Gen X and Distinctive Style Aid Oregon Wines
High-end wine consumers aware of state's reputation, but the work isn't over
Portland, Ore.—Oregon wine producers enjoy significant opportunities but face equally significant risks on the road to seizing them, speakers told the state’s wine producers gathered in Portland this week.
Highlighting the situation is the attention the media give to the millennial generation, which everyone looks to as the next big cohort of consumers, but it’s actually the generation sandwiched between millennials and their boomer parents who are in their prime years for purchasing luxury goods such as wine.
“Millennials aren’t here to save anything,” quipped Rob McMillan, executive vice president and founder of Silicon Valley Bank’s Wine Division, in his annual state of the industry address to the Oregon Wine Symposium. “You have to aspire to sell to millennials but still sell to Gen X.”
Generation X, a moniker popularized by Douglas Coupland’s novel of the same name that documents the disaffected generation born in the “baby bust” between approximately 1965 and 1980, are “right in the sweet spot of luxury consumption,” McMillan said.
But this generation’s life in the shadows continues as millennials steal the spotlight without being the saviors corporate America wants them to be. McMillan pointed to the fate of craft beer as an example: Growth in that category has dropped below 10% for the first time since 2000, notwithstanding the great boom in craft breweries that was emblematic of the blossoming interest in distinctive, locally produced beverages.
The interest in such beverages highlights the opportunities for Oregon producers, as well as the challenges facing them.
“Oregon Pinot is square in the center of consumer demand,” McMillan said, though he noted that Millennials don’t seem to be going down the varietal path—at least not yet. Rather, they’re knocking back the host of red wine blends that offer value and spare them the hard work of sifting through varietal and vintage information.
“Our new wine consumers are starting to trust the big wine companies,” McMillan said. “They want to trust someone, because they don’t have time to sort through all this confusing stuff.”
Michael Davies, executive winemaker at A to Z Wineworks in Newberg, Ore., made a similar point later in the day, during a session about vintage variation. A to Z seeks to minimize vintage variation in the Pinot Noir it sends into the market, because even if its effects on a wine are interesting, no one’s explaining those effects to buyers in the supermarket. Moreover, the average supermarket buyer isn’t paying attention to the vintage of a supermarket wine.
“The number they’re paying the least attention to on the label of A to Z is the vintage,” he said.
Price is a more critical number, one that many speakers discussed from both the perspective of consumers as well as vintners. Knowing what your wines are bringing in, and the margins you’re getting, is key to understanding your winery’s financial health, said Keith Meyers, a shareholder in Portland accounting firm Perkins & Co. Being able to boost margins, either by changing sales channels or focusing on specific wines, is key to boosting a winery’s value.
This understanding is even more important as consolidation continues to limit the choice of distributor available to wineries. McMillan reported that a survey of Oregon wineries indicated 58% had either no enthusiasm for their distributor or outright dissatisfaction. This sentiment has made on-premise opportunities difficult to claim, and direct-to-consumer sales key in off-premise channels.
It has also prompted wineries to be conservative in their hopes for price increases in 2017. Approximately 44.2% see opportunities to raise prices, McMillan said, but the gains will be small.
While the past year gave Oregon producers plenty of reason for optimism, Christian Miller of Berkeley, Calif.-based Full Glass Research told symposium participants that consolidation among buyers and tight competition among products will limit the opportunities for price increases.
Oregon logged “another solid year,” Miller said, and sales figures from The Nielsen Co. indicate Oregon is outpacing the market with 14.3% growth, but growth faces headwinds. “Marginal wine drinkers aren’t translating to high-frequency wine drinkers at the rates seen in the past,” he said.
To hold its ground, Oregon needs to continue the fine work it has accomplished in educating consumers and providing those who are interested with the high-impact educational experiences that make for a memorable connection.
A consumer survey the Oregon Wine Board commissioned in December 2016 found that just 4% of consumers who have tried Oregon wine never want to do so again, while fans of the state’s wineries shared what makes the wines different.
“It’s got a distinctive style; some even used the ‘t’ word,” Miller reported, noting that survey participants referenced terroir of their own volition. “You guys can declare victory now in the war for the attention of the very high-end wine consumer.”
What comes next, however, is a lot of hard work to ensure the accomplishments of the past continue into the future and deliver the returns wineries need to be successful.
With a competitive marketplace, direct-to-consumer sales will be increasingly important to small wineries seeking margins. Being able to distinguish wines through an informed story of their origin will be critical, branding them in consumer consciousness in a way that’s distinctive.
“There is an opportunity for everyone in this room to establish your brand for consumers,” McMillan said, ending his presentation with the key question: “But what’s your path to market?”
