The Annual SVB State of the Industry Survey is Closing

The wine industry is in uncharted territory, but analysts' opinions of its current state vary. If the analyst views were music, they would range from Bob Marley's, 'Every Little Thing's gonna be Alright,' to Led Zeppelin's, 'When the Levee Breaks, I'll Have no Place to Stay.' Who are you going to believe?

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 State of the Industry Report & replay is available for download

 

Nearly 3,000 attendees from dozens of the wine-producing countries of the world tuned in on January 18^th to hear from Rob McMillan, EVP & Wine Division Founder, Crimson Wine Group CEO Jennifer Locke, industry innovator Paul Mabray, and Enolytics SVP of Professional Services Ed Thralls as they discussed the trends and findings identified in SVB’s 23rd annual State of the US Wine Report. 

Watch the Replay: SVB State of the Wine Industry - 2024 Virtual Event (youtube.com)

 

Read the Report Here: State of the US Wine Industry Report 2024 | Silicon Valley Bank (svb.com) 

Recognizing the Need for Change 

The key findings indicate that the alcohol beverage market across the board is in a period of change, driven by evolving consumer dynamics, including the aging of older wine-focused boomers, who are being replaced by a new set of primary consumers who drink across categories, drink less wine, and consume less alcohol.  

“With the current messaging about alcohol as it relates to health and wellness, premium wine is well suited to meet the prevailing guidance around benefits and moderation,” said Jennifer. “We don’t have to reinvent what we are making; we have to retell our story and tell it collectively.”  

 Key Takeaways

Premium wineries experienced mixed success during the past year. The value of premium wine is still growing, but we anticipate volume sales will finish lower this year. The industry will need to find collaborative solutions to link wine attributes with the segmented values of newer consumers to increase demand while at the same time finding efficiencies in sales, marketing, and production to retain margins.

  

Minor headwinds contributed to the mixed outcomes at premium wineries. 

Direct-to-consumer volume sales were lower in 2023. Tasting room visitation dropped for the second straight year leading to lower premium sales through nine months in 2023. However, strong 2023 holiday sales should lead to positive growth in value at year-end. 

Consumer demand for the total wine category continues to decline. 

As reported over the last several years, in addition to wine, U.S. consumers have been drinking across categories such as ready-to-drink (RTD) options, spirits, beer, and cannabis or have been abstaining altogether. 

There is an oversupply of planted vineyards, given current sales volumes. 

Conditions are ripe for overproduction, which may lead to inventory excess in more price segments, discounting, and eventually price reductions. Pressure starting from the grower will create inventory bulges and drive higher-than-needed inventory turns in 2024.  

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." 

What is the Industry Reporting for 2020 Results? The SVB Survey Has Early Returns [Still Open]

While the unprecedented impacts of the Pandemic and wildfires have rightfully absorbed the attention of the media and industry participants, the basic marketplace challenges I've reported in the 2020 State of the Industry Report are still alive and confronting the industry.

Data and information has never been more important than today. Changes to consumer behavior emanating from shelter in place orders, a recession, and the ruination of restaurants in America among other factors, are creating new changes for wineries, and yes - new opportunities as well if you listen and plan.

The Twentieth Silicon Valley Bank Winery Conditions Survey presents a view of business conditions sorted by region, average bottle price, time in business, and other filters, all to give participants an accurate read of the current industry, and all gratis to participants. The Survey is drawing to a close next week. If you haven't yet participated in this study, I encourage you to do so. Only participants get the complete set of anonymized data and analysis back, at no cost to participants for an investment of 15 minutes of your time. 

PLEASE - will you personally support the wine industry by committing to participate this year? 

Here is a link to a PDF file of the questions to prepare, and here is a link to the survey itself.

What is Normal in a Post COVID-19 World?

The Coronavirus Pandemic for the wine and restaurant industries has been like getting picked up in a tornado and dropped into the Wizzard of Oz movie but without the welcoming committees. It's been dizzying to see overall demand for wine improve, at the same time premium wineries are fighting for survival. 

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. 

The Tough Questions Wine Clubs Face

 

After many years of flailing away looking for the right strategy, we are seeing DtC sales homogenize around a common theme. Wineries build a tasting room with a design statement. That's 'the experience.' Customers come to the winery, pay a fee and receive a curated tasting of wine. At the end of the tasting, the customer is invited to join the wine club and somewhere around 7% accept. It's working, and if you believe the stats that came out yesterday, DtC sales in February 2017 were 37% higher than February 2016.

Selling Millennials Through Myths & Lies (Final Part 3)

Millennials Are Normal People?

This is the third of a three part series: Part 1, Part 2

If millennials are narcissistic, lazy, and entitled as described in our last post, you will need to quickly come up with some new marketing tactics. So instead of giving them a toaster for joining the wine club (a boomer era tactic), maybe you could give away a free mirror with every new account? Oh I know! What about giving away a tiara for the self-absorbed, and some Red Bull for the lazy ones?

Bottle Prices Are Going Up in 2016

How much does this wine cost?

The Annual Wine Conditions Survey is open and delivering interesting early information on supply, price, and many other interesting questions. The survey closes next week but after the first week, almost 300 of your fellow wineries have invested 12 minutes. Why take the survey when we are all busy? Because participants are the only ones who will get complete results.

 

Replay of 2015 DtC VideoCast + Chat

Another live videocast is in the can and has already hit summer re-runs on YouTube.

Somebody will soon be sending you some popcorn for you to pare with a pinot gris, so you can settle in with your tasting room colleagues to review the findings of the Wine Business Monthly/Silicon Valley Bank Tasting Room Survey .... feedback-results, whatever you want to call it.

2015 State of the Industry Q&A

The Annual SVB Wine Report and the Live Broadcast is complete. For those that missed either one, the replay and report can now be accessed here: LINK.

For those who are looking for some power point slides to use in their own presentations, we've also posted 86 slides at the bottom of the page. Most of them were used in research but not used in either the Report or the Videocast. You are welcome to use the information there - with attribution of course.

The last duty I have for the year is to post the Q&A from the live videocast. This year as seems is always the case, we had participation both Nationally and from about a dozen countries. There seems to be world interest in the US Wine Industry for some reason?

The chat follows and I've littered it this year with the labels of random participants. Feel free to contact me if you have any other questions and I'll get back to you as I'm able.

The Easiest Way to Improve Club Profitability

 

While away on vacation the past few weeks, I've had some time to catch up on Dilbert which is a muse for all business revelation. The above comic got me thinking about Tasting Room compensation and specifically how staff are rewarded for new club member signups.

Of course paying for new club members makes sense because you need new members. Asking the next obvious question then .... why do you need new club members? You might think the answer is to increase your direct sales but for many the real answer is, you need new club members just to keep your wine club from shrinking.

What Will The Wine Business Be in 20 Years?

 

Its been pretty amazing to see the changes in the wine business in the past 20 or so years. The ways in which the business is different today would make today's business unrecognizable to someone pulling a Rip Van Winkle and waking to see what the business has become. No longer the pioneering slow-moving cottage industry, today the business is moving forward at an ever quickening pace.

 

One thing that was unimaginable even a decade ago would have been 'for sale' signs on a winery. Today its not that uncommon to find real estate professionals handling smaller winery and estate transactions, or straight vineyard sales. Similarly, a decade ago there wasn't much in the way of dedicated M&A advisors handling winery transactions. Silicon Valley Bank made an early attempt at it but couldn't really make it into a business. Today depending on how you count, there are between 3 - 5 dedicated practices selling winery properties. Makes you wonder where the business will be twenty years from now?

2014 Secrets of A Successful Tasting Room

 

 

Over the last couple of months we've discussed some of the results from the SVB/WBM tasting room survey. There have been some fascinating discoveries and the ensuing discussion has been equally rich and enlightening. Wine Business Monthly published an article in the May Edition of their publication discussing some of the findings.

 

To finish that up, On May 15th we presented a live video telecast from the SVB Studios in Santa Clara California discussing findings of the survey. To improve the dialogue and give it added color, in addition to me and Cyril Penn, Sr. Editor of Wine Business Monthly, we also included two front line people: Mary Jo "M.J." Dale, VP of Marketing and Consumer Sales at Crimson Wine Group, along with Lesley Berglund, Co-Founder and Chairwoman of WISE Academy.

 

While biased, I think you'll agree the added content of the live video chat presented a wealth of current information and advice for the direct wine business. If you're interested, a reply of that event is available by pressing play in the above widow.

 

There we're a lot of questions from the 650 people who tuned into the event. The chat also contained a lot of exchanges between people who attended the live event. As is common in the wine business, there was a lot of winery helping winery. The full version of that chat can be found [here].

 

As promised, the panel took on many of those questions in the following redacted transcript. We hope you find the Replay, Tasting Room Slide deck, and the follow up questions below helpful in developing your own club and direct programs.

The Most Important Factor In Wine Club Success

The psychology and dynamics of consumer choice is complex. Economists can make it even more complex but one of the theories that I've always liked is the concept of marginal utility, and if you can hang with me a bit, I want to use it as a backdrop in discussing the single most important metric to track and drive wine club success.

Are Standing Tasting Bars Better than Seated?

“Today, our bodies are breaking down from obesity, high blood pressure, diabetes, cancer, depression and the cascade of health ills and everyday malaise that come from what scientists have named sitting disease.”~ James Levine, MD, PhD

The votes are in and the reality is even with exercise and moderate wine consumption, the cumulative negative impacts of sitting behind a computer or gaming station can't be overcome by drinking more wine or with normal exercise regimens. That is really scary for people like me who work in an office. On the other hand, there is growing agreement that employees who work standing are not only more healthy, but they are more productive and creative than those who sit. That being the case, you would all of course naturally conclude that retail room sales people working in a standing bar should have a higher success rate converting visitors to buyers compared to sales people working in a seated venue. Of course you would conclude that ....

Questions You want Answered

 

The Annual State of the Industry report that Silicon Valley Bank produces takes a shrimp load of work to pull off and a lot more assistance than First Mate Dan. That’s why I stop writing the weekly blog in November. I have to dedicate my copious free time to research, composition, then production. Fortunately I have great people around me or I would drive my customers financial ships straight into the dock without their help.

 

I've been done writing since before Christmas, but the draft at this point has gone through 12 iterations. I know there are still going to be some tie-pos, ghrammaer and speeling mistakes in the 34 page report but all the read-throughs make me want to make me gouge out my eyes at this point. That's a clear sign that its ready for release.

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.....

Millennials Aren't All That

Louis B Shrimperton III "LB3"

I have a large degree of respect for Tom Wark's dog Louis B. Shrimperton III. "LB3" as he likes to be called, serves as Tom's sounding board when Tom writes his daily blog and he's also a Millennial with a distinctive opinion. Having descended from the Flying Nun as you can clearly see by the above resemblance, he's able to give Tom a high-level perspective on things.

On rare occasions Tom writes an interesting blog and he did so this last week writing "Unsubstantiated: Millennials, Wine & the Meme." Tom addresses a pet peeve of mine when reporters and writers repeat equine excrement in what I've referred to as the Millennial Myths. That's the notion that Millennials are driving the wine business. Here's one quote from a newspaper article I cited in a recent blog I penned:

"the U.S. ranks third in total wine consumption, and is gaining rapidly on the leaders. Much of the (3.3% ~ 850,000 case) increase can be attributed to the Millennial generation"

The problem with this quote and an unending string of others ..... they just aren't real or helpful in describing wine business opportunity.