Crisis Management for Wine Country

I'm not alone when I say that I've never been through anything like this and didn't see it coming. I had no way of imagining such a circumstance: a world-wide pandemic that closes down the US and World economies? While I've seen shelter-in-place orders for regional issues, it's beyond comprehension that this would ever take place in as many countries as we're seeing now, or in the entirety of the State of California and the growing list of other states and regions that have similar orders.

After the string of directives this past week from state, federal and local governments that pounded down our prior realities, I spent time surveying the wine industry landscape and talked to as many people as possible to gain a sense of where we stand. 

Wine Consumption Probably Won't Return to "Normal"

      I Seek The Finest Knights in the Land

We work in the most interesting and wonderful industry on earth. Two things I love about the industry are the infinite palate of interesting souls and the sheer volume of optimists within it. Ours is a happy place; a Camelot of sorts. It's an industry where losing an arm is viewed as just a scratch in some corners of the realm.

I love to be an optimist and predict safe and clear travels when the facts support it. But sometimes a foe might be blocking our path, and we need to take up arms. 

Several years ago when I authored the Annual SVB Wine report, I was quite optimistic and outlined all of the positive influences filling our sails. But this past year I was more gloomy; a Black Knight, and that bothered some of the optimists around me.

Optimism is good but blind optimism, the kind that denies the loss of both arms when they lie on the ground ... that isn't so good. Blind optimism is a poison that keeps us from taking a critical view of important trends and keeps us from committing to timely solutions. 

For my friends who just don't want to hear any of the gloomy facts below (along with some accompanying solutions), we'll call it a draw. You can stop reading and enjoy the next video instead. 

Now Back to reality...

Well then ... according to the BLS Consumer Expenditure Survey, Americans spend about 1% of income on alcohol, no matter the age. One could impute from that statement, we just need to wait until millennials are older and they will spend their 1%. In fact, just waiting is indeed the suggestion I often get from optimists. 

That's a rational view because the millennial generation's median age is 30, and boomers didn't really hit wine hard until their median age was 35. But that statement - spending one percent, is about total alcohol spending, not wine, and young consumers aren't treating wine as kindly as craft spirits and beer these days.

In the State of the Industry Report, we noted that millennials haven't increased their share of premium wine purchasing in four years. They just aren't engaging with wine yet, except on special occasions. But they are drinking craft beer and craft spirits more often.

As it relates to alcohol, there is another trend that bears watching. As the nearby slides show, again from BLS data, the under 25 age group in red is spending less and less of their hard-earned income on any kind of alcohol! That means they are spending it elsewhere.

In the first slide, we can see the percentage of their total income that the group is spending as a declining percentage. In the second slide, we see that they are spending a declining amount of per capita income on alcohol as well. And again, that's an overall statement on alcohol, not just wine alone.

     No Amount of Wine is Good For You

The section title is now a line that's being repeated from politicians across the world and stems from a controversial study. It doesn't matter if it's true. That's what's in the narrative.

The young consumer is being frightened away from beverage alcohol by the hijacking of science and the continuing onslaught of negative press coming from anti-alcohol groups. We covered that in the State of the Industry Report as well and noted the increasing volume and outlandish claims coming from that group. 

Today there is a growing trend toward wellness and that includes abstinence from any form of alcohol. Without any kind of response from the wine community to reference science that shows moderate wine consumption is healthy, we will see the negative trends continue.

We know that the growth of premium wine sales is slowing and total volume growth of wine has turned negative; something else we pointed out in the Annual Wine Report. Off-premise growth is displayed in the graph near this text. Wine is being hurt by the combination of the boomer moving to retirement and the young consumer's current lack of engagement. That's changing wine demand from what we've grown accustomed during the past 20 years of premiumization.

So the question at hand is, with the negative trends we are watching, will wine consumption ever return to our view of "normal?"

You won't like my answer, but don't be surprised if young consumers drink less alcohol tomorrow, and those who do drink continue to embrace craft spirits and beer instead of wine. 

If that statement isn't too gloomy, then you are an open-minded realist and undoubtedly quite attractive as well, so I encourage you to read on.

      Four Reasons Millennials Are Not Good Wine Consumers 

1. Wine is expensive compared to craft beer and spirits. One 750ml bottle of a well-known pinot noir costs $30 and has 5 servings that have to be consumed that evening or it will oxidize. The same size bottle of Makers Mark bourbon can be found for the same price, has 25 servings, and will stay drinkable for months. Another way to look at it: Jon Moramarco computes that on average, wine is $2.15 per five-ounce glass serving, versus $1.28 for a bottle of beer and 0.93 cents per shot of spirits.  Premium spirits are a better value compared to wine - and bartenders know that they get better margins for spirits over premium wine too.  Our frugal millennial consumer knows wine is comparatively more expensive.
2. Millennials are more health-conscious than prior generations. The wine business is being out-marketed by spirits producers who tout health-related features of their products such as low calories, no added sugar, gluten-free, non-GMO, organic, sustainable, etc. Wine? We don't yet put calories on our labels, we stopped promoting the massive body of science showing the health benefits of moderate wine consumption and with the anti-alcohol movement gaining traction in the narrative, even alternative non-alcoholic and engineered alcoholic products are starting to gain favor. The industry reaction? Some wineries are trying to adapt by making non-alc products, and many are trying to find a way to move into cannabis. Our health-conscious millennial consumer is moving away from alcohol as a category.
3. Millennials might not collect wine as did their boomer parents. Millennials are renting more than past generations at a similar time in life, and by all indications aren't expected to have the same degree of homeownership in life. But when they do buy homes, they look for more compact spaces. A premium liquor bar takes up less room than a wine cellar but still supports a family who entertains. Our space-starved millennial consumers probably won't collect wine like their parents.
4. When premium wine took off in 1994, there was no craft beer or craft spirit option. Wine became the choice for boomers because it was the only truly premium product, and I might add, it was a better value in 1994. Today, the typical beverage alcohol consumer drinks across categories - beer, wine, and spirits. Only 7% identify as pure wine consumers today. Our practical millennial consumers are weighing their premium bang for their buck and are finding wine wanting compared to spirits in particular.

Today the landscape is different from the 1990s when boomers drove wine consumption higher. Craft spirits and craft beer are pure substitutes for wine now and both are increasingly paired with meals as the millennials repurpose the use of spirits and craft beer to align with their tastes and budgets. Add to that "gullet-share" losses from non-alcoholic beverages and factor in a future with CBD infused wellness drinks, and there is less room for wine tomorrow - unless we change the game we're playing.

      Wine Drinking Grows with Age. Just be Patient ...

There is no question that beer and spirits have been the entry point into alcoholic beverages as long as most of us remember. And the pattern we're comfortable reciting is that all consumers evolve to wine as they age. That's what the chart nearby is saying about the current state. But consumers haven't always moved from beer and spirits into wine due to age. 

The Mature Generation - the people coming back from WWII as portrayed in Mad Men were beer and spirits drinkers. 

Coming from Prohibition and the Great Recession, the Matures largely bought alcohol beverage with a practical approach of ethanol per dollar - bang for your buck. Wine didn't compete well in that equation because it was lower alcohol and traditionally sold in smaller formats. To compete with spirits, wine became fortified in the '50s or sold in gallon jugs that were mass-produced in order to drive the cost of production down so the price could be dropped and the producer still could cover a profit margin.

That approach worked in the fringes of the adult population in the 50s and 60s, but never really got that generation engaged with wine as their first choice. 

The mature cohort remained more beer and spirits consumers throughout much of their consuming lives. Their rotation to wine started only when the wine industry gave compelling reasons to evolve from beer and spirits. It wasn't age. It was producing a product, marketing, and then selling wine that produced that change. And those consumers were in their 60s and 70s at that point.

The popularization of wine and move from beer and spirits really happened in the 90s with boomers who broke away from their parent's traditions and moved to premium wine after starting in cheap spirits and beer. The lesson is that offspring don't always follow the path of their parents.

To be successful, we need to give the young consumer more compelling reasons to be wine consumers. Hoping they will grow into wine isn't a good choice. As I say often, "Hope is not a strategy."

If we don't evolve the way we sell and market wine, we very well might suffer the same result the Mature generation took, and see young consumers staying with spirits and beer as their preferred choice for beverage alcohol. But there are things we can do to avoid that outcome.

     What's are some Solutions to the Gloomy Trends?

For wine producers, I don't believe scurrying off to non-alcohol and cannabis-infused drinks as some are doing, or coming up with the next pink RTD wine cocktail are the right approaches. We should stay focused on our strengths. But we need an on-ramp for the new consumer which means we have to evolve our marketing. 

We have to find the price, product, packaging, promotion, experience, quality, and any other "P" we can think of, and begin engaging with the young consumer now. We can't "wait until they can afford wine" because the rest of the beverage alcohol industry is already changing their games to take advantage of the current trends. We are being out-flanked and the game is time-sensitive.

The first and easiest thing to do is to beg our Marketing, AVA, and Industry Associations to keep the valid moderate-consumption research at their fingertips and/or fund positions that give credible journalists and law-makers the other side of the anti-alcohol stories that are flooding the press. 

The Wine Institute used to have a full-time technical position that did just that, but the position within has been vacant for more than a decade. It ended when wine consumption started to soar and the message of health was embedded into the narrative. I've asked several in the Board of Directors to consider that and I know I've been heard, but we should all ask that the position be reinstituted and be willing to pay for it. And we should all look to other industry associations to do the same.

The second thing we need to do is evolve the way we talk about wine. This is the first time in American retail history that there are two very large cohorts at opposite ends of their buying lives - and each has different values and financial capacity. The categories doing the best in retail today are those who figure out how to increase demand from both cohorts.

I appreciate the spirit of those who say "we need to stop making wine so complex," but I disagree because the dominant buyers of wine are still people who have appreciated the way wine has been marketed. We have to keep the older consumers and market the way they prefer BUT AT THE SAME TIME, adapt to the new consumer, giving them products, and the positioning that appeals to them. That's not easy, but we aren't really trying. The spirits industry is trying, and they have the best growth rates in all of beverage alcohol. 

While wellness is a trend, inauthentic wellness claims will, in the end, backfire as snake oil. We're starting to see some of that with the recent LeCroix litigation which has cut their stock value in half.  But of all the alc. beverage categories, wine is unique. It's about as simple as it could be. It has the best science around health. It is often grown from sustainable or biodynamic farming. If we put the ingredients on the back of a bottle it would say something like, 'this wine is made from sustainably grown winegrapes with small amounts of naturally occurring and added sulfites. Nothing else.' 

Optimistically speaking, I believe the wine industry always has responded to a challenge when it's made clear. I believe we have the opportunity to recast the way we sell and market wine and see double-digit growth rates again. We may indeed see wine sales return to what we are used to if we take action ... Or did you stop at the Sesame Street Video?

What's Your Opinion?

• Should we just wait another five years and hope the millennial will move to wine? 
• What are you doing to evolve your marketing (all the "Ps")?
• How are you retaining the best of your message for the existing customers, and still engaging with the newer consumer?
• Will you do your part and ask your Industry Associations to please get technical people in place who can respond to journalists and legislators seeking the other side of the story?

Please join this site on the top right-hand side of the page, and offer your thoughts below. I respond to everyone.



Please share this post on your favorite social media platform. We need to heighten the discussion of this topic.

Sincerely,
Rob "Doom & Gloom" McMillan

Annual SVB/WBM Direct Consumer Sales Videocast

      Lots of Shades and Few Patterns

When I wrote the business plan for Silicon Valley Bank's entrance to the wine industry in 1992, I did so largely from a researchers perspective, as I had only modest prior industry experience, and by the time I authored the plan, the industry had completely changed.

I discovered in the process that there were conflicting industry opinions from many of the experts and little research available to support those opinions. The research that was being done was being created by researchers in Chicago and New York; far from wine country. There was almost almost zero street-level intelligence, with the exception of the work done by Motto Kryla and Fisher and Gomberg, Fredrikson & Associates.

As an analyst back then, deciphering the wine business was like trying to see patterns in the lead picture: Plenty of pop and thousands of brands, all trying to find their way in a crowded landscape. Every winery's nozzle was aimed in different directions - region, varietal, wine style, consumer, path to market, consumer segment - because strategy was too often supported by guess work.

That induced me to research and produce my own information for our customers - and the wine community as a whole. The upcoming videocast: Insights for Successful Consumer Wine sales is one such example. --> [signup here] <-- 

      What's the Greatest Risk Today?

The wine business is far more complex than people think. It's a maze of complexities with different models, varying paths to the consumer, pressure from federal, local, and state regulations, a lack of good information, controlling power in a small numbers of hands and changing consumer demand. Oftentime decisions are made with the love of the product in mind, versus a business decision being made with financial returns in mind.

Perhaps the greatest risk we should all be most worried about is our tendency to continue on on a path that's successful. If it works, we keep riding the trend as far as we can, until the strategy fails. In an industry that takes 5 years to get a fully mature yield, shouldn't we be making decisions with a view to meeting the future instead of reacting to the present? Where will things be in 5 years? I guarantee the industry 5 years from now will look very different than it does right now, so the strategies that are starting to wobble today, will be on life support five years from today.

With that in mind and the new SVB DtC Survey now complete, there are many things we'd like to bring out and discuss, including current insights from the survey as well as marketing solutions to consider. This is a time where we need people to grasp the issues, and participate in the evolution of the business and consumer. Getting out ahead of this evolution is where you will find opportunity for growth. 

      Understanding is the Beginning of Change

What are some of the changes we are seeing in this year's survey?

There are more tasting rooms being opened today versus wineries, as a result of the shift to direct to consumer sales, but since 2013, there are fewer of both being opened.

Tasting fees which have been increasing for years are now leveling off; a sign that tasting fees have reached the point where they may be discouraging good/new customers.

After years of seeing increases in by-appointment tastings, the percentage of pure by-appointment has dropped in favor of a mixed model, accepting both walk-in and those with appointments, with respondents suggesting the mix of tastings is also going more of a blend of formal and casual, reflecting consumers with split preferences - some preferring casual and others formal.

  Live Direct to Consumer Videocast

I hope that's enough of a teaser to get you to sign up for the annual SVB/Wine Business Monthly Live Videocast, where we will offer more dialogue on many new findings, along with a lively discussion of solutions and strategy.

In addition to myself and Cyril Penn, included as new guests this year are Tammy Boatright; a person with more than 20 years in direct marketing and winery management and Lisa Kislak with decades of experience in white table cloth restaurants applying data to drive marketing decisions.

Please [register] for this year's live telecast which will take place May 22nd at 9:30 Pacific Time. Joining live gets you into the chat room where you can ask questions of the panel, and discuss with wine people from across the globe. 

Even if you can't make this time, registering will get you the link to the videocast replay when that's available.

This year's panel will include:

        Tammy Boatright - President, VingDirect

        Lisa Kislak - Chief Marketing Officer of Crimson Wine Group

        Cyril Penn, Editor in Chief, Wine Business Monthly.

Date:   May 22nd, 2019

Time:  9:30 am - 10:30 AM Pacific Time

The Lost Wine Consumer of 2019

The SVB Annual State of the Industry Report diagnoses trends and makes projections about tomorrow. I write it as much for me as for the industry, because I think it's critical to stand away from the business every year and take a fresh look. It helps me and the SVB wine division take a consultant's approach with our clients and diagnose owner's critical needs. 

Normally there aren't huge surprises when I research, but this year, I came away with a cascading shock when I discovered the business wasn't anywhere close to where I believed it was. And every bit of research since has continued to add to the realization that the industry isn't only at a cross-roads, we stand a chance of losing the wine consumer altogether.

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.

Selling Millennials Through Myths & Lies (Part 2 of 3)

Desperate to find the secret of the millennial code, media and researchers have taken creative license over the past fifteen years which in the final analysis, hasn't provided the hoped for guideposts that would convert marketing strategy into new consumers - at least as it relates to the wine business. But it has created a dialogue overblowing the impact of our youngest cohort (eg, above video.)

Selling Millennials Through Myths & Lies (Part 1)

Authenticity. Only for millennials?

Just the Facts

Millennials are the most engaged and socially connected generation of all cohorts. They demand sustainability and authenticity in their products. Socially responsible and transparent companies rank high in importance when it comes to their purchase decisions. They demand customization and wide selection. They consume more wine per occasion than all the other cohorts combined.

Thirty-three percent of Millennials say they are motivated to buy more frequently when a friend recommends a wine, but 99.8% say they like any wine better when a friend buys it for them. 

One hundred and fourteen percent agree with the statement that feeding one's animal spirits premium wine is better than hitting your toe with a hammer. The remaining percentage believe morning-after flat party beer is good for hydration, so long as there are no cigarette butts in the bottle. When there are butts in the beer, their preference to consume falls to 0.4% with a statistical error rate of +/- 0.4%

Annual DtC Videocast Tomorrow - Last Chance Signup

I'm not fond of looking at pictures of myself. It's even worse when I try and grab a screen shot like the above from last year's Tasting Room videocast. Blech. Makes me sick. That looks like I'm getting ready to spit! Actually it's the end of a sentence where I'm saying 'tasting roooommmmm.' That's what I look like when I say 'm,' and it's the best I could do - I'm sad to say. But looks aren't everything. 

Is Your AVA "Just Like Napa?"

 

Follow the Yellen Brick Road

 

     On March 16th I was invited to be THE keynote speaker at the 21st Annual Central Coast Insights. OK ... maybe I was just  "a"  keynote speaker ... OK fine. Just don't look at me like that. I was just a "basic speaker." There. I said it..... Are you happy now?

Anyway, speaking in Paso Robles I was reminded of something that has always bothered me. The region makes great wines; as good as any place on earth and yet it has gone through constant boom and bust cycles over the years. Grapes from the Central Coast go into both value priced jugs, and collectable wines too. How can that be?

You are probably a wine expert in some form if you are reading this, but do you know precisely where the Central Coast AVA is located? Are you aware of the varietals for which the AVA is best known?

Is the Central Coast "just like Napa?"

Should You Enforce Your Wine Club Contract?

 

On occasion I get suggestions about something on which to blog. I really appreciate the ideas and use them when I can. This past week I got an email from a follower who suggested I post on their experience with a disgruntled wine club member. The review they got in YELP is a good place to start:

"The wine club is a total scam! I only wanted the wines that weren't in stores so I was told I had to join their club. I didn't want to but I got a discount on the wine. Once I got my first shipment which had all the wines I wanted, I just cancelled the club. Then the as*****s charged my credit card without even telling me! I was like, WTF? and was told by some bitchy tasting room person that I signed a contract that said I had to give back the discounts if I didn't take both shipments! Like who reads contracts? And just because I quit their winery, they didn't send me concert tickets they said they would."

ACME Winery

For the second week in a row I'm asked to anonymize the winery. So we officially have a trend keeping the semi-innocent anonymous to protect the wicked. But in this case, there are some things I can tell you about this winery to give you a flavor of their business model and their side of the situation:

• They are 100% direct to consumer - nothing is sold wholesale
• They sell less than 7,000 cases
• Their average wine sells for $60 per bottle up to almost $400 per bottle
• Half of their wines are completely allocated and in very high demand - selling for double the retail room price on the secondary market.
• Their wine club contract requires a one-year commitment and if cancelled in the first year, the discounts have to be repaid to the winery. That part reminds me a little but like the old CD clubs.
• They include concert tickets for new wine club sign ups but in this case the shipment was made and the customer quit before tickets could be sent.

 

Business Would Be Fine Except for the Employees and Customers

 

So how do you handle a consumer like this who games your wine club agreement? My response is to change your system.

Over the years I've talked to numerous wineries who tried to sell a wine in lower demand in exchange for a consumer getting their hands on an allocated or high scoring wine that was in high demand.

To my thinking in brand building, you really want to make wines that are in demand, and build demand for all your SKUs. Getting a consumer to take a wine they don't really want doesn't build demand for that wine. It may even have a negative impact on how your overall brand is perceived.

Think of this analogy: You find a really awesome pair of custom made Italian shoes in your size, but to get them from the manufacturer, you have to buy a second pair of shoes that are ugly and don't fit.

If you are the buyer, you give zero value to the ugly shoes that don't fit. That means for you to feel like you received fair value for the purchase, you had to feel the price you paid for the package of shoes would be fair either with or without the second pair of shoes.

To go a step further, you may feel that the second pair of shoes has negative value because you now have to go find someone who likes the style of the second pair and has the right size foot. That's going to cost time and effort. If you are making those shoes, what you really want to do is identify a consumer who values ugly shoes in that size. ( .... hope that didn't take analogy too far ... )

 

Is the Contract Legal?

 

I can totally relate to this frustrated winery owner. I didn't mention it, but they did in fact send the concert tickets to the consumer too. So they totally lived up to their side of the deal and got hammered in a review for their trouble. Was their contract legal? Could they charge back the customers credit card for the discounts?

A wine club contract can be a legally binding agreement but that's really a red herring. The practical reality is if you are talking about contract rights to a wine consumer, you are well past building your brand and off topic.

I'll probably get kicked out of the Bankers Union for saying this, but I don't think contracts matter that much. You can have a legal right to something, but in the end what really matters is how you do business, no matter what a contract says.

 

If a social media review is unfair, shake it off. You wont please everyone. Some people are just unhappy and carry a chip on their shoulder. But negative truthful reviews are an opportunity to check on how your business is done and improve. Is compensation motivating the right things? In this case, is the tasting room staff messaging the club program effectively so their are no surprises.

 

Responding To YELP Reviews

 

I feel as though the question of what to do with a negative YELP review has been discussed sufficiently in the blogosphere, but the short treatment is: 1) You can respond as a business owner to a negative review. 2) You can't have a review removed unless the post was a violation of YELP's user agreement but good luck with that. 3) You have no right to have your brand removed from YELP. 4) Don't pay a company who says they can remove negative reviews. They can't.

 

If the reviewer seems crazy, ignore it but if the reviewer sounds reasonable respond to it and show you really do care about providing good service. Interestingly though, for some unknown reason most wineries I checked this week don't respond to reviews at all. You can also encourage people to write reviews which will push the negative review from the front page at least.

 

Finally - thanks to the anonymous winery for suggesting the topic. Hopefully they will get some good thoughts from the community.

 

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What are your thoughts about wine club contracts? What advice can you offer this winery regarding their approach? Do you have any similar customer service stories to share and if so, how did you handle it"

 

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