Predicting the future of the wine business
There’s been a lot of reporting on the Wine Industry Financial Symposium’s latest wine industry survey, as for instance here and here, so I thought I’d get my two cents in. The WIFS survey was of “wine industry leaders,” and these assuredly are the [mostly] men who literally are paid to figure out the future, and are in the best position to foresee it and, they hope, influence it.
I’m not a wine industry leader. But I do have a certain perspective on things that I like to think is unique in some ways. As a wine writer who’s heavily involved in the California wine industry, and with my own connection to, and insight into, consumers, I see trends in my own way. So I’ll piggy-back on the WIFS survey to share my thoughts on some of its conclusions. (Everything in italics is taken from one of the the two articles cited above.)
respondents…are attempting to improve margins by increasing wine prices where feasible, reducing operating costs, improving operating efficiencies and emphasizing their relationships with growers.
This is always the case and always will be. The trick is to maintain quality while reducing those operating costs. I’m seeing an awful lot of truly bad wine lately, more than usual. Either these winemakers don’t know they’re making bad wine (hard to believe), or they’re being compelled to make and release bad wine because of economic pressures.
Many believe consumers will slowly increase purchases of high-priced brands as the economy recovers…However, others feel that the previous levels of conspicuous consumption will not return.
Sure they’ll return. Nothing changes human nature. People like the feeling of buying expensive things, whether it’s Air Jordans, Diesel jeans or a $75 bottle of wine. The economy, already improving, will continue to do so, and people will return to buying expensive wine. I do wonder how many expensive brands any market can support, even in a roaring economy. We’ve never seen as many triple-digit-priced wines in history. Can there be room for them all?
The executives’ top concerns (in order) include globalization and competition from imports, government regulations (especially of labor and environmental issues), availability of water and distribution and retail consolidation…taxes, competition for land, climate change, packaging innovation and supply cycles of shortage and surplus.
Nothing they can do about any of these, except figure out how to deal with them all. Doing business in America is complicated. The best companies adapt instead of complaining. The government may coerce a company into doing business in a more environmentally-friendly way, but in the end, that redounds to the company’s success.
Three-quarters are focusing more on consumer-direct sales…
DTC is going to be a major factor for wineries, especially smaller ones. The big companies are happy with the distributor system, which isn’t going anywhere anytime soon. (Sorry, Tom Wark.) Nor should it. Distributors play a major role in getting wine to every nook and cranny in the U.S., and they’re also instrumental in keeping the price of wine down. That’s a good thing. But the little wineries that can’t get distributed have no choice but to explore DTC. Which leads us to the next, somewhat controversial conclusion:
Most [industry leaders] don’t find social media very important to their companies. Asked to rate the importance from one to five, they rate Facebook at 2.5, with Twitter and their company blog at 2.27.
You’d think that after so many years of social media adherents lecturing wineries that social media is The Next Big Thing, the wineries would have gotten the message. Apparently not; these ratings are really mediocre. Why would smart leaders brush off something so potentially important? Because they are smart. Smart enough to realize social media isn’t as important as everyone said it was, and most likely never will be.
When you look at the growth of the biggest 16 U.S. wine companies, That doesn’t leave much for smaller wineries. You can say that again. There are at least 7,000 wineries in America, which means that 6,984 of them have to compete for whatever’s left over after The Big Guys take their share. This gets back to direct-to-consumer. I can’t tell you how many small wineries tell me how important their clubs are to sales. I mentioned human nature above; another aspect of it is that people like belonging to like-minded groupings, whether they’re blood families or people who root for the same sports team. Winery club members are loyal. If I had a winery, I’d be working constantly to boost membership in my club. And I’d be using social media as part of the mix.
Finally, the grape shortage (real, impending, rumored, getting worse, getting better, all of the above?) looms large in all these discussions about the health of the California wine industry. Yes, there’s been a shortage for some years, but 2012, from what I’m told, is surprisingly hefty in yield. Of course, we won’t have the official numbers for a little while (the state’s Grape Crush Report doesn’t come out until next year), but hopefully, a bountiful vintage this year will ease the shortage, cutting producers some slack so they won’t have to raise prices.
More proof, by the way, that the economy is rebounding comes from Wine Business Monthly’s salary survey, which paints a pretty rosy picture. Everybody’s getting raises!