Everything You Need to Know About Investing in Wine

Everything You Need to Know About Investing in Wine

The year is 1990, and it’s the weekend. Baby boomers in their prime are drinking wine and dining out or grilling on the patio with friends.

Fast-forward to this weekend… Millennials are gathering at a coffee house with friends, grabbing an energy drink on the way to the gym or enjoying a hard cider while socializing.

Time, trends and tastes change, and for the first time in 25 years, American wine consumption has dropped.

In fact, the total volume of wine purchased in the U.S. has dropped by 0.9%, according to industry tracker IWSR (International Wines and Spirits Record). This coincides with a generational shift that now has millennials numbering more than baby boomers.[1]

What’s happening, and what does it mean if you own wine stock?

The Rise of the Millennials

“Millennials are just not embracing wine with open arms compared to previous generations,” explained IWSR’s COO for the Americas, Brandy Rand. “With the rise in low and no-alcohol products and general consumer trends toward health and wellness, wine is in a tough place.”[2]

“We need to realize we are in a pitched battle for the hearts and minds of the next generation. They are becoming less connected with alcohol generally, for a variety of health and lifestyle reasons. When they do choose alcohol, they now have diverse and interesting offers in spirits, beer and cider,” adds Lulie Halstead, CEO of Wine Intelligence.[3]

Baby boomers are to blame for the dwindling numbers as well, reports the IWSR. As they age, their habits are being more driven by fixed incomes and health concerns.[4]

Interestingly, the drop in wine consumption almost mirrors the 1.1% increase in spending on the beverage. As the median cost of wine goes up, loyal wine buyers are more likely to pick up pricier options.[5]

Many are finding that higher-end wines are more approachable than ever. And top brands are projecting a fun new image over the stuffy or intimidating impression consumers once had of high-end wines.

Break out the Champagne

And while total wine sales are down, one segment of the wine market has grown: bubbly and sparkling wines. Its usage jumped up by 4%, in part because it is a featured ingredient in some popular cocktails, like the Aperol spritz, that millennials are favoring of late.[6]

In contrast to wine’s decline, millennials have been the force behind the surge in hard cider consumption. “Consumption of hard seltzer grew by a whopping 50% in 2019 and already makes up about 40% of the ready-to-drink products category,” reports Megan Cerullo of CBS MoneyWatch.[7]

What might be behind this change? Hard cider drinks are convenient and come premade in an endless array of flavor options. There is also a broad selection of reduced-calorie and low-carb options, so that low-carb and keto dieters can have a little guiltless indulgence.

The IWSR’s Brandy Rand suggests that the wine industry needs a bit of a makeover, such as was afforded by the boom in boxed wines. However, she adds, “Smaller producers don’t often have the budgets or scale to quickly bring new products to market.”[8]

Tariffs imposed by President Trump may also be a factor in the decline in wine sales, with a 25% tariff affecting most European wine and whiskies. Brown-Forman (BFA), the maker of Jack Daniel’s, is trying to absorb the cost of the tariffs without passing them along to consumers, and has been forced to reduce its 2020 income growth outlook to compensate.[9]

What Does This Mean for Investors?

There is uncertainty as to how long this trend will hold, and when wine will be able to recoup its previous growth rate. Long term, it’s very likely this ancient and classic beverage is not going away and the industry will eventually adapt as it always has.

On the other hand, wine stocks have never been a particularly safe holding. It’s expensive to make and dependent on unpredictable things like the weather and, as we’re seeing today, changing trends.

While it’s often a good thing to invest in stocks that represent your interests, most smaller wineries are not publicly traded… meaning there’s a good chance that you wouldn’t be able invest in your favorite Chardonnay anyway.

Between that and current market trends, it might be better to invest in wine for your table rather than for your portfolio.

With purpose,

Patrick Gentempo

Patrick Gentempo

Sources

[1] Chadhuri, Saabira. “America Drank Less Wine for First Time in 25 Years.” The Wall Street Journal. January 13, 2020. www.wsj.com.

[2] Ibid.

[3] Pomranz, Mike. “Adults Under 35 Are Behind a ‘Marked Decline’ in Wine Consumption.” Food & Wine. January 17, 2019. www.foodandwine.com.

[4] Stabile, Angelica. “Why Americans are drinking less wine for the first time in 25 years.” Fox Business. January 13, 2020. www.foxbusiness.com.

[5] Ibid.

[6] Cerullo, Megan. “Millennials prefer downing a hard seltzer to uncorking some wine.” CBS News. January 16, 2020. www.cbsnews.com.

[7] Ibid.

[8] Ibid.

[9] Valinsky, Jordan. “Americans’ wine consumption dropped for the first time in 25 years.” CNN Business. January 15, 2020. www.cnn.com.