By far the highlight of the day was the State of the Industry talk given by MKF senior partner Vic Motto.

After a brief overview on the global industry and a quick mention of the low end wine gluts in France and Australia, Vic launched into one of the most optimistic and inspirational discussions of the industry I’ve heard. Ever.

Here’s the meat.

The Premium Revolution

In the ’90s the wine industry underwent what Vic calls the Premium Revolution. Pages of graphs and data suggest that consumers have moved “up marketâ€? en masse the last 15 years and are now buying much more higher priced premium varietal wines. According to Vic last year the industry hit a Gladwell tipping point where the trend towards premium became highly visible to all wine consumers and the bandwagon affect kicked in, accelerating the momentum of the trend. The stats back up his contention: The high end of the wine market, wine priced $15 a bottle and over, has witnessed extreme growth (25% a year) over the past 15 years. In addition the luxury/premium tier has overtaken the low end in terms of revenue, despite being only 13% of the total market. Small wineries are the new leaders of the wine industry because they are leading the movement to premium. They are more innovative, more decisive and more consumer responsive. They spend more time cultivating direct relationships with consumers. Big wineries are just now starting to adapt. Take away: Premium now rules and small wineries are leading the charge.

Drivers of Growth

There are many drivers of growth: higher quality wines; the growth in the number of wineries promoting the high end which has helped make the category more visible; the US continues to get more and more affluent. But the biggest factor is something that no one can control. Demographics. The wine industry is one of the few true organic growth industries left in the U.S. according to Vic. People, he argues, already have a TV and a car, the only growth those mature industries will see is via population growth or price changes. In contrast the wine industry has extremely favorable demographics (Baby Boomers and Millennials are buying more wine at increasingly higher prices) and a largely untapped market (2/3 of Americans aren’t yet wine drinkers).

The effect of the Baby Boomers and Millennials can’t be understated. In terms of size, the generations are the two biggest in history with around 80 million born into each. Whereas Gen-Xers (half the size of the boomers) have eschewed wine in favor of beer and cocktails, both the Boomers and the Millennials have made it part of their lifestyle. In the past five years alone wine consumption is up 42%. In both generations, the products that they buy tend to define them. The wine they drink is a reflection of their good taste and style. Take away: We have ideal consumers, there are a lot of them (and counting), and they really like wine.

Distribution changing

With more wineries creating still more labels (96,000 last year) and the consolidation that has occurred in distribution, there will be a bottleneck in the system. The Premium driven revolution, which requires more relationship building than most large distributors can handle, will lead to radical structural changes.

Vic argues that much like there are virtual wineries that contract out not only grape growing but even wine making, distributors will likewise become deconstructed as Granholm and other legal decisions open up more legal options for distribution. Consumer direct is just the first wave, and Vic predicts that wines will find a way to market through ever more novel ways (think RadCru). Take Away: Producer self distribution for small wineries will become more and more common.

Conclusions

I’ll quote straight from my notes, because Vic built to quite the crescendo.

“The wine industry is in transformation. Consumers are more wine hungry and discriminating than ever and are growing in number. Wine is becoming more of a standard beverage and the premium revolution is transforming the role of boutique wineries, as the wine industry becomes a relationship business that they are best equipped to serve. Consumers like adventure and discovery so small wineries will succeed. There will be continued strong industry growth and the industry will prosper. Last year we entered the greatest era for growth in wine history. The golden era. You are all fortunate to be a part of it. The next 20 years will be the best we’ve ever seen. Thank you.�

Wow. So let’s recap one more time since it feels so good: Small wineries are now the drivers of the industry and will continue to thrive. Wine market demographics are across the board some of the best in any industry in the United States. Structural changes in distribution will allow small producers to better get their wines to market and realize greater profits. The next 20 years will be the best the industry has ever seen.

Don’t pinch me. I’ll be having sweet dreams tonight.