Saturday, January 20, 2018

2018 SVB Wine Report Videocast Replay

The 2018 Annual SVB Wine Industry Videocast was presented last Wednesday to a record audience both domestically and across the globe. You are welcome to replay and review the session above. 

I'm always happy when the videocast is over because it marks the end of 3+ months of writing and research, which is a marathon to begin with considering I have other job responsibilities and the research and report activities push through the Holiday Season. This year though, the process felt like running a half-marathon wearing ankle weights.

SVB runs a Wine Conditions survey to support our report, but we had to cancel it this year because it was scheduled to go out October 12th; three days after the North Coast Fires started. With our offices closed and wineries scrambling in Napa and Sonoma, there was no way we could get the survey done. 

That will impact our trending efforts for years ahead of us because we'll have a gap year to deal with, but like everyone else we'll adjust. We will publish the Annual SVB Wine Report February 13th this year which is about 3 weeks later than normal, but hope you all anticipate the release and will read it, and engage in the dialogue of industry adaptation and evolution.

      Cliff Notes

                The Problem:

The problem we're facing is a declining growth rate. That doesn't mean sales are lower. It means the growth rates we've been used to are dropping and it shows up in many data points consistently. The above chart is a volume based and you can see the change in consumption demonstrated by the circled part of the trend. Why the change?

We are dealing with an echo from the Great Recession with the younger consumer's delayed entrance into becoming contributing luxury consumers. They are financially disadvantaged and that has created an Indulgence Gap where they remain focused on needs versus wants, compared to the generations that preceded them.

At the same time, we are also dealing with a retiring boomer that controls most of the net worth and discretionary income in the US. A boomer living on a fixed income will change the way they spend, and as they age they will also drink less wine. The median boomer hits 65 in four years and the decline in spending isn't going to be like a light switch. We are already seeing their changed spending today.

            A Part of the Solution:

The reality of the current wine model is it's based in the tasting room and that's too limiting. You are only selling wine to those who can come to the winery. People come to the tasting room. We sign up 6% of them into the wine club. We hold onto them for 30 months, and then we have to replace them. 

While this model has been working to replace distributors who have left the small producers, it's an expensive way to sell because of the overhead from added salaries and facilities, and there are signs of the model starting to hit a wall. Fortunately, there are options to consider.

Today only 3% of sales are made through the web. That channel has less overhead applied to it, and it opens the door to all of the other consumers who can't come to your winery. Yes I know all the issues with pointing out the opportunity in internet sales, including - it's not the same experience. 

In saying we need to focus on internet direct sales, I'm also suggesting the focus on experience just being at the winery, has to evolve as well. The consumer will have an experience when they interact with you on the web. They are walking into your virtual store. How will they be greeted?

The virtual experience is the next frontier. We need to invest more in digital marketing and make directional improvement in on-line sales. I'm not suggesting ignoring the tasting room though. I'm suggesting your next strategic discussion needs to put greater focus on  an integrated digital marketing plan that drives consumers to your winery AND your website. 

I'm suggesting there is a lot of work to do in getting the industry current with retail tactics that are already widely employed, even by the most posh luxury goods producers. 

What are your thoughts? What are you going to do different in 2018?

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  1. This was the best presentation yet- would like a copy of the slide deck.
    The data is always a refreshing perspective (and in our case, an unfortunate reality shot).
    Just one point of contention I have is the push toward increasing web channel sales from 3% to something bigger. The problem is with overall sales growth of only 0.3%, the pie isn't getting any bigger, and to grow the web sales beyond 3%, you do it at the expense of some other channel- and have to give away shipping to get that done (over and above building a "killer" web experience for the consumer). When competing with Amazon, you are not only competing with a really robust consumer friendly website IT department (non-existent in the wine industry), but you are competing with a consumer experience (and hence, expectation) that includes free shipping, shipping at any temperature, someone under 21 signing for it, and leaving at the door if no one is home- none of which applies to shipping wine. I think growing that 3% is a bit more challenging.
    That being said, the merits of the presentation far outweigh this one topic and is well worth sharing and watching.

    1. Paul - Thanks for the comments and kind words.

      You can download the slide deck on the bank's website here:

      Let me help you see a perspective if I may. Sales growth is 0.3% through 9 months and the total pie isn't getting bigger. There's where we agree. Here's the part I want to emphasize.

      Today we are insisting that our customers have to come into the tasting room to get on the wine club, and wine club traffic is dropping. My suggestion isn't going to create more wine consumers in the US really, but doing a better job with digital marketing will create more wine consumers for those wineries who best employ the tools that are available.

      Note too, that can still direct people to the tasting room at the same time. It's all a part of brand building, and we have to be better.

      Regarding your comments on Amazon, it is a true statement that people want free shipping, but note too that Amazon is out of the wine shipping business. Producers can take a $275 case and charge $25 for shipping, or they can take the same $300 case and give 'free shipping.' Considering the margin you are giving wholesalers to take wine off your hands, that's cheap.

      Note too that the digital channel doesn't have the same overhead burden as the tasting room does. There are added costs yes, but DtC sales through the web is cheaper than pushing the same sale through the tasting room.

      But that's also the other difficulty. I'm suggesting to the industry that we redefine experience to include ALL purchasers of your wine. There is an experience at the tasting room. We all have done a good job mastering that. But there is also another experience when a customer goes on-line to buy wine. Is that a good one, consistent with the brand you're trying to project?

      Change isn't easy - but standing still in a rapidly changing environment will put small wine companies in a far worse position if I'm right about the underlying reasons for the changes.

      Again - thanks so much for weighing in with your comment. I sincerely appreciate them!


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