It’s hardly surprising that “Profitability is the top concern this year for wine industry professionals,” as was reported yesterday.
Dr. Robert Smiley, at U.C. Davis, did a survey of managers and found that “profit margins ranked the most significant wine business trend, garnering virtually a 4 on a five-point scale.”
Any wine company always wants to make a profit at the end of the day, but in these perilous economic times, making a profit–however marginal–can spell the difference between survival and going belly up. I talk to a lot of winemakers, winery owners and winery business managers, and I can tell you that, when they’re being frank (which they aren’t always), and they know we’re off the record, they confess in the most startling terms how tough things are out there.
Just the other day, somebody (an unusually well informed winemaker consultant) told me that one third of the wineries in Sonoma County are up for sale. This is an astounding number. Even if its somewhat exaggerated, it’s probably close to the truth. Imagine being at the helm of a small or medium sized family winery. You’ve always managed to make enough money to keep a few of your relatives employed and live the lifestyle. But these days, the pressure on prices is so strongly in a negative direction that you lie awake at night, worrying how you’re going to get through the next quarter.
That’s why “profit margins” are more important these days than ever. This also explains the next most significant concerns by owners, as reported by Smiley: cost of materials, “pricing pandemonium,” distribution and “new consumer values and how to work with them.”
About “cost of materials,” one of the most significant is fuel, and there’s not much a proprietor can do about that. “Pricing pandemonium” refers to the inexorable demand, on the part of buyers, to pay less and less for wine. Producers would love to raise prices to gain a little breathing space, but they just can’t. I’ve heard stories of buyers getting competing sellers together in the same room and saying, in effect, “Okay, guys, who can undercut whom the worst?” It’s like feeding slaves to the lions at the Roman Coliseum. And that’s assuming that the salesmen can get their product into the distribution system, which is far from the case.
This explains “new consumer values and how to work with them.” It’s not clear from the reporting just what these “new consumer values” are, but we can assume that proprietors are thinking of two things: “values” in the monetary sense of the word (i.e. consumers are looking for value wines) and “values” in the sense of a new generation of younger consumers, who are alleged to think and behave differently from their parents and grandparents.
It’s likely, if you’re a 50- or 60-something proprietor or top level manager, that you look at the younger generation with bemusement. Everything you hear and intuitively feel tells you they’re different. They tweet and Facebook and text; they don’t listen to traditional influencers; they’re much more tuned into peer persuasion than your generation; they want to be engaged by wineries, not manipulated by them, or taken for granted. This makes older proprietors scratch their heads, and look to anyone who can possibly explain to them how to get through to this population. That’s why the upcoming (Sept. 19-20) Wine Industry Financial Symposium will address this topic. Attendees will flock to breakout sessions like Jayson Woodbridge’s “Forget Marketing-Change the Game” and John Gillespie’s “What’s Next for the Wine Market? Reading the Tea Leaves of Research,” where they will carefully inspect every utterance and dissect every statistic with the diligence of ancient soothsayers analyzing the entrails of a slain beast for clues and prophesies. They will take notes, ask questions, network, and then go home, there to resume the fight to make a profit, keep costs under control, get distributed and, if they’re lucky, make a little progress on direct-to-consumer. They’ll probably be just as frustrated about those pesky “new consumer values” as they were going in, but maybe they’ll leave with a few new ideas. And believe me, in these times, new ideas–hope–is what gets you through the night.