California Wines & Wineries

The State of the Wine Industry – Fight or Flight

Posted on January 22, 2021

Over the last week two 1 hour seminars were held by Silicon Valley Bank hosted by Rob McMillan EVP, on the state of United States wine industry. This was held with a panel of experts and the discussion was based on the 82 page report that was provided. While eighty –two pages is a bit much to summarize as I have in the past, I will simply provide some key talking points.

Last year I wrote a story in January and a follow up on March 2020 on the status and direction of the wine industry. They can be found at:

https://californiawinesandwineries.com/2020/01/14/the-wine-industry-chaos-or-time-to-take-stock/

https://californiawinesandwineries.com/2020/03/26/small-wineries-and-covid-19-how-you-can-help/

Obviously the previous year’s topics looking out into 2020 were significantly changed with the Covid-19 pandemic and the unprecedented fires on the West Coast. Those key points outlined last January 2020 were:

#1 – Wine sales are down
#2 – Grape supply is at an all-time high (more supply than demand)
#3 – Contracts by wineries to wine growers are being cancelled
#4 – Millennials and Gen-X and Gen-Y wine consumption is not meeting expectations
#5 – Wine industry is losing ground to “health conscious next gen’s”
#6 – Packaging challenges from “form” and “portion size”

While many are still important, the impact of Covid-19 and the fires shifted or influenced those topics in many unforeseen ways. The scope of this is not to rehash the above topics but outline and communicate some of the key topics going forward in 2021.

Here is a combination of the challenges and the state of the United States wine industry from the seminar, the report and my personal observations.

#1 – Channel Shifting.

*This is due to many of the tasting rooms having an “on and off again” closing and opening, inside or outside or no tasting policy as deemed by the government.

*Restaurant closures or only outside dining with limited seating and social distancing impacted the three tier distribution system wineries have enjoyed (selling to distributors and distributors selling to restaurants). This has affected both the high end wines as well as mid-priced wines in volume and revenue.

#2 – Wineries Focused on Retention.

*It was imperative that the wineries held on to club members since a portion of their channel was disrupted (restaurants). Those who were selling mostly DTC (Direct to Consumer) were impacted less.

*Wineries spent significant time making sure their members solidly supported them. For the most part wine club members stood tall and supported their favorite wineries.  This was critical for the smaller wineries to survive.

*However, while the wineries did work at on-line sales for expansion, 60% of all orders were from “new customers”.

* Focus going forward will be how to keep/retain these “newbies” and convert to wine club members.

*Wine club members will only keep their engagement for so long. While the turnover may have slowed during the first year of the pandemic, as this continues, those commitments may be in jeopardy.

#3 – Wineries Still Need to Improve Qualifying Their Customer Base.

*Appointments may have helped get name, email, phone data but what are the wineries doing with it?

*When tasting rooms have been opened, many have used part time help with little or no training on the product or selling wine club memberships and missed the opportunity for the winery to better know their customer!

*When surveyed the results were lackluster on the wineries understanding of data analytics to review their customer data. In fact fully 48% stated they had “no one” looking at any customer data! And 30% stated they only had someone part-time looking at customer data. Only 16% of respondents stated they had some one full time!  It is like steering a ship without a captain.

#4 – New Model of Wine Shopping & Purchases.

*With many “working from home”, this has increased and fostered the mind set to further “shop from home”. 

*This has broken the ties with many consumers to buy within the “90 mile radius” of their home. Subsequent the same for shopping for wine.

*E-business and internet shopping has increased significantly for the wine consumer. While many wineries may have a website, I am constantly reminded and astonished how many do have an outdated information or non-current material on their site. This is a major black hole for wineries in their existence, quality and ease of directing the consumer.

#5 — Priorities of Wineries.

*Internet Sales

*Touch customers at home. Zoom meetings started out as an effective tool, but after dozens of “talking heads videos” most consumers are becoming numb. While initially a good filler, other tools are needed.

*Phone sales. While this was highlighted, most consumers are also getting frustrated with endless calls on being contacted with “deals”. Having the right data base and history on who to call would make it more effective for both the wineries and consumers.

*Other curated DTC programs are needed.  Creativity and “thinking outside the box” will determine the winners and losers.

#6 – Lack of Socialization During the Pandemic.

*Wine clubs can fill some of the social bonds but communication is equally as important between members as opposed to be talked to!  I personally can attest to listening to “smart qualified winemakers” telling me about their wines and wineries, but without any customer engagement.

*Key is to provide club members/interested parties lateral exchange of ideas, comments, and antidotal exchange. This helps in a “group think” and team commitment to the winery. I have been with only one winery via a Zoom meeting where this consistently happens and without “hard data” know that each of the 30-40 consistent participants are 100% supportive of that winery.

#7 – Diversity in Many Ways needs to be Embraced.

*With Boomer and Millennials coming on stronger verses the Baby Boomers (twilight direction) in purchases, changes in social values are coming into play.

*Some of those changes may include: labeling (calories in a bottle/serving), ingredients (natural or chemical), asking for transparency of winery social values, diversity in hiring & advertising, requiring wineries to have a lower carbon footprint in vineyards, production and packaging. Boomer & Millennials hold these values in higher esteem than the previous customer demographics of the wineries.

*Diversity can include medium (digital) and people.

*People want to be treated with respect and fairly by first contact people in the tasting room (when they reopen). Emphasis on how important this is amazing and often overlooked by winery owners. Over a year ago, without an appointment, I dropped by a winery to an impromptu tasting. There I was pushed aside for a “club member” by the tasting room hostess. After finishing, she spent the balance of my time there on her phone texting or doing some social media. Later that year, the winery was name winery of the year (due to their good quality of wine) but how many potential wine club members have they driven off that should have been captured in the tasting room?

#8 – Financial Status of Wineries.

*In data compiled from 2017 to 2020 two significant trends were revealed. First in 2017 wineries, 18% stated they were financially “rock solid”. In 2020 that percentage fell to 11%! A similar fall in those wineries stating they were financially very strong or strong. Conversely those wineries stating they were financially “slightly weaker, very weak or on life support” had shifts respectfully upwards of 11% to 15%, 2% to 4% and no change on life support.  

*Margin compression continues to be felt by the wineries. Huge discounting was implemented by wineries throughout California (every AVA) in order to turn inventory/supply into cash. Incentives on shipping are a given!

This is just a quick temperature check and reading of the state of the industry in the United States and what 2021 may end of looking like going forward.

We all need Covid-19 and subsequent mutant viruses to be contained and vaccine shots implemented ASAP to keep us all safe, the wine industry can only go on so long. The other is the realization that wineries must face some hard decisions in changing their personnel, their data system and on-going relationship with existing and potential new customers. These challenges will come with a cost, but fighting for them is better than burying your head in the sand thinking the issues will be magically solved.

Slainte,

Michael
https://californiawinesandwineries.com