Sunday, February 27, 2022

There is good news to talk about!



Last week I had a call from a friend in the wine business asking for a meeting to discuss the Annual SVB State of the Wine Industry Report. I had no real idea what he was going to say.

When we met, he told me he appreciated what I presented in the report but didn't like the stories he'd read in the news. He thought some were overly critical and missed the positive things happening in the wine business. He asked me if I should be more positive during interviews to cast a better light on the business.

From his perspective, the industry is doing really well. That's because he sees the industry from the vantage point of a business that is hitting the cover off the ball. And to his view, a very large part of the premium wine business reported 2021 was one of, if not their best year ever!

That is clearly good news and if you are one of those, maybe some of the stories covered by the press seem too negative. Some may agree with him and believe the Report dwells too much on the challenges we face. Of course, I don't write the press stories and my friend acknowledged that. When you give an interview, at times it can be spun to generate a little controversy to generate clicks. 

Realistically, the press doesn't report "Everything is Great!" ever. That's not news, so they can at times magnify some perspectives over others to reinforce something controversial. Personally, with some exceptions and one who reported a virtual tornado coming, I think the reporting has been pretty balanced this year:

    The Good News without the buts

The US economy continues to impress and the amount of pent-up savings sitting in the pockets of consumers is fuel for additional wine sales this year. The consumer has the capacity to buy wine. They will also have the opportunity as businesses are not fully recovered in the hospitality, restaurant, and travel industries. That continuing recovery should show up in 2022 with increasing wine drinking occasions and higher premium wine sales.

The oldest millennials turn forty this year and are well into their careers and wealth formation. They are also the largest current cohort by numbers. The sheer number of these consumers moving into their forties means that the wine industry's opportunity to attract more consumers should be increasing, all else being equal.

Wineries discovered many new tricks during the pandemic including virtual tastings, phone sales, and curbside delivery. But perhaps the largest behavioral change came about because regional health orders often required by-appointment tastings. 

Wineries who have been fighting by-appointment tastings for years discovered improved average checks and a better staffing model, the latter of which is a big deal at a time when good staffing comes at a premium. Wineries aren't going to retreat to the full walk-in and tasting bar model. Sticking with the by-appointment model will help engagement, collection of personal information, the average sale, and club conversions.

As many know, I've been saying for several years the wine industry was over-reliant on the tasting room model and there was an opportunity to find new methods to take their experience to the consumer instead of depending on the consumer to come to the tasting room. The lockdown exposed the flaw but presented with the challenge, the industry countered with video customer engagement (Zoom). Some of those practices discovered in the lock-down will remain, evolve, and grow.

While many consumers initially stocked up on everyday wines at the supermarket at the beginning of the Pandemic, they also rapidly switched to online options. 

The industry is continuing to make investments and improvements in the use of digital tools. Online sales continued hot in 2021, and there is room in 2022 for wineries to expand e-commerce and integrate that with other winery initiatives.

Consumers who drink wine continue to show that they prefer drinking better but less wine. That creates an opportunity for the premium end of the industry and that was demonstrated in spectacular fashion in 2021 with growth rates for premium wineries coming in at 21%.

There are 'buts.'

In the spirit of the post, I am going to leave out all the potholes in the road facing us. There are issues, but... I've always been a believer in the strength and resiliency of the U.S. wine business. While we may be slow to react at times, when we are presented with a clear challenge the wine business does respond. And from that angle, any of the 'buts' are just one more opportunity for success.  

What's Your Opinion?

  • What good news did I miss?
  • Has the news coverage about the State of the Wine Report been balanced?
  • Do you believe the industry obstacles framed up in the report are issues that we should ignore, or perhaps wait a little longer before reacting?
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  1. Here's more good news: Bulk wine and grape prices are up 20-30% in Washington! So much new interest in a State with good water resources, lower labor prices, and growing market awareness. There's newish and strong interest from private investors and ag capital groups in Washington. Big growth on the horizon!

    1. Adam - Thanks for the post. I always appreciate it.

      From all that I know about Washington, there is still substantial supply at the lower price points and probably still too many grapes planted. The situation is more balanced to short supply at the premium end.

      Light harvests combined with modest volume growth have helped the situation. Twenty to thirty percent growth in price seems impossible for grapes destined for the below $11 end of the market, and with minor exceptions, that kind of growth in grape prices is a stretch at the higher price end of the market too. I don't doubt there is some minor amount of growth in price at the premium side though. Washington makes great wine at competitive prices.

      Obviously, the purchase of Ste Michelle by Sycamore Partners was an eye-opening sale and I think a welcome one according to most observers. This has been without question, the best conditions supporting M&A we've seen in some time, and perhaps the best conditions ever.

      All of those are pieces of information are indeed good news for Washington.

  2. Thank you for your kind words and touching blog spot it meant a lot


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