Wine Supply is Hitting a Tipping Point

I've been pointing out the slowdown in the growth rate of consumer demand by volume for some time now. We are still growing as an industry, but the growth rate is slowing, particularly when looking at volume.

I began discussing shifting consumer demand and premiumization in the Annual State of the Industry Report as early as 2006. This is a pretty optimistic industry, so I was called a Debbie Downer when I started discussing the forward trends back then. That blow-back has since settled into a reluctant agreement. Instead of debating the facts as I've laid them out now, the discussion has settled into a strategy discussion.

Source: CA Grape Acreage Report

At some point in a cycle, an equilibrium point is reached as planting moves forward in response to growing demand. At that point, growers will slow down planting. 

The nearby chart shows a strong runup in planted acreage starting in 1995. That was a reaction to the start of the current explosion in demand for wine we've experienced for the past 25 years. Something changed to the slope of the line in 2001. That pause was created when planted non-bearing acreage became bearing and coincided with the Dot.com bubble and recession. From there, planted acreage fell into a more predictable but slower pattern, supported by healthy consumer demand. 

In 2017, planted acreage hit another inflection point, and a new phase began with acreage removals adjusting for oversupply. That's an indication that we are fully planted, and supply has reached a point of excess. It's hard to argue that demand is growing substantially when acres come out of the ground. That said, looking deeper into this does reveal the source as declining consumer acceptance in lower-priced, high-production wine.

But from all the signs I can see, it appears we've arrived at that tipping point in supply. That will change a lot of things going forward.

The Annual SVB Wine Business Survey

 

      Business Intelligence?

There is something changing in the business environment. You can feel it. Business is good, but it's fundamentally changing. You have examples of change in the way your business is functioning right now. The consumer is different, but what's causing the change and how will the change impact you? 

Those are the questions business owners should be asking today because change creates both opportunities and threats. So we need to understand what's happening in measurable ways. We all need to know exactly what's transpiring, but how are you going to get that business intelligence?

      Story of My Life

I've always been frustrated by the lack of actionable information and the availability of street-level intelligence in the wine business. There was plenty of information on wine-making and grape growing, but there was never satisfying business intelligence available. What is really happening? How can I know if a decision is sound without any reference points? 

With no good information available, more than 15 years ago I started doing annual research just to make sure the wine community had a starting point. There is a lot to talk about today:

• What are emerging trends in Direct to Consumer sales?
• Is there any pricing upside available in my price segment?
• Will M&A continue and if so, what are buyers seeking?
• What growth rate can I anticipate next year?
• Where should I look for new consumers?
• Are imports or cannabis going to cut into sales? 
• Will grape prices increase next year?

Do Tasting Rooms Steal Sales from the Wholesaler?

Procter & Gamble has long been respected for it's integrated product development, integration of acquisitions, and brand marketing. Consider the number of iconic brands they hold like Ivory soap, Pampers diapers, Duracell batteries, Gillette razors, Tampax feminine care products, Crest toothpaste, Tide detergent, and the list goes well beyond that. P&G has more billion dollar brands than any company in the world ... but they don't sell wine. If P&G sold wine people would be running to their mailboxes for free samples and the TTB would not be happy about that.

After-Hours TV: The Cutting Edge of DTC Sales

It Never Ended

The annual SVB videocast was over, but the cameras kept rolling and the discussion continued through the night until the sun started peering through the studio window. Eyelids sanded away retinas with each blink while the smell of spent smokes and stale beer perfumed the room. Amazingly, it was time to shave again, but the studio audience asked for more.

The panelist's raspy voices found comfort with hot coffee, and with adrenaline driving us forward we offered up new topics such as gullet level depletions, employing wine ambassadors in your sales strategies, and the value of making social statements with your brand. But who would get the last word? Would the videocast end?

Video Replay: Secrets to Successful DtC Sales

On May 17th we presented several of the findings from the most recent Direct to Consumer survey. This year we again had good participation from the wine business community both in region and by case production. Many great observations were offered from the panelists:

Last Chance: SVB Live DtC Videocast

I wanted to title this post with something like, "Jaw Dropping Evidence You Won't Believe !!" Then I was going to send you to another site that would have you click through 75 random pictures. Don't you hate it when you get pulled into one of those links? They never get to the picture you wanted to see. It's a form of internet fraud and torture.

Well I actually do have more than 75 slides we've just finished putting together. They're from the most recent Direct to Consumer survey; hardly a fraud. I think you would really appreciate all of the information, but the total deck of slides are only for original survey participants. There are some slides and information anyone can get though.

Among many interesting metrics and findings, the conclusions on Urban Tasting Rooms were pretty remarkable ... we could even say the discoveries are 'jaw dropping?'

Support Animals and the New Napa Hillside Initiative

This past weekend I went to Trader Joe's to get supplies for making pizza. When I entered the store, I noticed an old yellow Labrador mix wearing a vest that said "Service Dog," the kind anyone without any proof can buy from Amazon.

Rover was wandering around with a middle-aged woman who outwardly didn't seem disabled in the least. I felt a tinge of guilt with being politically insensitive to even wonder inwardly about the animal's legitimacy, so I just moved on to the pepperoni.

Soon thereafter I noticed a Standard Poodle, also with "Service Dog" emblazoned on his vest and once again, the owner didn't show any outward disability. I'm still not used to the frequency with which I see animals in restaurants, grocery stores and other public places. But again trying to be politically correct, I put the questions out of mind and paid attention to the mozzarella.

      Unintended Consequences

Then an interesting thing happened right while I was fondling the pizza dough. The two dogs decided to get into a full-fledged dog fight with snarling, snapping, foaming jowls and biting ...  right there, in middle of Trader Joe's, right between the pizza dough and prosciutto! Right next to the baking potatoes.

Both owners jerked at their dog's collars and screamed, "NO [insert dog's name here]!" At the same moment one of the dogs yelped and limped away; the clear loser in this month's Trader Joe's Service Dog Battles.

Vegas had the Standard Poodle with a bite over/under at 3. Had I known, I would have put money on the old Lab to kick the poodle's ass, but ... shouldn't there be regulations about this bad behavior?

      Measure C and Dogfights

These weren't trained service animals, but that only became clear AFTER they became territorial over the baking potatoes. The animals owners were abusing ADA regulations for their own ends. Obviously the name on the animals vest doesn't make the animal a trained service animal.

It reminds me of the current dogfight we have on our hands in the upcoming Napa elections where a ballot measure has an appealing name that would lead a person to believe there is an imminent threat to the County's water supply from agriculture. But just like the vests on the dogs in Trader Joe's, the title of this initiative doesn't reflect the true intent and if passed, most in the County will only discover the real bite after this dog of an initiative is approved.

Estado de la Industria Vinícola de Estados Unidos 2018

Autor: Rob McMillan, Vice President Ejecutivo, Silicon Valley Bank

PREFACIO

Esta es una traducción al español del estado anual del informe de la industria vitivinícola de los Estados Unidos que utiliza Google Translator. Por favor, disculpe los errores en la traducción literal. Si usted desea leer el informe original en inglés, por favor haga clic en [este enlace.]

Si alguien quisiera editar las traducciones al español usando el informe original, le agradecería, al igual que a todos los lectores de habla hispana. Si está interesado y tiene tiempo, envíeme un correo electrónico a mis contactos al final del informe.

This is a Spanish translation of the Annual State of the US Wine Industry Report utilizing Google Translator. Please excuse errors in the literal translation. If you would like to read the original report in English, please click [this link.]

Are you Irrelevant to the New Consumer?

I hit my drive this far from the hole.

When released, the SVB Annual State of the Wine Industry Report gets wide coverage both domestically and internationally. In concert with the release, we also present a live videocast of the report, followed by the on-demand replay.

Despite a full hour of content from the original telecast, every year viewers ask for more content and added sessions. That's been hard to schedule but we're trying something new this year.

Last Chance to Get 2018 DtC Metrics

The Direct-to-Consumer Wine Sales Survey closes March 23

 

Take the survey

How do you know you are performing at the top of club performance, or even above the average? What percent of revenue, relative to total revenue do your neighbor wineries produce from just the tasting room or just the club? If I asked you how many wineries pay for data capture within their comp structure in the tasting room, what would be your guess? What percent of revenue comes in through web sales in your region?

What's the reserve tasting fee in your region? How about the average tenure of a club member sorted out by average bottle price? Would it help to know the average gain in club members in your AVA last year?

What Will the Wine Business Look Like in 2028?

I've recently been thinking about the changing metrics we've had available to manage the wine business over the years. What metrics existed 30 years ago for small wineries? How was wine sold then? What was the atmosphere like? How did we get information?

With daylight savings time upon us, I also started daydreaming today while looking out at the pool and thinking about summer. That brought me back to a trip to Mexico I took 40 years ago, so Mexico met up with metrics in this post as I pondered what direct sales will look like in 2028.

In 1988 my wife won a sales contest at work that provided for an all-expenses-paid three days at the Fiesta Americana in Puerto Vallarta. I had never been to a foreign country before, except Canada and I didn't count Canada as foreign. But Mexico? Well going there would make me an official world traveler!

Weed is Impacting Wine Sales

         Everybody Must Get Stoned ...

I spent last week at the Unified Wine Symposium in Sacramento. I've been coming to the conference since 1995; the first year ASEV and CAWG merged their separate conferences into one. Life was very different back then.


In 1995 you could find a really good bottle of Napa Cabernet for $15, Fed Funds were 8.5%, and marijuana possession was considered a Schedule I substance under the Controlled Substance Act of 1970 and prosecuted as such - right along with LSD, mescaline, and magic mushrooms.

The very next year - late in 1996, California became the first state to allow the legal use of medical marijuana, leading to the collapse of the Unified Conference and all wine sales as we knew them.

OK that last part's not true. Since that first year of Unified, wine sales in the US have experienced 20+ years of growth, even with medical marijuana coming on the scene. And Unified's Trade Show which back then didn't even fill up the first floor of the Sacramento Convention Center, now has two floors of trade show participants and a waiting list to get on the floor. Needless to say, the Unified Conference has thrived.

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.

Disturbing Sales Growth Trends Through September

Most of wineries have already developed their strategic plans for 2018 and are starting to execute. The plans had to be put together using history as a guide, laced with a hint of a best guess. That's just the way this family owned industry has to roll.