March 23 2008
The increase in wine consumption in the U.S. is great for everybody; a rising tide raises all ships, right? It could, however, be better.
How so, you ask? Well, for starters, it would seem that most of the growth is from new customer acquisition, which is fantastic. In the parlance of Wine Market Council research, new consumers are coming in as “Core” consumers—those that drink wine at least once a week.
No doubt, the increase in wine consumption in the U.S. is tied to Generation Y and no doubt, it is linked to the absolute boom we have seen over the last decade in terms of fine dining and Chefs as celebrities.
I grew up watching the Frugal Gourmet and Yan Can Cook on PBS and now there are whole channels dedicated to food. Mario Batali, amongst many, is ubiquitious, leading to a more sophisticated food culture.
New customers and a more sophisticated culture are contributing to the wine bottom line.
However, after reading an article in Wine & Spirits magazine (summary here) and watching Diners, Drive-in’s and Dives on a perpetual loop on the Food Network, I am beginning to re-think the culture of wine.
Instead of new customer acquisition the way we are seeing it, the low hanging fruit, what about conversion of those less inclined to wine? New business development, if you will.
Perhaps I am biased because if I were ever going to open up a restaurant (I am not masochistic enough to actually do that) I would open up a joint. It seems much more interesting to open up something that can become a local institution than to try to hit the next wave for five years of boom.
That said, it seems like our joints, diners, drive-in’s and dives never have a wine list that is worth a damn.
If I had one wish, it would be that every distributor sales rep. in the country would pick out five joints in their territory, the local institutions, the places that give our cities a sense of place and soul, and work diligently to build a quality wine list at these cultural gems citing all of the research about wine consumption in the U.S.
Selling wine to fine dining establishments is great, but it is competitive and there is only so much room for so many bottles of wine at a finite number of places where you would expect to sell wine. However, by farming the acres of diamonds, by building the bottom up, the places where you do not expect to see a nice, affordable bottle of wine, the wine industry can create cultural change and a culture of wine for good, for the long haul.
Anything else is a cyclical trend.
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March 18 2008
Have you seen the new Dunkin Donuts commercial? It is something of a commentary, in my mind, on the opportunity that is slipping through domestic winery fingertips.
It is embedded below and lampoons the retail coffee culture of mangled half-English words--calling it “Fratalian,” for example. It is a small slice of advertising genius—equal parts funny and memorable and a reminder that says sometimes staying with the tried, true and comfortable is a good thing.
This advertising stuck with me for a couple of reasons. Millenials aside, who drink internationally with a view of the global village, some of the dynamics of the U.S. wine industry COULD help engender the same kind of love and attraction for California, Oregon and Washington wines, the tried, true and comfortable, particularly as consumption increases at an incredible pace. Consumption of domestic wines could increase were it not for a small problem.
Prices.
California and West Coast wineries are going to price themselves out of 95% of the market. Meanwhile, imports, with incredible quality at price, seem to be all too willing to occupy the abandoned areas of the wine market.
I was in Chicago yesterday and stopped in at Binny’s to do some browsing. There on the shelf the news of many domestic wineries going upstream in price was never more evident. The $11 to $15 “super-Premium” price segment has virtually disappeared.
Vanished. Disappeared. A David Copperfield-like trick for our times. Alternatively, perhaps cynically, it is more like D.B. Cooper—a disappearing act while making off with the money.
It was not so long ago that you could find a decent bottle of wine in the “super-premium” category. However, with more wineries going into the ultra-premium category, a notch below the $25 + luxury category, there is a gap big enough to drive a truck through.
It would seem that it might be manifest destiny for a lot of people to trade down instead of trading up. Personally, I am more inclined to take a risk on a cheaper bottle than a more expensive bottle. At the very least, in these economic times, I am not likely to deviate from my buying patterns and move up market, save for the occasional bottle.
Lest you think I am doing too small of a sample, I would point you to the current issue of Wine Spectator—the one that says, “California Values. Best wines to drink now from $8 to $50.”
I do not mean to burst anybody’s bubble here, but a $50 bottle of wine is not exactly a value in my book. This is not a knock on Wine Spectator either, because I am not shooting the messenger, but having 58 out of 189 value wines, or approximately 31% of wines priced at $15 or under is not my definition of value. The balance of the wines, generally, is in the $16 to $35 price range—the ultra-premium and luxury market. Since when did “value” become synonymous with “ultra-premium” and “luxury?”
It is too bad about the disappearing price segment. As entry consumers continue to move through the price spectrums as they become more attuned to wine, they are going to move into the $11 + category pretty shortly, if they are not already there, and see a gigantic huge domestic hole. It may just be that Malbec outpaces Merlot. Perhaps wine lovers won’t be learning more “Fratalian,” but definitely “Argintenglish” or “Chileanglish.”
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March 12 2008
In investing you can either go long meaning you are buying a stock on the presumption that it will increase in price, or you can go short, meaning you can anticipate that a stock price will go down in value. There may be a wine stock buying opportunity that goes “long” --long like the finish of a nicely crafted Pinot Noir.
I am talking about Willamette Valley Vineyards.
Willamette Valley Vineyards is hot. Red hot. Hot like you read about. Hot like Lebron James scoring 22 points and the go-ahead basket in the 4th quarter.
And, the great thing is, you can get in on the action.
Willamette Valley Vineyards is the albino elephant of winery stock market plays. There are precious few stocks that you can get into if you are a wine lover—Constellation being one, but certainly not nearly as charmingly endearing as a winery that has production of just about 100,000 cases, still exhibiting a personal touch.
The hot streak started for Willamette Valley with their mention in the San Francisco Chronicle as one of the best selections of 2007, a distinction accorded wines that earn three stars from the Chronicle tasting panel. Their Pinot Noir, at $24, bested wines at double the price point.
The next month, in January of this year, Willamette Valley Vineyards was the #1 hottest small brand of 2007 as named by Wine Business Monthly magazine. This, perhaps, more than any other, is a meritorious distinction as the WBM staff seem to always be about 2-3 years ahead of the curve for brands that go on to achieve widespread and mainstream merit.
In WBM words:
From the beginning, the hottest small brands list has been about standing for something. Most of the wineries represented are from up-and-coming wineries that have achieved success by delivering on quality. Several represent apparent overnight success stories that were, in fact, years in the making. We tend to highlight wineries and brands that represent market trends, are innovative or take a leadership position.
Next, Willamette Valley Vineyards was featured in a February issue awarded 90 points for a 2nd label Pinot Noir, the Tualatin Estate Pinot Noir.
Now, I am not a financial guru. In fact, I am not giving any advice. Nor, do I currently own any Willamette Valley Vineyards stock (though that may change). That said, WVVI is traded on Nasdaq and has a share price in the $6 range and seems to be making all of the right moves. Buying stock in a winery play is like being in the wine club, except with a little more skin in the game.
The Willamette Valley Vineyards site also has some special features for shareholders:
1. Admissions to special events at the winery.
2. Priority on the purchase of limited production wines, wine futures, discounted items and wines with personalized labels.
3. Discounted pricing of selections purchased through the Oregon Wine Guild.
4. Priority use of the Winery’s tasting and hospitality facilities for events (open dates only).
5. Personalized winery business cards, the initial set is complementary.
6. Reports on company developments seeking shareholder feedback and/or involvement.
7. Numerous opportunities to volunteer and increase wine knowledge through the non-profit group, Oregon Wine Enthusiasts.
In reading the 2007 Annual Report, tedious though it may be, you actually glean a couple of things that are of interest:
First, they use a technique called a “Geneva Double Curtain” for their trellising. This reminds me of two things--#1 it sounds like a wrestling move and #2 when is somebody going to start writing an accessible blog on viticulture, the one that lightheartedly explains the “Geneva Double Curtain?”
More importantly, their strategy meshes with other moves that we have seen from Kendall-Jackson and Don Sebastiani & Sons in moving upstream in terms of price point.
They say:
Based upon several highly regarded surveys of the US wine industry, the Company believes that successful wineries exhibit the following four key attributes: (i) focus on production of high-quality premium, super premium and ultra premium varietal wines; (ii) achieve brand positioning that supports high bottle prices for its high quality wines; (iii) build brand recognition by emphasizing restaurant sales; and (iv) develop strong marketing advantages (such as a highly visible winery location, successful self-distribution, and life long customer service programs).
Now, make no mistake, their annual report certainly doesn’t read like an oratory from Warren Buffet, but for a wine lover, especially a Pinot lover, who happens to dabble in recreational gambling via the stock market and a personal brokerage account, buying some stock of WVVI, picking up the benefits of membership, and enjoying some wine while you watch a fledgingly winery grow seems like a lot of fun to me.
Perfunctory disclaimer: I do not currently own WVVI stock. I am not in the stock market advice business. In fact, I was a journalism major in school and took “math classes for non-math people.” Any financial risk you make is yours alone. The stock market is mercurial and I bought Amazon for $5 and sold at $25, while it was climbing up to the $70 range. I am, generally, not that smart about betting on stocks. That said, the P/E is high, but it looks like a better bet than losing a couple hundred of bucks on a blackjack table.
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March 5 2008
In August, I asked in a post found here, “When is Amazon.com going to tilt the wine industry? It might only be a matter of time.”
Sure enough, according to an article today found at Ft.com the answer is “now.”
Kudos to the Financial Times for doing some creative sleuthing and looking at job postings, of all things. Of course, I did the same and found the following:
From the Amazon.com job posting:
The Sr. Buyer is responsible for the acquisition of massive new product selection, as Specialty Foods is an emerging segment and the Sr. Buyer will work to build out entirely new selection from the ground up. Responsibilities will include sourcing leads, defining and tuning a leads qualification process, and calling on vendors directly, both from our Seattle corporate offices and in the field. Sr. Buyers must demonstrate a deep and broad experience with the Wine segment, as well as demonstrated ability in Buying. Key areas of responsibility include among others: negotiation of agreements with a wide set of vendors, inventory planning, catalog management, supply chain and logistics Best Practices, market research and a strong knowledge of current market trends, persuasive selling of the platform and the value proposition of Amazon.com’s Consumables offering.
As I elaborated in my post in August, there is a ripe opportunity to source wines directly from the wineries and act as the e-commerce engine for e-commerce retail sales, but the greater opportunity, in my estimation, is Amazon’s infrastructure capability and their distribution centers across the country. Should they choose, Amazon.com could use their 13 + distribution centers and turn into, immediately, one of the most sophisticated wine distributors in the country powering thousands of vertical wine web sites.
I have often used the analogy that online wine e-commerce is, present day, akin to selling books online circa 1996. Amazon.com apparently thinks so, too, seeing as how they pioneered the space.
Do you think it would be that hard for Amazon.com to file permits in each of the states in which they have a distribution center to cordon an area for dedicated wine storage as a distributor? Me neither.
Using Amazon.com technology, I could open up an e-commerce store, draw from Amazon.com inventory, use Amazon.com logistics to ship to my customers and run a vertically focused online wine retail business.
Frankly speaking, Amazon.com could do the same and sell directly to bricks and mortar businesses, as well--a just-in-time wine distributor.
It will be interesting to see how this unfolds because it would appear that the initial foray might be strictly retail for Amazon.com proper, selling to a consumer, but I would be surprised if they did not have the eye on a larger prize.
For more reading:
New York Times Article from April of last year on their infrastructure
Site on Amazon.com fulfillment services
My original post dated August 16, 2007
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February 19 2008
So, I am minding my own business, flipping through a People magazine at the local haircut emporium, when I see, nestled in between an article on the latest comings and goings of Nicole Ritchie (without baby) and the latest Britney meltdown, an ad for Welch’s grape juice that has a removable peel in which you are actually invited to LICK the magazine page for an approximated taste of grape juice.
Can you say interesting? Lickable ads. Who would have thought?
Fortunately (or, unfortunately) the magazine had already been through a bunch of other hands and whatever you are able to lick had been licked.
The back-story, as featured in a recent Wall Street Journal article, is that Welch’s worked with a vendor to put an approximation of the flavor of the grape juice in a flavor strip sealed within the magazine and presented in ad form.
Think Listerine breath strips affixed to a magazine page with a grape flavor and you get the gist.
Immediately, my mind is thinking about this as an opportunity with wine.
I wrote about wine and scent marketing (found here) some time back and anything that is pretty far out there on the edge in terms of real marketing, I find interesting. This qualifies.
There are some inherent drawbacks. Obviously, the first is that only one person can lick the ad. But, it certainly got me talking about Welch’s grape juice without licking, so there is tremendous value in that from a marketing perspective.
However, as a marketing possibility for wine you would have to say this has some real interesting possibilities.
You can already do scents for just about every scent there is. Related to wine, you need black pepper, no problem. Strawberry, yes. Fresh cut grass, absolutely. Any scent that is a flavor component in wine, you can find as purchasable scent for scent marketing. Yet, nobody has really seized the opportunity to translate that capability to wine marketing whereby you could break down the flavor components of your wine into some sort of scent-based promotional offering—either in the tasting room, online or in a magazine as an ad.
However, this lickable stuff might be different.
Can you imagine opening up Wine Spectator magazine and seeing an ad for the J. Lohr Merlot and having three lickable strips with flavor strips for redcurrant, chocolate and earth?
Do you think that might absolutely create some mental stickiness with somebody the next time they were in a restaurant gazing at a wine list?
Realistically speaking, nobody (read: nobody) in the wine industry would do a marketing tactic like flavor strips. It is too far out there, too much on the bleeding edge and not nearly safe enough. It seems like nobody does anything in the wine world until their neighbor does something, which, of course, creates a little bit of a problem in terms of progressiveness. Safe, yes. Progressive, no.
However, here’s some food for thought related to the world of wine:
Wine is one of the HOTTEST verticals in consumer-packaged goods. Hot, hot, hot. However, the wide gulf that exists between new people coming to wine and the enthusiasts who have always existed is primarily around experience and palate training.
Simply put, people that HAVE NOT undertaken wine as an avocation yet enjoy it as a beverage think wine snobs are wine snobs because they talk a bunch of gobbledly-gook about wine and wine flavors that does not make sense. In addition, the only way that it ever starts to make sense is to educate yourself and your palate, mostly by drinking wine, but you can also do so by scent and taste training. Gary V. at WineLibray TV gets this and is working his audience this way in 2008.
So, here’s the net: If the wine industry wants to curry favor with this new generation of wine drinkers, taking the lead on helping them train their sense of smell and taste is a fantastic way to build an incredible amount of brand equity. Maybe it’s not scent marketing, maybe it’s not taste marketing. Perhaps it’s not $300 Le Nez du Vin kits. Yet, the wine brand that cracks this code holds the keys.
Ignore it, or embrace it. Either way wineries are making a decision about the future of their business.
For Additional Reading:
Welch’s Salivates Over Lickable Ads
Marketing with Taste
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