What Does the End of QE Mean for Wine?

Everyone likes Fridays. This Friday is a little more special so I decided to post a non-Sunday blog for the first time. Why the deviation? Because Friday is the day we receive the most hours of sunlight in 24 hours .... and then its all downhill after that.

While that sounds a little gloomy phrased up that way, consider that its coming from someone who has been following and predicting the movements in the economy and wine business the past few years. Its been enough to make anyone gloomy especially since I've been consistently right. (Editors note: Please don't wake me and remind me of a forecast that was wrong. Thank you.)

Anyway, something happened yesterday that is making me put on economic sunglasses to protect my eyes: The Fed announced the economy is looking pretty darned good, inflation is in check, and unemployment is coming down to manageable levels. Add to that the US Credit Rating was raised back to AAA about 10 days ago and that is down right exciting right? What did the markets do? The Dow dropped 200+ points and the 10 year Treasury Bill rose 13 basis points. In fact the 10 year, which is the benchmark used for vineyard and acquisition financing has increased about 40 basis points since May. So what gives? If this is good news why is the market off and what does that mean for the wine business?

Why Sell Wine Based on Aroma and Taste?

Selling commodities is difficult because people buy on emotion, or instinct if you will. Want and desire are powerful emotions that can stimulate the release of endorphins. It's why some people are shop-a-holics. It feels good to buy. But it's not that easy to get emotionally worked up about borax, chlorine, and salt. As an economic good, a commodity has no real differentiation, so small price differences in competing products can make huge differences in total sales.

Think about how you won't buy gasoline at one gas station because it's four cents cheaper around the corner. That's a commodity. Ever buy a piece of art that way? Of course not because art's value is in the eye of the beholder, is easily differentiated, and consequently will have wide price ranges. When art is sold, it's sold on the artist's reputation or the emotion the piece evokes for someone. Marketers work overtime to take commodity-like goods and then pretend they aren't commodities by creating and building an emotional appeal around the brand.

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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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.

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.

What's the One Job Wineries Can't Fill?

Click To Enlarge

According to the SVB Wine Conditions Survey we ran in late 2012, direct sales in different forms represented three of the top five areas of opportunity this year. So why don't all wineries just go head-first into the gaping chasm of the direct sales opportunity and shed the bonds and shackles of the three-tier system?

Really the whole thing with direct is a love/hate relationship. Winery owners love the higher margins but they hate figuring out the labyrinth of change required to install a top functioning direct program. To be fair, its really not an easy path with hurdles in so many areas including hardware that isn't integrated and skills that aren't available or in many cases even well defined.

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.

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.

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.