Wine: It's what the young consumer wants. They just don't know it.

 

The beginning of change is understanding.

Each January in California, we are all enlightened by the Unified Wine and Grape Symposium, the DTC Wine Symposium, the Sovos ShipCompliant DTC Wine Shipping Report, and the Silicon Valley Bank State of the US Wine Industry Report. I'd like to say I attend them all, but some overlap. I do make it a point to attend the SVB State of the Wine Industry Videocast though. To allow flexibility, SVB records the video presentation of the SVB Report for replay. 

Is the Direct-to-Consumer Channel Holding Up?

The answer to the title question is yes, DTC is holding up, but as most in the industry will attest, it's a nuanced response that requires a discussion. 

Sign up for the 2024 annual SVB Direct-to-Consumer Videocast presented next Tuesday, June 25th, to hear an expert panel discuss the findings from the 2024 Direct-Direct-to-Consumer Survey.

What can you expect? After researching the wine industry for more than 20 years and producing this report for well over a decade, you can expect the same thing you always get: an honest and balanced view of the current direct-to-consumer market. 

Would you like a teaser? Take a look at the chart below. 

The 2024 SVB Wine Report will be released Thursday. Last chance to Sign up!

  Register here for the videocast, replay, and copy of this year's report.

In 1992, I wrote the original SVB Wine Division Business Plan in which I said,

"U.S. table wine entered a seven-year period of declining volume in the late 80s. Industry observers attributed the decrease to changing consumer attitudes concerning alcohol consumption, health concerns, drunk driving issues, and overall changing tastes as consumers drank less but better wine."

Despite that gloomy soundbite, I got bank approval to start this first-of-its-kind focused wine division. Why create this business for the bank with all the gloominess? I believed and predicted the premium wine industry was about to take off, driven by the boomer generation.

I did pretty well with that prediction.

What Ended Up Happening to SVB's Wine Division?

 

Photo by Maksym Kaharlytskyi on Unsplash

During the SVB meltdown last month, I wrote each of the first three weeks regarding the ordeal we were experiencing to keep interested parties apprised. There was a lot going on, and an infinite number of possible outcomes for the Wine Division. There was no assurance that the thought leadership we provide the industry would continue.

When the FDIC owns you, they don't ask what you want. We could have been sold to one of the largest banks, in which case we would have been absorbed and lost our flexibility and identity. It was possible we could have been split up and sold by divisions, or if there was insufficient interest, they could have sold off loans one at a time. None of those possibilities took place. What ended up happening to SVB's Wine Division?

I wrote the last post a month ago, right after the bank was purchased by First Citizens Bank, where I said: 

"From everything we are seeing at this early stage, we're starting to believe we've somehow landed in the best outcome imaginable for our clients, employees and our community." 

The Eulogy for the SVB Wine Division

    I'm not dead yet!

Fear of the unknown is a real thing. I think it's a self-protection response. Fear puts all of your senses on high alert as if a threat were imminent. In that state, and with an absence of real information, you theorize what's happening, then make up your own story of what you would do if one of the many permutations you imagine came to pass.

When the FDIC took over the bank almost three weeks ago, everyone imagined or feared the worst. It was the unknown in all its glory. 

This has been uncharted territory for all of us - clients and employees alike. How many have experienced a run on a bank? If you operate a business, what are you supposed to do to develop a plan? Google, where all truth is located, had "bank run" trending. There's your answer.

You Are at the Bottom and Looking for Inspiration

Inspiration is the substance of undiscovered strategies. It can come from almost anywhere if we stay positive and are open to it, but it's the fuel that ignites change.

This pandemic has put many people in the wine, travel, restaurant, and hospitality business on their heals or flat on their backs. 

Being in the cruise business might come to mind as being the worst place to be today, but at least cruise lines can raise money to survive. 

Perhaps the most difficult job today is owning a small travel agency as does my friend Michael Mastrocola at MillenniuM Travel, who many will know because he arranges annual cruises for a host of wineries. 

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.

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?

Santa Karma is Sending You Money in 2015

Putin Claus

This is a wonderful time of year to be a banker in the wine business, or more specifically, it's a wonderful time to be me! ...... holiday parties, presents, my office filling with client wine gifts keeping me in a jolly mood through the holidays, and then my birthday  - which falls on Christmas Eve just in case that slipped your mind this year?
 

The birthday part was a mixed blessing growing up in a family of six kids, and that cost me years of therapy. But I'm better now. I've learned to be thankful for all things, and this year in particular I'm getting my birthday AND Christmas wish; about $2 trillion in stimulus from World Despots.

Bra-Burning Feminists Drive Wine Sales

The business world moves in cycles, and if you live long enough you start to see them repeat. Today the popular press is replete with articles hyping the Urban Millennial Myth.

It's the older tradition-loving Boomers who have become accustomed to Madison Avenue solving every need, want and desire - versus the edgy up-and-coming Next Generation. The Next-Gen is nothing like you've seen before and you need to get current with your marketing or you will end up on the losing end of the stick.... or so many would have you believe ... except its really a repeat of a cycle we've seen before and we can see the outcome.

Boomers today drive wine sales and its the women Boomers who are the primary wine buyers according to many studies. Those were the same bra-burning feminists that were labeled as radicals back in the 1960s and early 1970's when they were Millennials. They were nothing like we've ever seen before either .... well .... there was Susan B. Anthony in a prior cycle but that's another story.

If you decided to craft a label to attract Millennials today, what would that look like? The press tells us Millennials are adventuresome, irreverent and demand transparency, sustainability, and authenticity. What about their desired product attributes in a wine purchase? What do they want?

An article that came out last week says Millennials are looking for non-pretentious products, non-traditional packaging, simple wines at an affordable price that speak to them; each are reported solutions for cracking the Millennial Code and developing a successful wine marketing program to that untapped pot of gold at the end of the cohort marketing rainbow.

Rima Fakih (Photo courtesy of Miss Michigan USA)

A restaurateur who targets Millennials, answers the question within the article noted above by talking about how he decided to create wine lists that ...

"...flout the bureaucratic rules that dictate how wine should be made. It’s an eclectic, slightly subversive list with a decidedly anti-authoritarian bent."

The description of Millennials and what they like sound eerily familiar ... non-traditional packaging, simple wines at an affordable price.... transparency, authenticity, adventure, irreverent behavior.....

Experiment or Die

Stupid mistakes and do-overs. Come on. Admit it. You've made your share. I made a similar mistake to the lumberjack in the above video. Trying to save a couple hundred bucks by not hiring a professional, I cut a tree limb away from my sliding glass door. Cutting straight down with a chain saw the limb cracked and held together by the fibrous bark. Like a hinge it pivoted down, perfectly connecting with the glass door below shattering it to pieces. It cost me $1,200 to replace the door and I've never made the same mistake since.

Do You Know the Location of the First Successful Winery in the US?

This week we're moving off the normal marketing, economy, and business issues and asking a basic question anyone working in the US wine business should know:"Where was the first successful commercial winery in the United States?" Do you know? I confess I didn't know for sure. I remember thinking Jefferson was a really important figure in American wine and he worked at establishing a commercial presence in Virginia early on, so maybe Virginia was first? Surely with the native vines in existence, there must have been a successful wine businesses established before the time of Jefferson?

I had this debate over a bottle of wine with someone smarter than I last week. The discussion of "firsts," depending on where you live and who is telling the story can change dramatically, so the interwebs - which everyone knows is the possessor of all that is true - can sometime provide false information. The reality is the real beginning of the US Wine business has been butchered in history books and folk-lore. There is however a definitive rendering of the subject.

If you haven't ever read A History of Wine in America, I highly recommend spending the time to do so. I've even linked a free Google e-book to the above title so you have no excuse. The book sheds a bright spot light on the subject and will have you the envy at your next party where you win the attractive table centre piece for getting the right answer. That said, I know many of you are Cliff Notes kind of people and wont spend time in the book, so if you want the shortcut to the answer, read on.

 

Is Demand for Wine Dropping?

I saw the above video last week referencing demand for wine and the title got my attention. Is the demand for wine really falling? When you watch the video above many people might think so, but I don't really put a lot of faith in LiveEx as a measure of demand for fine wine. This might be speaking to Bordeaux largely and LiveEx might have use in other areas but not for overall consumer demand.

Last week we did a version of a Mid-Year State of the Industry Blog, but in it noted that its hard to do a State of Anything in a blog so we left out consumer demand. With this video clip from Bloomberg hitting the interwebs, I thought it might be worthwhile to debunk the above perspective.

Is Your Tasting Room Successful?




... and your rice pudding sucks

The other day I  stopped in at Wal-Mart to get some things. While checking out, a very large woman in very tight clothes came up from just outside the store and angrily told my cashier she lost her debit card after she paid. While I looked around the floor for the card the cashier said, "Yes, I remember you putting it back in an envelope" to which the woman replied, "Its not in there. I put it in the envelope but you rushed me to get out of line. You rushed me. I want to see your manager!" 

..... Are you kidding me? I had to work at holding my tongue.

Are Immigrants taking American Jobs?

Immigration is a hot topic bracketed by views from the right and left that aren't predictable based on party affiliation.... maybe because the Hispanic vote has taken on such a high priority for the 2014 elections? From the Ag perspective, getting a sufficient supply of legal farm help has continued to be an increasingly difficult task forcing many farmers to use whatever help they can find. While the Wine Business is not as dire given the higher wage paid, you're foolish to think the current debate wont have any real impact here given the breadth of the discussion.

Some of the questions raised: Is it really fair to give a free pass to people who have ignored the laws of the State and are here illegally? Should you deport families whose children are born in the US and are citizens? Is it fair to taxpayers to be forced to educate illegal immigrants when our education system is in such a poor state? Is it fair to have Americans pay for illegal immigrant's medical expenses when they go to an emergency room? Are they taking jobs from Americans? You might think the jobs are low wage, but what about the high-paid jobs that are being filled by immigrants under the H1-B Visa program? Wouldn't Americans want those jobs? Under the Bill, estimates are that we will be granting up to 1.1 million illegal farm workers some measure of a legal status. Does that make sense?

Bovine Excrement & Global Warming

 

I will get to the topic at hand but first, a moment of silence .......... <that's enough> because last Friday Jonathan Winters passed away. In his honor, I've pinned a video of he and Dean Martin to the blog to remember his greatness, and give a little chuckle to all those who spent the weekend bleary-eyed doing taxes. For you Millennials who don't recognize the other guy in the video, that is Dean Martin who was of course the founder of Men's Warehouse.

Jonathan Winters was a brilliant comedian of a thousand voices. Only 27 actually took up residence inside his head at any one time according to staffers at Bellevue. No matter which personality was home, the man was truly a gift to humanity. He could ad lib on almost any subject. I wish he were here to help explain in his own special way what exactly happened to the 16th Amendment. That's the one that makes us all go crazy to meet the filing deadline. I'm sure he'd have quite a bit to say about that. For you Boomers who weren't born yet, the 16th Amendment is the one that says in it's entirety:

"The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration."

That's it. That's the whole Amendment. I'd love to hear Jonathan explain how we moved from those 30 words to the present 6,000 pages and 500 million words. It's so complex we spend $6BN annually processing our returns. Ninety percent of the populace today have to use a tax professional or tax software to process their returns.

And now to the point of the blog, it would have really been great if Jonathan Winters could explain Climate Change. Like the tax code, understanding Climate Change requires us to listen to others who know more than us. We have to try and decipher the meaning of the technical writings so we can plan and avoid any negative forecast impact. But like all things, wisdom begins with understanding. The problem is understanding gets really difficult for us when we start listening to unqualified on-line writers who give us their interpretations of technical reports, whether its the tax code or Climate Change.

Is Your Wine Trash or Treasure?

You've heard the saying that one man's trash is another mans treasure. How is it possible that two people can view the same object completely different? Its the difference in how each man values the object in question and how the object makes them feel. What about your wine? Is it trash or treasure? It really depends on who is answering the question AND if they are a target consumer for your product. If they are your target - they better not answer trash. Value is a consistently misunderstood concept but it is critical to consider in any successful marketing strategy.

This is the time of year when the end of year news starts to wane  and winery neighbors come out of their cellars to see if they have a shadow then discuss microbial spoilage, stuck fermentations  and quite often these days - their strategy to market their wines and how to do it in the context of a changed economy. Take a look and listen at just such an exchange in the above movie.

Draghi and Grape Pricing

Price and Returns of CA Grape Crop

Total Value of CA Grape Crop

Mario Draghi was in the news this past week concurrent with the Preliminary Grape Crush Report. Both are related. A weak Euro and oversupply are not the best combination. Thankfully, we are not presently oversupplied nor is the Euro weak, but where is it headed?

What Does Harley-Davidson share with wine?

What are the key ingredients for success in business? In my mind its defining effective strategy, having a sense for timing in execution, cohesion in a business culture, focused effort, and a bit of luck. But in the end, there is really one thing that separates successful and unsuccessful businesses: Leadership.

There are several successful leadership styles but there is a character trait most successful leaders share. They have the ability to constantly critique their own success and failures and adapt early. They are people who challenge the status quo routinely, constantly seeking improvement rather than living by rules of thumb and falling into routines and ruts.

You are a smart enough person if you run a business or manage a unit within a company. But if you can't back away from day-to-day duties and get a grasp of the environment changing around you and then strategize for the long run, you might be in the wine business for the short run.

I was reminded of that when I saw [an article] this past week about AMF Bowling seeking bankruptcy protection for a second time within the same decade. I honestly hadn't tracked the company of late, but had in the past as a young banker.

I recall sitting at my office in the early 1980's, reading an analyst report on the company that was covered in the WSJ. In it, the analyst reasoned that with the personal computer taking flight, and given all the accompanying enhanced productivity gains we would see, soon we would all flock to leisure activities to fill up our newly discovered copious free time. As a result, we'd see companies like AMF and Voit take off.

China: Its Time .... I think.

Talking to a US producer the other day about his Chinese exports, I asked what I should tell others about selling in China. He said tell them, "Come on in. The water is fine." Really? Is it time to jump in and export?

Clearly their consumers are growing in their taste for wine. As producers they are now 5th in World Production. Today in their 10 growing regions, there are more than 800 wineries. Seventy percent produce less than 60,000 cases. The largest 6 wineries are responsible for 70% of total Chinese production.

Hong Kong with a serious lust for wine dropped its import duty to 0% about 5 years ago. Since then the volume of wine traded in the region has spiked, and as demand has grown some of that wine has made it into China without the 41% duty required for imported wine to the mainland which is raising eyebrows among the protectionist ruling party.