generic juice from Argentina, Chile, and Australia.

    Go up into more expensive bottles, and you will find an avalanche of wines coming into the US from $15 – $40USD. Why are those wines competitive? Because they are well made and good substitutes for the fine wine we make in the US. The wines in that price range aren't commodities – but they aren't economic luxury goods either.

    Napa has something the rest of the wine business wants: A strong brand. That’s not to dismiss all other AVA’s as commodities. Rather it’s to acknowledge that on a scale of commodity to pure luxury good (the economic definition), Napa is at the pinnacle of all AVA branding in the US. If you want a wine from Napa, there is one place in the world to get it and that all there is to satisfy world-wide demand.

    Are the wines in Napa too expensive? That’s a market question and my experience is price adjusts to the market. In the case of Napa, those wines sell out every year and price isn't coming down.

    What do we do with this information? If we acknowledge that the US Wine Market is under pressure from foreign supply at all price points, and in all AVA's, it’s in the Industry's best interest to promote Brand USA and enhance the value on the commodity-luxury good scale so we can compete against the continuing growth in foreign wine.

    While Napa has the strongest brand in the US, I hope the Napa wineries too would want to promote Brand USA to future wine drinkers because while those Millennials can’t afford some of those Napa wines today, they will be their consumers tomorrow when they have the cash to purchase those expensive wines.

  8. Bill Hayden wrote:

    “Now, Tom Wark would tell you that this evil distributor was ignoring his customers and doing this out of some spiteful vendetta against Napa Valley. That would be one (albeit imbecilic) scenario.”

    It is an imbecilic scenario…which is only one reason why you wouldn’t hear it come out of my mouth.

    I would say, however, that if your distributor does not embrace the concept of legal direct shipping of wine from both out of state wineries and out of retailers and if instead opposes this, then the only conclusion anyone could draw (imbecile or not) is that the distributor does not have the consumers interests in mind.

    Finally, anyone who bets against Napa Valley doesn’t understand the nature of the American wine market. Not only will millennials be buying napa valley wine in the future, they’ll be buying much much more than their boomer predecessors.

  9. 2014 featured the return of my guests returning to their old buying habits! They bbought a lot of wine and a lot of expensive wines.
    Are many of these people Baby Boomers rather than Millennials, probably. I feel that the Millennials are looking for better valued wine because they have not achieved the financial success of most Baby Boomers, and are not willing to shell out $150 or more for a bottle unless it is a very special occasion.
    That being said they are learning to appreciate all price points of wine and once they have achieved success and have tried some of the best Cabernet’s Napa has to offer they will fall in love with them and will purchase them. Many of them have never had the pleasure of even trying a properly AGED Cabernet so how would they know what they are missing?
    Like fine wine Millenials will only get better with time and their palates will crave what has made Napa Valley famous, incredible Cabernets and Bordeaux Blends! The question I have is how many $150 plus producers of Cabernet can this or any market bear? It seems that every wealthy person wants to have an estate in Napa Valley now and wants to produce an expensive Cabernet with their name on it!

  10. Bill Haydon says:

    “Finally, anyone who bets against Napa Valley doesn’t understand the nature of the American wine market. Not only will millennials be buying napa valley wine in the future, they’ll be buying much much more than their boomer predecessors.”

    Keep telling your clients that, and they’ll keep writing the checks, Tom. The reality is that you’re just pulling it out of your ass with no data or research to back it up. Your clients in the land of the Naked Emperor will eat it up because it’s what they want to hear, but it is pure wishful thinking on your and their part.

    When I say it isn’t going to happen, I’m extrapolating future consumer habits based upon current and verified purchasing patterns. I can also point to a decade and a half of steadily increasing market share by imported wines in the United States, which should break 35% (up from less than 18% in 1998) for 2013. Those are actual statistical market trends that can easily be verified….not pipe dreams being sold to the willfully delusional.

  11. Ah Bill Haydon, Bill Haydon…
    So many variations of schadenfreude: anticipated, genuine, imagined.
    One would think, reading your smug, derisive, rants – who’s appearances I seem to have a talent (not terribly useful one) for predicting – that the NV was the only wine region in the world that has had a crisis of identity; or a difficult patch. For my taste, I would agree that the super ripe, heavily oaken wines mark a problematic period; though I’ve some good friends who like that style. However as problematic periods go, NV’s seems relatively benign. No antifreeze involved, as far as I can tell. Moreover, having grown up in NYC (recent transplant to the Bay), I cut my teeth, as a young 20-something, on the great wines of Europe. And you know what, Bill Haydon: I had some bloody great wines and I had some terrible wines at (at the time) absurd prices. I’m still gun-shy about 1er and GC Red Burgs. It makes me sad to recall all the $$ I spent, as a grad student in the early 90s, on thin, acidic, over-cropped (I’m assuming) red burgs. P*ssed me off! Almost as much as the excuses that people gave for them. To be sure, I had some utter stunners. No question. But they seemed to be the minority. Now, whilst I don’t think they were doing that for points, I will hazard a guess (clearly I can’t *Know*) that they made wine like that for the same result that scores yield: currency. Though in this case, if it is true, the tactic is slanted towards margin improvements (read: shortcuts and bigger crops), rather than pure sales via easy marketing
    Still, as the pressure crept in from other regions producing quality wines, they (mostly) upped their game. I still hesitate, however to buy the stuff. Then there were the brettanomyces riddled Bordeaux. I liked at gueueze as much as the next Gen-Xer; however, that stuff eats through virtually anything remotely carbohydrate-y, and the phenols it leaves behind, well, they kill any sense of what the wine could be. I got told terroir, but knowing a tiny bit about real Lambics (and scrumpy), I knew they were full of it. An, wahay(!), they too got their act together (though one could argue certain strata of the Bdx hierarchy entered another problematic phase…

    So, do I think the # of 3 digit NV cabs is absurd?? Probably, though I don’t get to taste too many. I’m also guessing that things will shake out, as with most industries; and there will be a correction. Some will stay in the 3 digit space and succeed. Many won’t and will either have to rethink their model or sell. At the end of the day, until climate change REALLY takes off (we’re just getting a small taste now, I’d have thought), the NV can produce some truly outstanding CS and CS based wines.

    For a while I, too, smugly shrugged off the NV for years. Then I realized I was doing so in an intellectually dishonest way: I’d really not had many NV Cabs in years.
    So, for the last year (2?), I’ve been buying, tasting and drinking some – not the “cult ones” mind (not a wealthy man; even if I were…), but a fair number of others. And you know what, Bill Haydon, many taste and smell like the caricatures that are drawn of NV cabs, it is true. However, many are bloody delicious, interesting, well structured (still not cheap, but hey, I get it) wines, that I’m glad to have had and will buy again. And no, Bill Haydon, not just Corison (though I do love her wines too).

    Oh and whilst it;s not NV, I had the luck of being invited to a tasting of first and second growth bdx from ’09 a year or so back. They stuck in an 09 Monte Bello. Guess which wines tasted like the analogue of Tammy Faye Baker… (hint it wasn’t the one from the state that rhymes with “Salicornia”, made by a guy whose name rhymes with “Small Caper”)

    I have to go now. There is a glass of really great chardonny from a place that rhymes with “Coma Roast”, which isn’t prematurely riddled with O2
    Enjoy your weekend, Bill Haydon (and the rest of you) and try not to be so negative! You just might find a pleasant surprise, if you keep an open mind!
    Cheers
    –dr

  12. DR, thank you for getting it. Not all of us in Napa follow the trend. Not cult wines, rather occult wines.

  13. WTSO.com, Invino.com and Lot18.com, to name a few, offer heavily discounted wines not just from CA, OR, and WA, but a lot from abroad too. All of my millennial friends buy from these sites (as do I for our “everyday drinking”). They love the fact they can get 4 bottles of a 92 pt wine for $100 to their door step.

    $40-$50 is about the ceiling they are willing to spend on a wine. Napa cab prices have risen steadily over the past few decades to now over three-digits. With the cost of land in Napa being what it now is, surely a winery couldn’t go back to selling their cabs for $50 to appeal to the millennials.

    Will be interesting to see if other up-and-coming regions keep their wine prices relatively stable for a much longer duration.

  14. Bill D, I have no idea what that means! I would like to try your wines, however…

  15. If both Napa and Bordeaux are the exemplars, I would ask the question, “How relevant is Bordeaux in today’s marketplace?” I say this as a sales rep for a medium-sized distributor whose book is primarily (60%) French, Italian, Spanish and the rest of the southern hemisphere. The other 40% is Left Coast and the main sellers are value-priced wines with a sense of place.

    There are some “name” wineries in the book and a *few* accounts have the clientele and the business to support those more costly bottles (regardless of their place of origin, whether France or Napa). But if Napa is following Bordeaux’s model, they’d best find some Chinese buyers — soon!

    Most of the buyers that I deal with (wholesale and retail), have no Bordeaux wines on their shelves or on their wine lists. Most of the consumers that I deal with (through pourings or an educational tasting group that has monthly tastings) have no reference point to well-aged Napa or Bordeaux wines. When I do introduce them to the group, they are stunned to experience what a classic wine can be like — but very few of them (regardless of age, and we have Boomers, GenXers and Millenials) are willing to spend triple digits on those wines.

    Regardless of age, those high-end wines are limited to a very small percentage of the wine-buying market; and we’ve seen that market shrink significantly over the last few years. The question is — will it come back?

  16. Been talking about this one on 1wd for two years. Where y’all been?!?? ;-)

    BTW, are any of the comments from millennials here?

  17. GrapesRGreat says:

    Millennial here (28 yrs old). Don’t know if I fit into the mass market of millennials since I tend to think about and study wine on a continuous basis, and since just before I turned 21. California cabs have always been one of those things for me that I don’t dwell on, but am surprised at how much I love and appreciate them whenever I have a great one. I rarely, however, feel the need to go to $100+ to get what I enjoy and consider a great Cabernet. With great ones from Spring Mountain (Schweiger) and Alexander Valley (Robert Young Scion) for around $60 that drink well now and 10 years from now, why do I need to look anywhere else? Even if I could regularly afford the cult cabs, I am personally more drawn to the old guards (Beringer PR, Mondavi Res, Montelena Estate, etc.).

    There seems to be this notion, and I don’t know if there is any research to back it up, that millennials only want the weird and obscure wines (red Sancerre, or lagrein, orange wines, etc.). I really think that this is more of a novelty than anything and will only represent a small portion of someone’s purchases unless they really pride themselves on their hipster ways. These wines are certainly fun to try, but I’m not going to buy a case of Trousseau Gris just because it is obscure. There is a reason Bordeaux and Burgundy have survived and prospered for so long.

    Most of my meager cellar is Sonoma Coast and RRV Pinots and it will likely stay that way until I can afford to buy more Burgundy, Barolo, etc.

    I recently was invited to attend a trade tasting of high end Napa Cabernets, ranging from $90-$200/btl. Of the twenty tasted, there were only maybe 2-3 that I would consider purchasing at those price levels, and definitely not in any considerable quantities.

  18. THanks GrapesRGreat. I always loved that Robt. Young Scion. I wrote extensively about its creation in my first book, A Wine Journey along the Russian River.

  19. I think GrapesRGreat makes a good point. With great offerings in the $60 range, why would we spend twice that for something that may only be marginally better? I can think of countless bottles that qualify, Wines from Terra Valentine (though we’ll see how they continue with the upcoming move off Spring mtn), Keenan, and Honig stand out for me.

    As for the Millenial preference for imported wines, we can only hope they begin to place more value on supporting our own domestic products. The “Made in America” movement does seem to be picking up steam again, and I hope we see a growing appreciation for our own domestic producers. As you mentioned, the large multibrands have no trouble hocking their low-priced wines through their distribution channels, but the small families that make up the fabric of the industry need the support of this growing consumer segment.

  20. Mike -
    A philosophy that I hold is ‘hope isn’t a strategy.’ So with regards to Millennials, my hope is we increase the brand value of US Wines through a Federal Marketing order or find another way to promote domestic wine versus foreign wine. If we ‘hope’ Millennials buy domestic wines, we may end up where Detroit found itself in the mid-70′s competing against more affordable cars from Japan.

  21. Bob Henry says:

    TWO OBSERVATIONS . . .

    FIRST, REPEATING THIS EARLIER POSTING:

    “West Coast Wineries Are Up for Sale — Quietly”

    A wave of recent deals show investors see opportunities in wine, while owners see an exit strategy.

    Link: http://www.winespectator.com/webfeature/show/id/49221#.UoI_yAMMzG8

    SELECTIVE EXCERPTS:

    “… While small wineries can succeed by selling most of their inventory direct to consumers and large producers have muscle with wholesalers, those in the middle — annual production of 5,000 to 15,000 cases, for example — can’t get much attention from distributors unless the brand is hot.”

    AND:

    “… ‘I’ve never seen more wineries for sale in California than there are today,’ [said Charles Banks, who through investment groups such as Terroir Selections purchased Santa Barbara Syrah specialist Qupé in October and Napa veteran Mayacamas Vineyards in April.] … Banks … estimates that between 30 to 50 percent of California wineries are either in financial difficulty or aren’t as profitable as they could be.”

    AND THIS:

    Steve, when in the reviewing process does someone reveal to you the suggested retail selling price of a bottle of wine?

    I quote:

    “I once counted more than 300 Cabs over $100 I’d tasted in a single year.”

  22. Bob Henry, I find out the retail price when I go to the wine in the magazine’s database, where all the data has been entered.

  23. Steve,

    I found that 300 bottles priced at $100-plus statistic stunning.

    A “Field of Dreams” scenario, in which these wineries have built it . . . but will the public come?

    In a 2010 guest article for the Los Angeles Times, Wine & Spirits magazine senior contributor Patrick Comiskey chronicled the declining sales prospects for high-priced California Cabernets.

    ~~ Bob

    Excerpt from the Los Angeles Times “Food” Section
    (February 4, 2010, Page Unknown):

    “Dark days for Cult Cabs;
    Makers of high-end Napa Valley Cabernets are feeling the pain
    of the economy as demand for their wine plummets.”

    Link: http://articles.latimes.com/2010/feb/04/food/la-fo-cultcab4-2010feb04

    By Patrick Comiskey
    Special to The Times

    Is the Cult Cab dead?

    The current economy has created ominous rumblings in the market for Napa Valley wine. Demand for high-end super-premium Cabs, even so-called cult wines, has weakened considerably with the recession. Sales are stagnant, inventories are high, and direct-mail customers — a vital piece of the high-end model — are abandoning once-coveted positions on mailing lists, while those who have waited years for the opportunity to buy in are overwhelmed with offers.

    And for those wineries whose flagship productions climb above 5,000 cases, the forecast is even more challenging. …

    At Twenty-Twenty Wine Co. in West Los Angeles, owner Bob Golbahar sees the same trend among former big spenders. The market, he says, is “over-culted. Our average bottle sale used to be $100; now it’s $50. Unless you’re giving it away, they’re not interested.”

    As a case in point, Golbahar cites the posh Napa standard Opus One, which usually sells briskly during the holidays, when it’s frequently employed as a business gift. In past seasons, he’s sold as many as 150 bottles of the wine, which retails for $140 to $170 a bottle. This year he sold six. “It’s a whole different world out there,” he says.

    Nowhere is this more evident than in the attrition rates on wineries’ direct-mail customer lists, an important segment of the business for many cult wineries, which not only receive full retail markup on direct sales but have enjoyed a virtually guaranteed purchase among dedicated customers.

    In flush years, wineries had hundreds of customers clamoring for a chance to buy a few precious allocated bottles. That demand, however, has shrunk considerably, and wineries are, in the words of one poten- tial customer, practically “spamming” the in-boxes of wait-listed candidates with offers.

Leave a Reply

*

Recent Comments

Recent Posts

Categories

Archives