Is this a correction, or a small road bump?

Are the industry headwinds part of a secular correction or just part of a normal business cycle?

The answer to the last sentence is essential to grasp because it helps answer another question many are asking today: "How long will this instability last?" History can provide some guidance.

The 90s were a period of rapid industry growth that encouraged growers to plant more acres to catch up with demand. When those vines hit full maturity simultaneously with The Tech Recession, we were out of balance with demand.  

The excess supply of the early 2000s was erased quickly because the Tech Bubble was one of the shortest recessions on record, the demand for premium wine was increasing broadly, and some vine acres were removed from regions growing for lower-priced wine. 

That was an example of an inventory-driven imbalance. Within a few years, the industry adjusted as part of an ordinary course, mainly due to the strong demand for wine that drew down inventory stocks. With that setup, patience is a valid strategy.

    Over the past 25 years, periods of oversupply have always occurred concurrently with increasing demand.

There have been several periods since 2000 when we were close to being balanced, but a large harvest tipped the scale unfavorably. Looking at the nearby chart, examples include 2005, which blurred into the 2008 Financial Crisis. 2018 was another large harvest that coincided with the beginning of the current slowing consumption pattern.

All of the imbalances we've experienced since the mid-1990s have primarily been caused by overplanting or large harvests, and the industry has developed solutions to cope with periods of imbalance that might not work in our current situation.

    All we have to do is wait.

I was at lunch with industry friends in the spring when we debated this question: Is this just a normal cycle that we can wait out, or is it a secular demand shift that needs new solutions? 

My friends held strong views that this was just a cycle and everything would right itself in due course if we were patient. That belief is only partially right, in my opinion. 

All market imbalances eventually correct themselves, so that portion of their view was correct. However, patience doesn't always produce the desired outcomes. That's the part they missed that day. 

For at least a decade, I've been told that we just need to wait until younger consumers mature, and at that point, they will adopt wine like the boomers did before. That strategy has yet to correct declining demand. 

I've also been told that wine always goes better with food than other alcoholic beverages. While I agree, taking it as an unchangeable attribute has helped shape beverage lists that creatively include alcoholic beverages other than wine. 

In the 1990s, wine received a great gift in science: science proved that moderate consumption has some health benefits. We reacted as if the science was settled and did nothing as an industry to protect that gift. In contrast, the anti-alcohol movement did everything it could to chip away at that uncomfortable truth.

If we wait, supply will certainly adjust on its own. We've already seen that happen with some winegrapes going unpicked in every AVA on the West Coast this harvest. We all know what happens when grapes aren't contracted. The grower will lower the price to find a buyer, or they will remove the vines. Waiting, once again, isn't the right strategy.

    What we're experiencing today is different from past supply imbalances. 

This is not a small road bump. We are experiencing the first demand-based correction since the 1980s, the underlying trends of which were called out in the 2018 SVB State of the Wine Industry Report. 

Inventory imbalances can be corrected quickly when there is increasing demand like we've had for the past 25 years. Today however, demand for wine is declining - not for everything at every price point, but there are better strategies than waiting. This secular correction will take longer to rebalance compared to past imbalances unless we collaborate as an industry to regain our foothold with consumers.

2021 will be the BEST YEAR EVER for a lot of Wineries!

 

SVB Wine Conditions Survey

Problems are Opportunities Waiting for Solutions

This is the last week to participate in the Annual SVB Winery Conditions Survey. It will close Friday, October 15th.

There is no information like this available anywhere in the wine business. We take on this initiative annually at a substantial cost, but we give it all away to the industry. This data is used by Associations to apply for grants, by academia for research and in V&E classrooms, as a benchmarking tool for all wineries, and as part of the research we do to prepare the Annual SVB Wine Report. That said, it's impossible for me to provide the information without you dedicating the 15 minutes needed to complete the survey. 

There are always interesting surprises along the way, and this year is no exception. 

As I prepare to begin the writing on the SVB State of the Wine Industry Report, I am aware of many headwinds such as supply-chain problems, fires, smoke, the unprecedented drought, low soil moisture that will be a larger part of 2022, short supply of labor, rising input costs, water rationing, issues with property insurance, dealing with mandated vaccination policies, travel restrictions, and what will likely be declining overall volume sales for the total wine category this year. 

Where Does Your AVA Stand Among its Peers?

 

How are we doing on the SVB Annual Winery Survey?

I get the question all the time at survey time. Let me update you.

With two weeks down and essentially one week left until the 2021 SVB Wine Conditions survey closes, we have 300 respondents. 

We need a minimum of 450 responses to provide statistically meaningful data but are hoping we have a more normal response above 600 wineries respond. That would require doubling where we sit today.

Each region with 20 responses or more will get its own regional benchmarks. There are only 5 that hit that mark now. Several AVAs who have been significant participants in the past include Lodi, Paso, Foothills, Texas, and New York, but all AVAs have a ways to go to get to historical participation rates, so please make this short exercise a priority!!

SVB Survey Early Results: Water Worries

 

Water Concern

The Annual SVB Winery Conditions Survey has been open for one week and will close on October 15th. We currently have about 200 of the 1,000 responses we will need for thorough analysis. You can get us closer to 1,000 responses by participating this year.

Even with low initial participation, there is some preliminary information coming into focus. 

Water is clearly a worry with 42% of responders expressing concern they may have a serious problem in 2022, while 51% are on edge but believe they should be fine (headline slide). That leaves only about 7% feeling confident about water supply going into next year which tells us for these responders - water is a real concern.

It will be interesting to test this in the spring when rain totals come into focus because from all I've read, we will need a flood year with heavy snowpack to see improving reservoir levels and soil moisture content in the western states. And what are the chances of having an abnormally wet year? The answer is in the word 'abnormal.'

So if the chances are high that 2022 will be a serious year for water concerns, what are people planning on doing about the problem?

OPEN: SVB Annual State of the Industry Survey

Spring, Summer, Fall, Planning 

Winter is a time for planning - and do we ever need to plan! But where do we start? 

Are we oversupplied still? Do we even know if wine sales are higher or lower? How should we position next year when we put our business plans together? Should we forecast for higher or lower sales? What do we know now? 

BW166 has concluded wine volume entering the wholesale channel is up 4% as of August 2020. SipSource, a database using wholesale depletions has wine volume combining both on and off premise down 1.3% year over year though June. Wines & Vines Analytics concluded that Direct Shipments through June were 29% higher in volume. 

Where is the consumer in all of this? What is driving demand? Are we up or down? The reality is - the future is not yet clear, but I hope to change that. 

SVB Industry Research: The New Deal

Winning A Battle

The Annual SVB Industry Survey is closed. I've never posted those words on a blog before because that has never been news. But last Friday, because of the lack of industry response, I was convinced this would be SVB's last survey and in another first, I had to let the industry know that.

I interpreted the continuing annual trend of fewer survey responses as the industry making a universal statement that our research wasn't worth spending the 13 minutes it takes on average to complete it. I can't analyze blank cells, so without a response from wineries, I can't write the Annual State of the Industry Report with the same level of analytic support. How else am I to interpret the disastrous survey response?

I knew last Friday if I couldn't get at least 200 more responses in the 4 remaining days of this 3-week survey, there was no sense in continuing, and this was going to be the last survey the bank would produce - and the good news is I would get my November and December holidays back! So the close of the survey has now apparently become news to many people, including my family. How did we end up with responses?

Is this the Last SVB Industry Survey?

Images from Pixabay

I am trying to put the pieces together to arrive at a decision to continue or discontinue the Annual SVB Industry Survey, and I need your help to decide.

Almost 20 years ago I recognized there was a severe lack of good data and benchmarks, so I came up with the idea to start an industry survey. It was a novel concept for the era and was immensely successful. For the first time, small wineries had real business information to help in decision-making.

We gave the complete set of information and analysis to respondents and also used it to formulate pieces of the SVB State of the Industry Report. We've been fully underwriting the effort at substantial cost and producing results free of charge ever since. It has to be a labor of love on our part. I don't think anyone would confuse it with a for-profit initiative! But we are at a crossroads.

The SVB Survey is Now Open

Where are we headed as an industry? By now, everyone should be able to agree we are at an inflection point. We certainly have some obstacles to dodge. What are they? What is the magnitude of the problems? How long will we be dealing with oversupply? Where are the opportunities over the next five years? What should we do? 

We can help with some of those answers by getting you some benchmarks if you [take this year's survey]. 

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?

Fire Damage Becoming Clear

When you're standing in the middle of something, it's hard to understand just how big it is, and when the Napa fires were at the early stage and there was no progress in containment, I got a sense of just how big a story it was when I started taking press calls from around the globe. The reporters all wanted to know about the extent of the damage to the wine industry, having seen the pictures from Santa Rosa of utter destruction. It's not the first time I was in this position.

When the Napa Earthquake hit, I was tasked with trying to gauge the damage to the wine business for the Federal Disaster Declaration, but in that case I had some data to work with. This time, I had a phone, spotty cell coverage, no internet with widespread power outages so couldn't see news coverage, and was only keeping current with colleagues, family, and clients using texts and cell phone.

The Election Perspective from Europe

Who do Europeans Want for President?

I've been hiding in Europe while the most recent election debate has been taking place. I've been in Lisbon, Cadiz, Barcelona .... pretty much having sangria and tapas across the Iberian Peninsula. 

It's been more than civil over here, and I've really been interested to see the business growth in the region, at least with respect to tourism. My last visit here was in 2010 and things were miserable. But the usual tourist areas seem packed now which is good to see, because Spain for example still has more than a 22% unemployment rate and nearly 50% among youth. They really need tourism. In another change, after the terrorism in Nice I have noticed a larger police presence throughout the tourism areas and even some on La Rambla carrying weapons.

I fled over to Europe in part because thought I could get away from all the acrimony and derisive talk about the presidential race... and I wanted a vacation too. But guess what? People in Europe care about who the next "Leader of the Free World" will be too. It's the very first thing they want to talk about. And guess who they favor in a non-scientific poll? Answer: Neither.

You might be surprised to find the Europeans I've spoken with here seem more concerned with why these are the best two candidates we can find? I find myself explaining how our process works, and am getting a civics lesson in how other countries elect their leaders at the same time.

I've yet to find a single person tell me they would vote for either candidate but in an equally enlightening discovery unlike Americans, Europeans aren't glued to watching Sean Hannity or Rachel Madow so they aren't overly focused on the press revelations and network spin. Instead they are focused on what positives the candidates bring to the party while they go about their lives. 

I envy the Europeans because they aren't force fed the hype but I am glad we in America will soon be put out of our collective misery and we'll have a new leader. We'll have an election, I'll vote my conscience and I'm just glad it will be over for American's and Europeans alike!

But this Vote isn't Yet Over

Unlike the firm ending date for Presidential Election, the Silicon Valley Bank Annual Wine Conditions Survey which had been scheduled to close Friday, has been extended out and will now close Wednesday, October 19 at 5:00 PM Pacific time. This is a much easier decision than the Presidential Election.

For 12 minutes time, you will get the complete survey results, and dozens of relevant graphs and analysis that will help you benchmark your winery. This will be distributed only to those who complete the survey.

You can take the 2017 SVB Wine Conditions Survey here ------> [LINK]

Annual SVB Wine Conditions Survey Ends Friday

 

Face it. Getting actionable information in the wine business is challenging. You can pay more than $2,000 for an annual report on the wine business and in return, get regurgitated information. I once did that myself.

Thinking I would check on the offering of a group putting out a comprehensive report on the wine business, I was disappointed to find it was closer to a college level report that consolidated information from primary research. In fact several places cited the Silicon Valley Bank Annual Wine Report to support their findings.

There are a few places where you can get good primary research on the trends facing the business. For the past decade we've led a survey and conducted research with more than 600 wineries and the major AVA's participating from across the country each year. Why are we so lucky to get such strong participation? 

I think there are a few reasons:

1. We deliver good and needed information to the business for free.
2. We keep the information anonymous and noone can back into responses to determine who responded.
3. We've earned the owner's trust that we aren't using your information to add you to a sales calling list.
4. We give back more than we take. Only survey participants receive the complete data set back and that helps everyone in planning for the year ahead.

So I hope you will consider taking the survey this year. It takes about 12 minutes and in exchange, we will send without cost, the complete survey results, dozens of relevant graphs, and our early analysis on wine industry conditions. [Last year's survey results].

The survey is scheduled to close next Friday so please don't wait. Your participation will pay itself back many times over.

Take the survey now [LINK]

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What Does the Wine Business Fear Most?

      Do-Overs

With the New Year's Resolutions on our minds, one related question someone inevitably brings up is "do-overs." If you had a chance to do anything over, what would that be?

I have more than my fair share but I'll throw out one. It's the story of the young lady who agreed to marry me when I was 21 and she was 18. I thought she was a real keeper and we were in love. She said yes! I was so excited until my brand new fiancé said I had to ask her father and then reality started to set in. What if he said no?

Picking A Side In the Napa Winery Fight

No it's not Monday when I normally post. I got inspired midweek from Tom Wark who wrote a piece yesterday in his Fermentation Daily Wine Blog entitled Critics of the Napa Valley Wine Industry are Losing Badly. It's a passionate opinion piece of the goings-on in Napa County politics which are overheated with rhetoric. (Rhetoric | rhet·o·ric \ˈre-tə-rik\: language that is intended to influence people and that may not be honest or reasonable.)

Open: 2016 Survey of Wine Conditions

 

 

 

 

What's really going on in the wine business this moment? Can wineries raise prices? What's the supply situation in the Central Valley? Is there good land available for planting anywhere? Where is there too much supply? With the crush in the tanks now, winery owners are starting to think about 2016 and making plans.

 

I started researching for the Annual State of the Wine Industry Report in August and have a good idea what it's going to look like already, but I always like getting another layer of information of the current situation. So for the past decade now, I've led a survey of the current conditions in which more than 600 wineries and the major AVA's from across the country participate every year.

 

Ten years since we started this, I'm told by winery owners that new surveys now show up in email boxes every week. Thankfully I'm consistently told, "We look for your survey and make sure to participate." Why are we so lucky to get this kind of participation? I think there are a few reasons but bottom line, we keep the information anonymous, we aren't selling the information, and we give back more than we take.

 

The survey takes about 10 minutes and in exchange, we send without cost the complete survey results, dozens of relevant graphs, and our early analysis on wine industry conditions. [Last year's survey results].

 

Note the results this year will be released in early December only to those who participate in the survey. Ready to take the survey? Click on the link below.

Will Bottle Prices Increase in 2015?

 

The Annual Wine Conditions Survey will close this Friday. Thus far over 300 of your fellow wineries have participated from across the entire West Coast and Nation. It takes 12 minutes to complete and helps us all understand industry dynamics better. Participants are the ones who will most benefit for small time invested, as they are the only ones who will get the complete results and added analysis.

 

Please join your fellow wineries and participate in the survey before the close Friday [LINK].