How Much Did Wineries Really Make in 2018?

      The Wine Industry Shares Most Information

Unlike most of the business world, there's a sense in the wine business that sharing is part of community, and your neighbor is part of your support mechanism. They are not a rival nor are they a competitor. Everyone freely offers support in the form of information and time. If you need a tractor because yours is mired in a soggy field, no problemo! Need a little welding and custom fabrication on a pump? I'll be right over with a welding rig. Stuck fermentation? I'll send over a portable heating unit.

Inventory Days Higher, Grape Prices Headed Lower

Pig in a Python

Here's a late edit to this post: If there are 6 pigs in a 7 pig python and the python doesn't ....er ... pass one of the pigs, how many pigs can the python eat?

To really understand what's going on with inventory, you have to get a handle on the whole chain: Consumer demand, depletions, distributor supply, winery supply, imports, bulk wine supply, forecast harvest yields, and non-bearing acreage. I spend a great deal of time trying to sort through each of those to get a sense of what is coming next for the producers. Its a nerdly existence but it helps the winery clients who bank with me so I take the time, research, read, and talk to a lot of smart people.

Do You Like Drinking Day-Old Wine?

My mom used to go to the Day-Old Hostess bread store. She would get apple pies and Ho-Ho's and freeze them for our school lunches. They were really good....maybe not that healthy but Hostess advertising said they were healthy snacks back then - wholesome goodness I think was the pitch line, and even day-old Hostess snacks never were stale. Of course now we know it was due to the overuse of preservatives which by themselves can cause a corpse to never decompose.

There is no Day-Old Wine Store for good reason. With Twinkies and Snowballs, freezing made the product usable on my schedule. With wine once its opened, you either drink the whole thing or risk letting the remnant oxidize. Personally, I hate oxidized wine but there's a dilemma. Do I drink a really nice bottle with dinner and have some left that might not be consumed? Or, do I drink a lesser bottle and not be as concerned if I have to dump it? Of course I can just drink the whole bottle, but the calorie thing is becoming a real problem these days .... maybe it was the Twinkies. Either way I blame it on my mother pushing me into addiction. Twinkies are a gateway drug you know.

I can't tell you how much day-old wine I've had to dump over the years. I'd hate to think about what that cost me; maybe thousands of dollars given my drinking habits stemming from my traumatic childhood. While I've not found a solution to my Twinkie addiction, I have found the solution to my dilemma of wasted wine. If you like this solution as well, there is a deal for you at the end of this blog - only for SVB on Wine readers.

 

Successful Tasting Room Metrics

 

In our second live video broadcast of the year, we focused on the Tasting Room, Wine Clubs and Direct Sales with a panel of industry experts. The entire broadcast was supported by an extensive survey, with over 500 respondents taking part from across the US. The complete results from the survey were returned to the participants. This broadcast included participants from several countries, but primarily North America. Hopefully you were able to tune into the session live from the Silicon Valley Bank studios and participated in the discussion. If you weren't able, above is the YouTube link to the broadcast.

Please log in and comment for the community at the end of the transcript with any of your perspectives and suggestions for the next live broadcast.

The Dance of Grape Pricing

 



ABC. It's Easy As 1-2-3

 

The vines flowering this time of year remind me of seventh grade. Maybe its the Aqua-Net hairspray smell the flowers produce but that's when we had our first crack at dancing after school which made institutionally official, our life-long quest to read the minds of the opposite sex. Filing into the sour milk scented cafeteria one sweltering afternoon, the boys took up their station on one wall while the girls occupied the opposite wall. The girls giggled and pointed at us prepubescent pimply-faced males while we in turn stared blankly back across the barren dance floor. "ABC. It's easy as 1-2-3" from The Jackson 5 cranked at volume eleven in the background, so we started to move to the music right where we stood thus signaling in our Cro-Magnon genetic way that we could dance. Well, we could if we wanted to. We just didn't want to. The girls of course had been practicing their dance moves since 3rd grade in front of their full-length closet mirrors. Us boys? We were playing baseball, football, kick-the-can, capture the flag, and tiddlywinks, oblivious to girls - unless you count the observation of cooties.
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If you want to skip my meandering memories from 12 year olds first dance experience, you can skip down To The Point Now.
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How to Have Others Pay for Customer Acquisition

Last week I had the opportunity to head off to the Bloomberg studios in San Francisco and participate in a wine panel with the still somewhat lovely and modestly talented Michael Honig of Honig Vineyards & Winery, and the witty and much more attractive Bill Price Chairman of the Vincraft Group. If you didn't get a chance to see the give and take, you can take a look above if you give a hoot. The event was also covered by Steve Heimhoff in his Blog so its possible if you are in the wine business, you are probably already saying to yourself,

"Self?...... Who cares about a wine panel even with attractive and slightly weathered male models? I might as well read the back of wine bottles ....... special soils with long days and cool nights ... blah, blah, blah. Time to go watch bud break." 

Mom

My mother's review of the segment was the chairs seemed uncomfortable, I needed to sit up straight, and I was the smartest and most handsome boy on stage. She said it was amazing! Then again, she used to be proud of my finger paintings ( .... no not the ones I did when I was at Hillview.)

You might think the over-educated Ivy-League Bloomberg folks would bail us out and make the panel compelling? Those gentlemen must be worth a listen? Sadly to me, after watching this you will most likely come away saying,

"Self? ....... I can't believe that host dude Jeff made a mistake introducing the name of this Blog! Isn't that some sort of professional breach for a member of the Paper, Ink & Lies Union #911 to insult a fellow professional writer.?" 

Personally, I think Jeff has blog envy. No matter. There is another person who was interested in this wine panel: the wine consumer.

How Much Do Tasting Rooms Make?

I had a good meeting with one of my longest tenured clients this past month. We were talking over strategy and the discussion evolved to discussing their tasting room. Specifically, they don't have one - so should they?

My client is in a region where there is an agglomeration of tasting rooms. The winery is doing well without one. A little off the beaten path, if they did put one in they would need to develop some strategies to get people to the winery.

Wanting to hone in on a measure of expected return in their planning, they asked me what's the ROI of a successful tasting room? I could have given them the stock answer and talked about measures of profitability, but the reality is there is no such thing as an average ROI on a tasting room. If fact you are missing the point of a tasting room if success for you is defined as profit.

How Much Value is there in Wine Tourism?

Many in business view another competitor moving into your territory as an affront to all that is fair and decent. Its the moral equivalent of "I was here first." Sometimes that kind of in-your-face competition is truly a net sum zero game. For example, there was a small drive-thru coffee station in the shopping center I frequent, but one day Peat's Coffee moved in. They survived about a year but now the drive-thru is closed. There are plenty of examples just like that but other times, competitors and related businesses cooperating together can have a positive impact on business conditions and instead of waring, can come together and win together.

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?

Need Some Fresh Ideas To Help Your Marketing?

If you are like me, you get offers of reports on trends in the wine business about every day. Several years ago I saw a synopsis of an extensive report that seemed pretty interesting. For the mere price of $2,500US I had a several hundred page report on my desk in about a week. Now this was when I still had an expense account so please don't start emailing me more sucker offers.

Sadly, much of the report seemed like it was written by a fresh-out-of-college student, or at a minimum someone who never lived in the wine business. It was rehash of everything you already knew. To make matters worse, I was cited in several places for things I'd said. That instantly devalued the purchase. Why would I listen to me? I always lie.

Q&A on the SVB Wine Report

SVB Wine Industry Report Plus Video Chat & Q&A

The 2013 Wine Industry Report is out with the first ever Live Video Conference linked above. Joining me on the panel were industry luminaries Paul Mabray, Founder & Chief Strategy Officer of VinTank, Tony Correia, Founder Correia-Xavier Inc., and Mary Jo Dale, Chief Consumer Direct Officer of KLH Consulting.

If you haven't seen the report or the video, you can get them both in a choice of formats here: [Wine Report] If you would like to read through the video chat from the conference, see responses to the questions by the panel, and continue to discuss some of the findings you can do so in this forum and the panelists and I will answer. Also - since this was the first ever Live Video Conference, I would appreciate any critique, feedback, or ideas for potential future programming.

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.

Can You Sue A Wine Writer?

I go crazy hearing about all the idiotic lawsuits that get thrown out there. One such suit was Overton vs Anheuser-Bush in which the plaintiff accused Budweiser of false advertising by using suggestive imagery like "scenic tropical settings, beautiful women and men engaged in endless and unrestricted merriment" ... ostensibly because they were drinking Bud Lite beautiful women would just come to life from their imaginations. I know every time I pop a bud open, I get a door knock. Doesn't everyone?

Then I saw [this story] about a critical on-line review of a doctor. Apparently the defendant didn't like the doctors bedside manner amoung other things. The good doctor didn't like the review and wasn't going to take this lying down, so he sued to have it removed. Of course the brilliant doctorended up promoting the review more than the patient ever could have hoped. But the whole things got me to wondering if anyone has ever successfully sued a professional wine writer over a scathing review?


While I'm not an attorney, I believe a suit could be brought for monetary damages if a review like that were proven untrue, the writer knew it wasn't true, and it established a loss in brand or current sales. Of course proving someones own subjective opinion was knowingly wrong isn't easy.

And while we're on the subject, what about all the consumer reviews in Blogs YELP and other on-line consumer sites? Has anyone been sued for saying bad things about a wine in the Wild West of the Web? And a related question: What should you do about those types of reviews?

The Best President for the Wine Business is ....

I Lied .........

Think Its a Tight Race?

I admit it. I said last week that SVB on Wine would be going on hiatus until January while we are producing the Annual State of the Industry report. Well .....I guess I lied. Shocking! A banker who lied? I guess that makes me eligible for public office though. ....hmmm....upon further reflection ....nope .... unlike President Clinton who never inhaled but he did lie, I did inhale ... once ... as an aspiring musician but it was a job requirement. Nonetheless, that makes me unfit for public office and as a colorful Senator once said, "If nominated, I shall run to Mexico. If elected, I shall fight extradition." I mean really, who would want to run for public office these days and endure the mud-slinging and digging into the mistakes in your life? We've made office fit only for people who never made a mistake, or were never caught in a mistake.

Moving on to the topic at hand, many people seemed pretty engaged on the piece we wrote last week that discussed Argentina and the negative impact their Government has on the wine business. After watching the feisty Presidential debates this past week, I said to myself .... "Self? Which of the two candidates is best suited to help the wine industry for the next four years?"  'Myself,' predictably didn't answer me, so I've decided to go against my better judgment and toss it out for a discussion topic this week.

Argentina: Why Malbec doesn't Flood the US

There's no substitute for visiting a wine region to get a true sense for the business. Tasting doesn't tell you strategy. Reading won't describe scents in the air. A travelogue gives you no indication of the heart of the people or the quirks in customs. For that you have to visit the region.

A few months ago I was given the opportunity to speak at the VIII Foro Internacional Vitivinícola in Mendoza Argentina. It didn't take long for me to accept the invite. In the U.S. I've tried many of their wines but wasn't that impressed, probably because I've never focused on the region and generally was drinking wines in restaurants that were over priced. But the buzz over quality Argentinean wines has never waned. Some of my clients even have vineyards there. So I saw this as an opportunity to broaden my understanding of the Argentina and get first hand knowledge. What I came away with was inspiring and mind altering.

Part II: Planting Decisions Are Different This Time

Changing Patterns: You're Mad if you Don't React.

The wine industry is made of family owned companies. Family owned companies seldom last past the 3rd generation in part because the family and business conditions that support the start of a business evolve over the years. Watching the clip above from MADMEN, you see the founder ask the question, "Why can't I just build on what I have?" The answer is a reminder that your customers needs and wants evolve, and you have to recognize and predict those pattern changes. 

To survive and adapt, a leader has to get out from behind the day to day world of running the business and ask tough questions about change. Today whether you are first or 4th generation, it's time to review the horizon because while the business continues to rebound, its not and wont continue in the same way it did in past recoveries as we discussed in Part I: The Long Term Future of US Wine Sales last week.

Just what specifically will be different in this recovery for the wine business? Its too long of a topic to discuss on a Blog so much of this I'll reserve for the State of the Industry Report due out in January of 2013. But for now lets just start with one segment: planting .... and maybe a little on pricing because they are related.

Part I: The Long Term Future of US Wine Sales

Don Draper, the Middle Class, and the Mad US Wine Consumer

Economically speaking, a luxury good is one with a demand curve that's straight up and down and a commodity has a horizontal demand curve. Practically speaking there's a lot of gray between the two and Luxury for American's is easier to segment into "need to have" (a vacation camping close to home) and "want to have" (a vacation at the Hilton in Rome).

There was a time when luxury goods were that: Custom goods manufactured for the wealthy. Mass Luxury? At best that was just an oxymoron. Back in the day, lettuce was not a luxury good. It came in fresh iceberg or older iceberg. There were no field greens mixed in a gas sealed bag replete with mustard greens and escarole. But when the boys came home from a World War and the Boomers started popping out and growing up, America grew a large appetite for something more than 'need to have' products. We desired, wanted and coveted the Jones' stuff next store. An exploding middle class was the catalyst that gave the Mad Men out there license to pitch our wildest needs and wants, and we consumed our way to prosperity.

Today with a shrinking middle class, displays of wealth politically incorrect, a waning Boomer, and a $9 trillion dollar hit to the net worth of America's consumers in real estate losses, can we still have Mass Luxury goods like we used to and more important, will we be able to afford them, and even more important still, what does that mean for wine?

2012-2013 Predictions on the Wine Business

Each year I take out my crystal ball, put on funny clothes and after my eyes roll into the back of my head for a sufficient amount of time, write Silicon Valley Bank’s State of the Wine Industry Report and make some predictions. I am a most fortunate soothsayer to be able to see so much of what is largely a private industry. Silicon Valley Bank has it's own data base of financial information, I produce various surveys throughout the year with more than 500 respondents, have direct contact with clients, prospects, suppliers to the wine business, relationships with distributors and large scale farmers, academia, media and I’m sure I’m missing an angle or two. That all helps to clear up the cloudy crystal ball.