How Will We Recover from the Fires?

    Was That Just Last Week?

Without full containment yet, many are already looking forward to begin the recovery, even with still blurry and red eyes.

When I think about the wildfires that scoured the North Coast of California this past week, I come up with a hodgepodge of visuals – waking up to the red glow out of my bedroom window on Sunday night when it all started, a bulldozer cutting a firebreak a half mile from my home Tuesday night and saving my block, watching the heartbreaking sight of a neighbor’s home burn to the ground on a ridge Monday morning, seeing blood red sunsets, the feeling of relief when power finally came back on, and being unable to sleep listening to my cellphone screaming out Nixle Alerts every half hour telling me about a new evacuation, wondering when it would be my turn.

There are so many stressful points from the past week from which I have a lot of new stories to tell, and lots of pictures that I’ve shared on social media. It was a week that seemed more like a month, reinforced by a blur of numbingly shocking scenes.

Is Opening a Downtown Tasting Room Smart?

<<click on picture for better view>>

The Regulatory Landscape

Falling on the heels of a growing anti-tourism movement, of late I've taken calls from officials in three particular cities that are now considering tightening regulations, or altogether banning the growth of downtown wine tasting rooms.

What else can officials do to make the wine business more difficult? That's what many are asking. Why are municipalities working so hard to hinder success of an industry that helps pull in millions in local occupancy taxes, and donates many more millions to charity? Answer: It's just politics.

The wine industry isn't sufficiently engaging in the debate so we have ourselves to blame in part. We have a fight on our hands but don't show up in force to planning commission meetings and support applications.

We make it harder on officials who only hear from their constituent nay-saying minority. To the credit of the officials, one thing they are doing is asking around for data and facts that might help balance the debate, but I'm wondering if opening a downtown or urban tasting room is even a good business decision in the first place?

Premium Wine Sales Decelerating

      The Big Short

It's easy to tell people what they want to hear. It's harder to tell them what they don't want to hear.

In 2007 I saw the above chart that tracked US home prices versus median family income. With other indicators in the market, I was convinced there was a real estate bubble already in the process of bursting and I started talking about it in speeches. The result of my prescience? I stopped getting speaking invitations and in one speech had the organizer ask if I could be a little more cheery. 

People don't want to consider the downside risk in business when things are going well. 

If I told you today what you wanted to hear, I would say that wine consumption is growing in both volume and dollars and consumers are continuing to trade up above $9.00. I would tell you that grape prices are at an all-time high and trending higher right along with land prices. 

That's true and might get me more important speaking engagements, but I'd rather you know about an underlying trend I'm seeing that's more than a little concerning. If I'm right, it's going to change the way you are thinking about business right now.

Podcast: An Industry View Through Rob McMillan's Wine Glass

 

I had the opportunity to visit Christian Oggenfuss and Geralyn Brostrom at the Napa Valley Wine Academy just after the release of the State of the Industry Report. We sat down to an open mic over a glass of wine and explored several of my perspectives on the business as well as the story of how the Wine Division of SVB was created, and why we started producing the State of the Industry Report.

After you get though the early part of the podcast which sounds a little like a This is Your Life show on your's truly, at about the 15:00 mark we start to get into some of the concepts discussed in the report. The questions I cover are:

Restaurant Wine Sales Collapsing for Small Wineries

      I Will Always Love You

Every credible measure that I see regarding restaurant wine sales is trending negative for the small family-run wineries. Why? What's behind the declining trend? Economics? Changing consumer attitudes? Conspiracies from wholesalers? Big wineries displacing the small ones? It's not due to a lack of desire from restaurant owners.

Restaurateurs love the wine business. The business is worthy of their love because it enhances the enjoyment of the food served to their customers. It's practical for the restaurant trade to love wine because restaurants themselves make better margins on bar sales compared to food sales. Wine for the restaurant trade is still an important part of success, but sales opportunities to restaurants are collapsing for small wineries.

Replay: SVB Direct to Consumer Survey

We had a good time on set delivering several perspectives on the SVB/WBM annual Direct to Consumer survey. For those aficionados of our surveys and telecasts, you might note a shift in the title but it's just reflective of how we've evolved the survey questions.

We used to call this survey the Tasting Room Survey but over time we started to realize tasting rooms were only part of the formula for success, so we started asking more questions about wine club metrics. Now we have several years of benchmarks from which we can determine trends in clubs and in tasting rooms.

SVB Annual DtC Benchmarks

Direct to Consumer sales now represent 60% of the average winery's revenue, but the real growth in direct sales has only taken place over the past decade, dramatically accelerating in the past 5 years. While it might seem like wineries have been doing this for a long time, it's difficult for me to say direct sales have been a professional discipline.

In 2013 I published one of my more popular posts addressing the problem the industry faced in finding good Direct to Consumer Managers. Since it was a new discipline, it wasn't possible to find experienced managers. That is starting to evolve with time, but we are still scratching and clawing our way to direct sales success, learning from each other as we go and playing a little bit of follow the leader. Some of that is good and some not so good which underscores the importance of data.

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.

Annual DtC Survey is Open!

Today, the eleven largest wineries are moving 80% of the wine sold in America, while distributors continue to march toward complete consolidation. The other 9,000 wineries in the U.S. are left to compete with each other for the remaining 20% of case sales.

Not their Fault

I don't blame wholesalers. They have no financial incentive to take on that mass of small customers. Add to that the decline in restaurant sales, which historically have been a large part of family wine sales, and it's hardly an exaggeration to say that Direct to Consumer sales are required for the survival of small family wineries now. It's really their only viable path to market, and yet the industry itself is still barely novices in selling wine direct.

Will Boomers Keep Buying Wine?

The title of this piece is the question all wine companies should be asking today, because boomers are the dominant cohort across all price points above $14. Can they continue to buy your wine? 

I've been saying for nearly a decade the anticipated ascendance of millennials as the top cohort was greatly exaggerated as to both timing and impact, but their coronation is coming and the day when boomers no longer dominate consumption is also fast approaching.

2017 State of the Industry Report

Most of the wine business has already developed their strategic plans for 2017 and is starting to execute. The plans had to be put together using history as a guide, laced with a hint of a best guess. That's just the way this family owned industry has to roll.

Louis Vuitton: A Story in Brand Destruction

 

Rome: The Eternal City

My fiance Jackie and I just got back from a spectacular 2 week wine cruise with Darioush Winery that started in Lisbon and ended in Rome. 

I've never been to Rome so we tagged on an extra 5 days at the end of the cruise to see the sights. 

There is a problem in going that extra week though. I don't care how big your suitcase is. By the time you've lived out of it for 2 weeks you are flat out of clean clothes so selecting something to wear becomes a challenge.

What I underestimated is just how that challenge could impact our shopping experience at one of the world's top luxury retailers. Ask yourself as you read though, 'could this happen at my winery?'

The Election Perspective from Europe

Who do Europeans Want for President?

I've been hiding in Europe while the most recent election debate has been taking place. I've been in Lisbon, Cadiz, Barcelona .... pretty much having sangria and tapas across the Iberian Peninsula. 

It's been more than civil over here, and I've really been interested to see the business growth in the region, at least with respect to tourism. My last visit here was in 2010 and things were miserable. But the usual tourist areas seem packed now which is good to see, because Spain for example still has more than a 22% unemployment rate and nearly 50% among youth. They really need tourism. In another change, after the terrorism in Nice I have noticed a larger police presence throughout the tourism areas and even some on La Rambla carrying weapons.

I fled over to Europe in part because thought I could get away from all the acrimony and derisive talk about the presidential race... and I wanted a vacation too. But guess what? People in Europe care about who the next "Leader of the Free World" will be too. It's the very first thing they want to talk about. And guess who they favor in a non-scientific poll? Answer: Neither.

You might be surprised to find the Europeans I've spoken with here seem more concerned with why these are the best two candidates we can find? I find myself explaining how our process works, and am getting a civics lesson in how other countries elect their leaders at the same time.

I've yet to find a single person tell me they would vote for either candidate but in an equally enlightening discovery unlike Americans, Europeans aren't glued to watching Sean Hannity or Rachel Madow so they aren't overly focused on the press revelations and network spin. Instead they are focused on what positives the candidates bring to the party while they go about their lives. 

I envy the Europeans because they aren't force fed the hype but I am glad we in America will soon be put out of our collective misery and we'll have a new leader. We'll have an election, I'll vote my conscience and I'm just glad it will be over for American's and Europeans alike!

But this Vote isn't Yet Over

Unlike the firm ending date for Presidential Election, the Silicon Valley Bank Annual Wine Conditions Survey which had been scheduled to close Friday, has been extended out and will now close Wednesday, October 19 at 5:00 PM Pacific time. This is a much easier decision than the Presidential Election.

For 12 minutes time, you will get the complete survey results, and dozens of relevant graphs and analysis that will help you benchmark your winery. This will be distributed only to those who complete the survey.

You can take the 2017 SVB Wine Conditions Survey here ------> [LINK]

Annual SVB Wine Conditions Survey Ends Friday

 

Face it. Getting actionable information in the wine business is challenging. You can pay more than $2,000 for an annual report on the wine business and in return, get regurgitated information. I once did that myself.

Thinking I would check on the offering of a group putting out a comprehensive report on the wine business, I was disappointed to find it was closer to a college level report that consolidated information from primary research. In fact several places cited the Silicon Valley Bank Annual Wine Report to support their findings.

There are a few places where you can get good primary research on the trends facing the business. For the past decade we've led a survey and conducted research with more than 600 wineries and the major AVA's participating from across the country each year. Why are we so lucky to get such strong participation? 

I think there are a few reasons:

1. We deliver good and needed information to the business for free.
2. We keep the information anonymous and noone can back into responses to determine who responded.
3. We've earned the owner's trust that we aren't using your information to add you to a sales calling list.
4. We give back more than we take. Only survey participants receive the complete data set back and that helps everyone in planning for the year ahead.

So I hope you will consider taking the survey this year. It takes about 12 minutes and in exchange, we will send without cost, the complete survey results, dozens of relevant graphs, and our early analysis on wine industry conditions. [Last year's survey results].

The survey is scheduled to close next Friday so please don't wait. Your participation will pay itself back many times over.

Take the survey now [LINK]

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The Scourge of Tourism Circa 1972

Is tourism a problem? It depends who you ask, but it's impact has been feared and debated for a very long time as an issue. Even way back in 1972 when many of us were still living life in black and white, and cable was part of your corduroys instead of your TV, tourism's impact in the Napa Valley was being reviewed and questioned. 

Some things have have remained the same today but the narrator in the above news piece offered an interesting view into tasting rooms of the day when he said tourism was "important to PR, and to a lesser extent, sales." 

You see, tasting rooms back in the day weren't put in place to sell wine. That's what distributors did. Tasting rooms were nice-to-haves. My how those days have changed!

Today tasting rooms and tourism are linked to the survival of family wineries. Direct sales represent 60% of an average winery's sales, and tourism is the lifeblood of the family winery. Without tourism and direct sales, I'd make an educated guess that 60% of the wine business as we know it would fail.

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?

Selling Millennials Through Myths & Lies (Part 2 of 3)

Desperate to find the secret of the millennial code, media and researchers have taken creative license over the past fifteen years which in the final analysis, hasn't provided the hoped for guideposts that would convert marketing strategy into new consumers - at least as it relates to the wine business. But it has created a dialogue overblowing the impact of our youngest cohort (eg, above video.)

Selling Millennials Through Myths & Lies (Part 1)

Authenticity. Only for millennials?

Just the Facts

Millennials are the most engaged and socially connected generation of all cohorts. They demand sustainability and authenticity in their products. Socially responsible and transparent companies rank high in importance when it comes to their purchase decisions. They demand customization and wide selection. They consume more wine per occasion than all the other cohorts combined.

Thirty-three percent of Millennials say they are motivated to buy more frequently when a friend recommends a wine, but 99.8% say they like any wine better when a friend buys it for them. 

One hundred and fourteen percent agree with the statement that feeding one's animal spirits premium wine is better than hitting your toe with a hammer. The remaining percentage believe morning-after flat party beer is good for hydration, so long as there are no cigarette butts in the bottle. When there are butts in the beer, their preference to consume falls to 0.4% with a statistical error rate of +/- 0.4%

Annual DtC Videocast Tomorrow - Last Chance Signup

I'm not fond of looking at pictures of myself. It's even worse when I try and grab a screen shot like the above from last year's Tasting Room videocast. Blech. Makes me sick. That looks like I'm getting ready to spit! Actually it's the end of a sentence where I'm saying 'tasting roooommmmm.' That's what I look like when I say 'm,' and it's the best I could do - I'm sad to say. But looks aren't everything. 

Market to GenX at your own Risk

Let's talk about Millennials! How exciting is that conversation? Demographers and researchers are laser focused. It's a feeding frenzy at times because that's the growth opportunity of future retail. Boomers are old news, nothing to write home about and not hardly anywhere near as interesting as Millennials.

Oh ... there is GenX of course but why talk about them? They are a small cohort.... except they are the second largest consumer of fine wine in the U.S. today and the largest growth opportunity for most wineries, but that doesn't matter. Let's talk about Millennials!