Post Lock-Down Opportunity for Wineries

The above chart from the USDA is a little cluttered, but the dotted lines show how US consumers have been moving from eating at home, and somewhere around 2011 shifted to eating away from home. Not earth-shattering observations that two-income families with complex schedules moved away from traditional family meals. But why should we care? We should care because an interesting thing has happened with wine demand in the last 7 weeks.

We started seeing a slowing in the growth rate of wine several years ago now. I still have bruises from reporting that. But then at the end of 2018 according to depletion data from SipSource below, total wine sales by volume started falling toward negative growth. We discussed this issue extensively in the Annual SVB Wine Report and those factors are something we'll still need to take up - but we'll leave that for another day.

Today, as you can see in the below chart, off-premise sales have exploded! Danny Brager of Nielsen calculates to replace the lost revenue from restaurant sales, corresponding alcohol sales in off-premise accounts have to increase by at least 20%.

Looking at the following chart you can see wine sales increased by 29%. Add online sales into that growth rate and we appear to be back to around a 10% growth rate in wine sales, at least for the present.

That's great news, but there are two ancillary questions: 1) is that sustainable growth - will it continue post-lock-down, 2) how does that help small wineries if almost all of this demand goes through grocery?

    Dinner At Home - Will it Continue?

One of my many current observations about consumer change today is the fact that for seven weeks now, Americans - for the first time in two generations, are having family dinners at home. And it's not because your dad said you were having dinner together 'because I told you so.' Granted it's forced, but in this process, we can see consumers are adding wine back to family meals and routine.

We've often talked about the problems of selling wine in restaurants. The price per serving for wine is twice that of cocktails, and when you leverage that with restaurant markups, it's no wonder wine sales in restaurants fell into negative volume territory in the past couple years. That problem will still exist when we all reopen.

While nobody should be happy with restaurant closures, we do have a unique test environment that will never happen again. We can see what happens to wine demand when restaurant occasions vanish. Surprisingly, consumers are more willing to spend up when restaurants are closed. They want to have a nice bottle of wine with dinner. Think about that fact the next time you think selling wine by the glass is a brand-building activity.

But reviewing this odd confluence of events, it looks as though this COVID-19 nightmare has advantaged the wine industry as a whole. Obviously, that ignores the uneven impact. But growth is growth and it's enticing to go after that. But will this consumer trend continue when restaurants reopen? Will people move to a preference for more at-home meals and continue to serve wine at home? I believe they will for several reasons:

1. Reports suggest up to 20% of restaurants will be going out-of-business during this crisis. They will also have fewer seats open for those restaurants that survive. That's again not a joyful statement, but factually fewer restaurant occasions push consumers to eating more at home, and that seems to help wine demand. 
2. We will be in a recession when we reopen, and dinner at home now is saving money compared with going out. Frugal consumers are likely to remember that.
3. Many people won't be ready to come to restaurants when we reopen business, so once again will be eating more at home.
4. Habits become ingrained in 6 weeks ‘they’ say. We are seven weeks into this quarantine now, so new behaviors and habits are forming and some will stick. Consumers will still go to restaurants if they feel safe, but either way, the balance will tip more to home meals compared to the balance prior. 
5. Those are perhaps interesting guesses, but we have a good experiment that's already happening that gives more insight. Asia is a month or two ahead of us in reopening so we can see what's happening there and use that as a gauge to predict what happens in the US.

Nielsen reports in one of their insights articles that consumers in the Chinese mainland, Hong Kong, South Korea, Malaysia, and Vietnam will rethink and re-prioritize the place eating at home has in their lives. With China in the middle of opening their economy, eighty-six percent of Chinese consumers report they favor more at-home meals more often compared to before the virus outbreak.

I think the evidence taken together points to a changed consumer and all things being equal, more sales through grocery and drug stores. But while that's where the likely growth will show up, consumers can be convinced into changing purchase patterns and buy from small wineries who don't sell through wholesale. Consumers changing their shopping patterns is something we've seen first-hand more than a decade ago when consumers started shopping on their cell phones instead of brick-and-mortar retail.

    How Does That Help Small Wineries?

The news isn't great for my restaurant friends and they are working on their own post-COVID-19 plans that will include lower-priced curbside meals at prices discounted from stated sit-down meals. The well-managed restaurants will come out of this, and within a year will be thriving with fewer marginal competitors. But the wine business has its own fish to fry.

Increased demand for wine is a good thing, but there is no question the smaller wineries have another hurdle to deal with in accessing that higher consumer demand because the wine buyer is buying wine online through retailers today or in grocery, but not from the producer largely. So the demand that is there is passing us by. You can't be ambivalent about that. You can't ignore it.

The great news is small wineries still have a great opportunity coming out of this forced closure. The demand is there to take. The vast majority of wineries will open with significantly reduced tasting room sales, so producers have to consider avenues to expand on your existing sales strategies because you can't succeed expecting things to return to the way they were pre-COVID-19. Consider this:

If the average winery was selling 30% of total sales through the tasting room, and capacity is reduced by 50% when we reopen, that means we can expect a minimum 15% overall gap in sales compared to last year. That has to be made up by applying other sales approaches. That's a large "if," but several approaches are showing promise.

• Phone sales have been a huge boost both to sales and engagement for those using this approach. It's a great way to get the most efficiency from variable tasting room traffic, especially with consumers working from home. Those consumers are more likely to pick up a personal call when they are balancing work/home life and when there is nobody at the desk next to them listening. Once we reopen, when it's slow in the tasting room, make some calls (and by the way, please track the data)!
• Investing in your online sales is obvious given the fact digital sales have boomed in this pandemic with people sheltering. You as a winery HAVE TO FOLLOW THAT CHANNEL. The old saying is "fish where the fish are." That's where your consumers are shopping. Now you have to go market to them and connect with fresh messaging, Existing retailers who have benefited from the channel shift and were prepared with online sales strategies are burning up the internet, and they will be more willing to talk to new brands at a time such as this. Work direct to retail sales. Connect with the existing online retailers and give them a reason to sell and market your products.
• Additional outdoor seating at the tasting room is sensible from two angles. Most community transmission has taken place indoors, so while I haven't seen great science on this, most people think outdoors should be safer compared to being indoors. Outdoor options are worth advertising and promoting. Second, if you can make up for lost indoor seating by adding that back outdoors, you have a chance to get back to even consumer visits with promotion.
• Video tastings are being viewed by many as overdone. That's true only if videocasts don't sell wine and so far, there appear to be good examples both in added sales and new club signups. The more of these we produce, the more professional the videocasts will become. It's not the same as visiting your tasting room, but this will stick when this pandemic is over. It's more scalable than in-person tasting, and it's cheaper and a better use of your sales team compared to getting in an airplane and staying in hotels. Further, what about connecting with consumers in Fargo or Anchorage? Now you can build a brand in remote places.
• 'Taking the experience on the road,' is a phrase I started in 2017. What I mean by that is for direct to consumer sales, we need more than one place to sell wine. The checkout register can't just be the tasting room. There are many regions and towns that will love you if you embed an employee to build your brand remotely. You have friends and maybe even family with your last name who might be happy to represent your wine in their town for some side money. You can be that region's winery.

Moving into the future, it will be up to each winery to determine just what they will do to offset expected tasting room revenue losses, rebuild their sales focus, and capture some of that increased demand. But you have to do it. 

You know business won't be the same when you reopen, so work on the strategies now and capture the demand that has moved to online and grocery. Come up with a strategy, put the plan to paper it, track results, and adjust.

Advertising and marketing will help by linking family to tradition and wine as a central component. Family is security and a powerful driver of behavior. That may take a larger industry or regional effort.

Yes this whole thing has sucked but when this is over, we all might look back on this event one day as a galvanizing time that reprioritized wine for the consumer, re-framing and linking it back to life and family. We can influence that message as an industry.

What's Your Opinion?

• What will you do to make up for expected slow tasting room sales?
• How can you pull in some of the higher consumer demand?

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