For the Wine Sector, Silicon Valley Bank Collapse is About More Than Money

Its wine division was more than just a lender: It was a vital source of industry information for a large swathe of the sector.

The collapse of Silicon Valley Bank this week has stunned the financial world and the tech industry, a sector in which the bank was heavily invested. But there’s been little mention in consumer news about the bank’s other area of interest: the wine industry.

It’s been the buzz in the wine trade press, of course, but outside that niche, SVB’s wine business has gotten little notice. Though a relatively small portion of the bank’s portfolio—only about 2.5%—it was a significant lender to winery owners. The Wall Street Journal reported last week that SVB’s wine division included about 400 customers and over the last 30 years had lent more than $4 billion to the sector. Whether for large or small operations, wine-industry financing is particular because of its long vision: It has to see producers through long horizons of wine production: planting, producing and aging wines, to say nothing of natural disasters such as drought and wild fires.

“When I started in this business, I said ‘how hard can it be, it’s farming,’ ” said Rob McMillan, founder of SVB’s wine division and its executive vice president. “But, the number of risk factors in the business is extreme. It’s the hardest underwriting we’ve done.” McMillan confirmed the loans the bank made to the wine sector were in “very good health.”

SVB was an unusual lender in that it often put a personal touch on its banking relationships as long-time customer Adam Lee, owner of Clarice Wine Company, based in Sonoma County, wrote on his winery’s blog this week. He said that in the early days of their relationship with the bank, it wasn’t uncommon for SVB employees to come help with the harvest, bring lunch and stay for tastings.

McMillan said it was the human factor—“hardworking people growing and harvesting grapes and making wine in cellars. Work that does not make as much money as people think”—that drove him to create the business.

For those reasons, he began SBV’s “State of the Wine Industry” report. First published as a five-page Microsoft Word document 23 years ago, the 2023 edition, released to the public in January, was 102 pages and covered myriad topics from analysis and projections to competition and consumer behavior.

McMillan said he initially compiled the report because nothing existed in the wine sector to guide producers.

“The benefit was so that people could use metrics to run their business instead of guessing,” he said. He covered the micro economics of wineries—topics such as price differentials between seated and stand-up bar tastings, positioning and pricing of direct-to-consumer wine clubs—“small things like that that make a difference.”

As the report grew, so did its scope, including both macro trends and detailed consumer silos such as consumption by age, category perceptions and spending trends. It has a wide lens, looking at consumer preferences, emerging generational-cohort groups, the influence of technology, social media and other disruptors. It was also used by diverse groups in the wine sector—from journalists and industry analysts to academic programs and regional wine boards who looked to the trends as benchmarks.

“It’s turned out to be an incredibly wide-spread report and useful in so many ways I hadn’t planned on,” McMillan said.

Paul Mabray, a Napa-based industry thought leader and CEO of Pix, a wine-search site, said “The report set the tone and the tenor of the industry every year—what we need to do and how we need to do that. It was forward looking [and] the anchor to all who are on the speaking tour: We were able to use it to give meaningful help to people who were looking for answers.”

“If the report were to be discontinued, there would be nothing to replace it – no macro overview with an editorial overlay and a broad spectrum of understanding,” Mabray said.

The annual report captured that not only in industry knowledge, data and its ability to benchmark, but also in McMillan’s editorial voice, which exuded both authority and personality. One such example from this year’s report:

“Who in this cheery business wants to read about industry problems? On the other hand, who would read a report that said, “Everything is fine. Nothing to see here.”? … There are plenty of critical issues to discuss in this report, and we will. But for all of you joyously going about your day and living in the moment, there are pockets of good news for you too, so please keep reading!

And, his good news (the “tailwinds”) for 2023 would include a thriving premium wine sector, an industry prepared for a recession should one occur, with well-resourced customers with the discretionary income to buy wine; a healthy market infused by the growth of emerging and non-traditional regions and M&A interest/activity.

Conversely, the “headwinds” include a dominant and somewhat stagnant boomer demographic with a median age of 66 still leading consumption and leaving little room for additional sales growth; a growing “sober-curious” movement intersecting with the wellness movement—a phenomenon McMillan calls “neo-Prohibition”; and the ongoing pressures of costs, labor shortages and climate change.

W. Blake Gray, a long-time wine reporter for industry site, wine-searcher.com, wrote “nobody knows the business of wine better.”

Mike Veseth, author and editor of the popular Wine Economist blog, agreed, noting McMillan’s team is unmatched in its expertise, relationships and experience. Thirty-five people comprise the wine division.

“The loss of the State of the Industry report would be a blow to the wine industry, but a bigger issue really is the value of the entire SVB wine division,” Veseth said. “I hope that a sound and supportive buyer can be found who will keep the wine team together and allow it to move ahead with confidence.”

Fielding some 200-plus emails, calls and texts per day, McMillan said he was grateful for the outpouring of support. “I know what we were doing was useful but it’s overwhelming to see the kind of outreach I’ve been getting about it.”

Still in the aftershock of the bank’s closure, McMillan said the future of the report is uncertain.

“It’s too soon to say and it’s too early to know what the next owner of the bank will do. I hope they get the right partner who sees the value of this,” he said. “This isn’t just a lone production: it’s embedded in the industry and important to the industry.”