By IBISWorld Lead Industry Analyst Agata Kaczanowska
As the youngest members of the Millennial cohort (also known as Generation Y) celebrate their twenty-first birthdays over the next five years, savvy wineries and vintners will look to this demographic for upcoming trends across the entire alcoholic beverage sector. The sheer size of Gen Y gives its members immense purchasing power. As the children of Baby Boomers (who began forming families in the early 1980s through the 1990s), Millennials now form a vibrant group of 65 million people. In other words, more than 20 percent of the current US population was born between 1982 and 1995 – and as those birthday candles are blown out, this younger market will make up more of the legal drinking population. While other generations came to enjoy wine at an older age, Millennials have developed a taste for wine at an earlier age. This trend is boosting revenue for wineries.
According to a 2010 Gallup poll, about 72 percent of Gen Y drinks alcoholic beverages, and of that group, 22 percent prefer wine. In fact, according to March 2011 Nielsen data, wine accounts for 20 percent of all alcoholic drinks consumed by Millennials. This consumption is well ahead of Generation X, which, at the same age 10 years ago, chose wine for only 13 percent of its alcohol drinks. A generation decidedly interested in the finer things, more millenials are choosing wine because of its complex, acquired taste and the perception of sophistication that is associated with it. Future wine drinkers who embrace high-price wines will contribute to the long-term growth of the entire alcoholic beverage sector. As their incomes grow (and their penchant for wine refines) with age, Gen Y consumers will likely spend more on alcoholic beverages in general. This increased spending power is fueling a surge in advertising that is geared specifically toward Millenials.
Connecting with Gen Y
If there’s one thing that anyone can say about Gen Y, it’s that they are constantly connected to the Internet, checking their smartphones, Facebook accounts and tablets on a regular basis. Young adults depend on technology for entertainment, information and communication. In fact, according to the 2010 American Time Use Survey by the Bureau of Labor Statistics (BLS), consumers in this age range spent more time than any other age group using the computer for leisure, socializing and communicating. Also, the average amount of leisure time that Millennials spend on the computer or socializing (4.6 hours per day) is second only to time spent watching TV (6.8 hours per day). The cultural capital of these youthful consumers is behind the still-growing popularity of social networks, including Facebook, Twitter, Google Plus and Tumblr. As a result, these networks are critical marketing tools for brands targeting Millenials.
Firms in the alcoholic beverage sector are following Millennials to social networks, with most companies working to establish and maintain a significant social media presence. Popular brands like Budweiser and Captain Morgan are spending a growing proportion of their marketing budgets on reaching out to Millennials via social media platforms. Humorous, viral video-inspired ad campaigns have become a necessity for targeting this young group of drinkers, though overall strategies still include commercials during key sporting events and roadside billboards. By capturing Millenials’ attention in their comfort zone, successful firms have found the key to exposing their brands to a highly receptive audience.
In addition to their love of online communication, Gen Y consumers often prefer to make purchases via online retailers like Amazon.com. Likewise, online sales are becoming more important for alcoholic beverage producers. This avenue for growth is of particular interest to vintners, who have led the vanguard of direct-to-consumer beverage purchases on the web. However, some direct-shipment bans still remain in place in some areas, and states may have complex licensing laws that make online sales a costly undertaking, especially for burgeoning wine merchants. On the other hand, revenue for many small wineries is supplemented by strong online sales. Millennials who are intrigued by a label’s image or the recommendation of an article or friend will seek the convenience offered by online sales, especially if the desired brand belongs to a producer that is unable to manage regional or national distribution. In addition, recent regulatory changes have facilitated the growth of Internet sales across the overall alcoholic beverage sector. Yet, uncertainty hampers some wineries from investing in online retail operations since the future of web-based sales hinges on legislation. Regulatory changes may potentially hamper or prohibit online sales, blocking a growing retail channel for the industry.
Content is king
Gen Y is known for its aspirational shoppers (i.e. middle-income earners with high-end tastes and an affinity for popular brands). This taste for the best has led to the “premiumization” of many kinds of beverages; in other words, Millennials care about the quality of their beverages and tend to reach for the top shelf, at home and at bars. Millennials are also known for their willingness to try new things, which is promoting beer premiumization (in the form of growth in the craft beer industry). This trend is also driving the popularity of winery tasting rooms, where wine drinkers can sample a number of vintages at once and build their taste palates. Alternative beverage categories like relaxation drinks are also benefitting from this trend.
As the current group of twenty-somethings adopt fine wine ahead of their predecessors, the wineries industry is taking note by including hints of new flavors or aromas in their products. Notes of spice box and fall leaves increasingly appear on wine labels, playing up the complexity of the wine. To boot, new blends of wines and grape varietals are being sold across a variety of retailers, not just specialty wine stores, which demonstrates the potential of new brands. These new wines will perk up the curiosity of Millennials and benefit the vintners who can engage their interest, whether it’s online or in stores.