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. 

How Much is Your Winery Worth Today?

Change Creates Opportunity

The 2019 SVB State of the Industry Report helped change the narrative in the wine business this year. While the industry remained focused on premiumization, I had to report in January that the positive elements that created the industry's astounding success over the past 25 years were hitting a wall. We predicted that M&A would slow this year and thus far, that appears to be a good call, notwithstanding the massive sale of about thirty of Constellation's wine brands to Gallo for $1.7BN.

There is plenty of activity still. Probably once a week both buyers and sellers ask me, "what are average winery multiples?" What they are really asking is "how much is my winery worth?" But there is more to the question. They also want some color on the business environment.

As a banker, I love those questions because it means there might be a financing opportunity (...yes I do have a day job making loans, as boring as that might sound.). 

The short answer to the headline question for today is there are still plenty of buyers but overall they are being a little more selective, and your winery and vineyard are probably not worth more than they were last year.

Without going into details on a long topic, we are presently oversupplied with grapes and bulk wine from most regions, and the upside to higher sales is for today - more limited than in the past when the rising tide of higher boomer incomes along with the belief in the health benefits of moderate wine consumption lifted all boats. Today millennial consumers are spirits and beer consumers and are trying to cut their alcohol consumption for health reasons.

There are activities that with certainty will return the growth rate in demand that we've been used to,  but that is another VERY long topic for another day. Buyers believe in the strength of the product and know there is upside given time, expertise, and focus.

As it stands, shrewd buyers and sellers are still finding agreement on price and repurposing valuable assets for tomorrow. Investors with a long view recognize the opportunity this current market change is creating. But with any sale, there has to be an offer, and an answer to the question, "How much is my winery or vineyard worth today?"

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?

What? Locals Overwhelmingly LIKE the Wine Industry

      Doesn't Everyone Hate The Wine Business?

While Napa is the current poster child for the debate, whether Sonoma, Santa Barbara, Oregon, Virginia, Paso Robles, or the San Joaquin Valley - the wine business has received it's share of public scrutiny the past few years in local press. While "wine country" is viewed by many as an idyllic place to live or retire .... certainly so if you read listings from local real estate agents, that view isn't shared by a non-homogenous mix of anti-winery folks in what is now being labeled in an on-going story of the greedy and detached winery owners and growers versus their communities.

Is it the Right Time to Start a Second Label?

 

Can I have Seconds?

 

It's that time in the cycle again. We are between balanced and long on grape supply in certain varietals and regions and we're facing an unprecedented 'three-peat' of great yields and quality in California after the upcoming harvest. The dearth of balanced supply with inevitably be the dearth of some business models over the next several years.

 

One consequence of these types of atmospherics is that clients start calling to ask me about the availability of financing and want my thoughts on the wisdom of starting a second label. That's an idea on its surface that might seem to be a low-risk proposition - after all, you have been blessed with inexpensive grapes or available bulk - but building a business strategy on a temporary supply issue can make an already bad situation worse in most cases - but not all.

 

There are some instances where starting a second label makes a lot of sense, so please email me if you're a client and want to talk about your specific case. But for the benefit of others in the wine community to spur a little discussion hopefully, here are several real stories of wineries who faced the decision to start a second label in the last 15 years and some examples of success:

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.

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.

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.

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.

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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Why Join a Wine Club that Ships Adult Diapers?

I'm probably not the only man around that has a hard time giving gifts. As Dirty Harry aptly put it, "A man's got to know his limitations," and I understand that about me. Oh sure.... chocolate, flowers, jewelry, wine ... the usual accouterment I can handle. I'm not a total hack. I don't forget occasions .... well my PDA doesn't forget occasions, but getting something unique and impactful isn't that easy for me.

I'm not as bad as my dad so that's something. Even as a kid, I knew mom wouldn't understand getting a handheld blow-dryer as a birthday present. Was that supposed to be a signal about the state of her coiffure? My dad was the kindest man I ever knew so I'm guessing it was a practical gift to help her speed up her morning routine (still not a good reason ... I know).  My mom's expression which is still seared into my 7-year-old mind was like the woman to the left who was gifted Tae Bo videos. Even I'm smarter than that. A gift has to be something the other person wants or could use.

So that leads to the question of the week: Would you pay to be in a program that automatically charged your credit card and sent a surprise gift that's guaranteed to be 30% off the normal retail price, even if the company running the program had no clue about you or your tastes? Would you pay to be in that program? What if you are a healthy 40 year old and they sent you adult diapers 30% off. Is that a gift with which you'd be happy - even if it's cheap?

That's an apt description of the traditional wine club that still dominates the wine business. It's one screwed-up model at this point.

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.

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.

Cigarettes, Lot18, Fred Franzia and Wine Inventory

Have you ever found yourself disbelieving your own eyes or being flabbergasted at a decision that defies logic? For instance, what would happen if you sold all of your wine for less than it cost to produce? Or how about making legislation that made the possession of cigarettes illegal? What would you say if someone told you they wanted to try and change WallMart into Nordstrom? Those are all placeholders for a discussion on business strategies and odd news from last week.

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.

Time For Post-Harvest & Post-Election Yogi.

When life is confusing, we all have to have a moral compass. For me, I look to the immortal Yogi Berra to make some sense out of things. Lets look at a few factoids:

• That was two years of campaigning estimated to have exceeded $6 billion dollars. That is with a B. . . . . six billion. I remember when a thousand million was meaningful and to cite the immortal Yogi Berra, "Pretty soon that adds up to real money."

• How expensive was it? It was the most costly election in world history according to the Financial Times by almost double. It cost $18 for every man woman and child living in the US. And what did that money get us? ...... just about what we had before. So the real question is, who is expecting a different result? It's deja-vu all over again.

• Don't you think it's strange that the approval rating of Congress is lower than that of amoebic slime mold  (....even lower than bankers....)  and we largely voted the same gridlocked bunch back into office? I guess that means we've lowered our expectations of our politicians. The future aint what it used to be.

• Your guy didn't win? Just buck up and stop your whining. Its a victory knowing we can get back to normal and reclaim our lives like they were before fact-checkers at different networks came to different conclusions about the same facts. They could have observed a lot by just watching.

• It says something about us that when our candidate loses a debate, the FOX or MSNBC talking heads start flogging the moderators and then read idiotic tweets and emails from "anonymous" just to look like they are with it from a social media perspective. Its like when your team loses, you got jobbed by the refs. When did respected news-people become fair game instead of the candidates? My advice is next time the spin room gets an anonymous letter, don't open it.

•  Ever notice how every year after harvest whoever is interviewed says, "This was one of the best growing years ever." Oh sure there was frost at budbreak. That just made the vines work harder. And yea ... there was a monsoon at flower, but that just lowered the yield naturally. We didn't need to drop fruit. ...... So when we really DO have the best harvest .... maybe ever, who is going to believe us? Maybe we need to plan our spokesperson playbook because if you don’t know where you’re going, chances are you will end up somewhere else."

So.... can anyone remember what we were talking about before our collective consciousness was eaten by political zombies and our brains turned into polenta? There is a lot to talk about but lets talk about just a couple critical related topics; the economy and the stock market.