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O.K. , you have your social media data. Now, what good is it?

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I asked it six years ago, five years ago, four, three and two years ago, and I’m asking it now. And it’s not just me: That bastion of U.S. capitalism itself, the Wall Street Journal, is asking the same question. Under a five-column headline in last Monday’s Marketplace section, they wondered “What is all that data worth?” (The online version of the article has a slightly different headline.)

The “data” they’re referring to comes from “companies [that] traffic in information and use big-data analytic tools to find ways to generate revenue.” If that sounds familiar, it’s because it’s been the underlying theme of every conversation about the revenue-generating possibilities of using social media.

We know beyond a doubt that the metrics of social media use are huge. Everybody is Facebooking, tweeting, Instagramming, pinning and so on. They’re liking and following and retweeting each other like crazy. For this reason, wine companies feel, with “the fierce urgency of now,” that they have to get onboard, before the train leaves the station. And indeed, as I’ve argued for many years, wineries should board that train. As I’ve suggested to anyone who’s ever asked (and quite a few who haven’t), winery personnel should engage in social media to the extent they feel capable of doing it.

But what I’ve wondered since Day One is what all these metrics, which are easy enough to obtain, mean. Reach, followers, friends, engagement, acquisitions, referrals, hits, unique visitors, bounce rates, click-through rates, conversions and all other ways to track activity—companies, including wineries, are pursuing them with a vengeance. Yet “The problem is that no one really knows what all that information is worth,” says the Wall Street Journal article.

Such data is called an “intangible asset” because, unlike real estate, durable equipment and money in the bank, it has no objective value. This is not to suggest that data is valueless. As the article explains, data has value because “it allows [companies] to tailor their products and marketing to consumer preferences.” For wineries, though, what does this mean? It’s not at all clear that counting your Twitter followers, or measuring your online engagement rate, suggests anything at all in terms of strategy. “The squishy world of intangibles,” writes the Wall Street Journal, means that “Data is worthless if you don’t know how to use it to make money.”

That statement is patently true on its face. But there’s a more fundamental question: What if social media data, in and of itself, is incapable of being used to make money? Even if real-time data gives you some true insight into your (potential) customer’s online behavior, “Information on individual users loses value over time as they move or their tastes change,” making data “a perishable commodity.” Data looks real and solid enough: after all, what can seem more representative of reality than numbers on a page or screen?

But as we all know, statistics can be slippery or, to use the Journal’s word, “squishy.” I used to get in trouble with some of social media’s adherents by asking them how they “knew” that engaging in social media made money. The answer always was a form of “We can’t prove it, but we somehow believe it.” Occasionally, someone would cite a winery that was doing social media bigtime and whose sales were rising. But even if the connection between doing social media and selling cases could be established directly (which it couldn’t), I always wondered if the winery’s success had legs—if it could be replicated over time, because, after all, any winery can have a good quarter, but wind up on the butcher’s block.

Lest any of this be interpreted to suggest that I don’t think social media has value, or that every winery shouldn’t be exploring it, let me go on the record: If you’re a wine company, you should be doing social media. Period. End of story. What I am saying—or, really, asking—is the same question I’ve posed since 2008: What is all that data worth? If you don’t like the question don’t blame me, blame the Wall Street Journal’s headline writers for coming up with it in the business paper of record.


How do you know it’s not just a trend?

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Back in 1999, a wine writer, Randall Murray, called Sangiovese “the next Merlot,” by which he meant that the red grape native to Tuscany was poised to become one of the leading red wines of California.

Never happened, did it? Actually, by 1999, Sangiovese already had one foot in the grave. Ten years prior, one might have been forgiven for betting on it, but by the approach of the new Millennium, I think most of us knew that Sangiovese was in trouble in California.

Sangiovese in California was, in fact, a trend. Those who invested heavily in it, like Piero Antinori, failed to make good their hopes. Another more recent trend might be Moscato. After an amazing leap to prominence in the previous decade, sales of the wine were off dramatically last year, compared to the previous two years. Will the growers who installed so much Moscato regret their decision in 2020? If they do, it will be because, by then, we’ll know that Moscato was yet another trend.

This is the risk growers face. How do they know what variety has staying power? It’s quite easy to know when something is not a trend. Pinot Noir is not a trend. The wine company that invests in Pinot acreage in prime growing areas can be confident it is making a wise decision. It’s a lot harder to know when something is a trend. Growers exist in a tense world torn always between the realities of the past, the urgency of the present, and the exigencies of an unpredictable future. Granted, if they make a mistake, they can always graft their vines over to another variety. But this still causes them to lose precious years of productive time and money.

The ability to tell the difference between a trend and a real paradigm shift extends beyond the wine industry into all areas of retail. Companies have always hoped to cash in on trends (baby products, skincare, technology and fashion are among the top exemplars in this category). Apple Computer obviously succeeded better than anyone else in tech in trendspotting. In the fast-changing culture of 21st century America, where nothing seems fixed and permanent anymore, you might think CEOs are constantly looking for the next trend. But in what the Wall Street Journal is calling “a broader shift in retail,” more and more companies are showing “a preference for operators over trend spotters,” causing them to seek leaders “whose strength is in the nuts and bolts of retailing rather than flashy merchandising.”

The word “operators” refers to the operational skills of CEOs and their teams: the ability to actually move product, in a nation in which the middle class is uncertain and online shopping threatens traditional retail. Under such circumstances, it may only be natural for company leaders to take more conservative positions than in boom times, when experimenting on trendy new products—flashy merchandise–makes more sense because everyone has more money, and a company can afford a temporary setback. Nowadays, even a temporary setback may be a company’s tomb. Since one can never predict the future, and the success or failure of strategies can be measured only in retrospect, it’s too early to say whether or not this new, back-to-basics approach is not itself a trend.

For the wine industry, the portents are hard to read. A smart wine company cannot assume that what seems popular today will be popular in five years. At the same time, the smart winery can’t bury its head in the sand, ignoring evidence that things are changing. Success is always a matter partly of luck, but also of wise planning and an uncanny sense of what the future will bring; and planning itself involves no small degree of risk. My own advice to wine companies is to resist being seduced by the allures of current trends; what has worked in the past is likely to work in the future. If you’ve been doing something well for a long time, and there’s something glittery on the horizon that makes you worry because some people are all mesmerized by it, take measured steps. Don’t take the glitter for granted: check it out, understand it, be smart in analyzing what is it and where you think it’s going. But don’t make a wholesale leap and change your entire strategy just to ride a trend. If you do, you risk becoming the next Sangiovese.


The Wall of Wine, Stories, and Consumer Psychology

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I was on the panel of a wine event last week, and one of my fellow panelists was from one of the nation’s biggest Big Box grocery retailers. I asked him, “Will the infamous Wall of Wine be always with us?” and he answered, “Yes. Retail is here to stay.”

Indeed it is, as a basic function of human interaction: I buy something wholesale and sell it to you retail, for a profit. But as experience shows us, retail changes its external face constantly; and the Big Box, with its Wall of Wine, will not be with us forever—at least, in the form we know it.

The reason things are changing is simple to understand: Millennials.

“Online retailers have a huge edge with Millennials,” according to this 2013 study which took the example of a popular woman’s athletic tank top to illustrate Millennials’ disinclination to buy things in stores. “’I logged on, I found my Under Armour top, I pressed a button and got it 4 days later,’” a representative of the company that sponsored the study air-quoted a hypothetical Millennial on her satisfaction with the online experience. He added, “The younger respondents got, the less physical experience mattered” to them.

Contrast that with the number-one reason Baby Boomers cite for their preference to shop in traditional bricks-and-mortar stores: “instant ownership,” with 79% of them in the study citing that “as the most appealing attribute of any retailer, online or off.” This is why, according to the study, even though Amazon is the world’s biggest online retailer, its earnings in 2012 were only 13% of what Walmart cleared.

Baby Boomers may not have a problem with supermarkets, but it’s clear their children and grandchildren do. But Big Box heavyweights like Safeway aren’t about to roll over and go away. Instead, the study predicts, stores will “integrate the digital with the physical,” acquiring “online characteristics.” Such as? “Expect to see a place to pick up the stuff you bought online,” in a “retail locker” concept of retailing. Imagine buying a couple bottles of wine online from any site, and then—instead of waiting for days for it to be delivered to your house (and you might not even be home when it comes)—it will go straight to the “retail locker,” where it will not only be waiting for you, but will be presented to you “by people who like people,” not the often surly floor staff of supermarkets.

That sounds like a pleasant experience. What are the implications for the Wall of Wine? Not good. If inventory is purchased just-in-time, stores will have no reason to buy thousands of bottles they don’t even know they’ll be able to sell. The Wall of Wine will vanish, for the simple reason it will have outlived its usefulness.

* * *

And then there was the tasting I went to on Sunday at a local wine shop. It was of various coastal California Pinot Noirs. One of them (Porter-Bass 2012) started out smelling very funky, a phenomenon everyone who remarked on the wine noticed. (The funkiness, whatever the cause, blew off after a while.) I didn’t particularly care for it. Our host, however, liked it quite a bit, and explained, in some detail, the winery’s biodynamic approach to grapegrowing. Her preference for this wine was apparent to the guests, most of whom were amateurs with only little knowledge of wine. After she was finished speaking, one of the guests, who had noted the funkiness with what I thought was a critical attitude, said, “I thought it was too funky, until I heard your story. Now, I love it.”

Well, the top of my little head exploded at that. You know that we’ve been talking about “stories” quite a bit here at steveheimoff.com. Stories are the new black of marketing: the latest, hottest trend in the industry. Until my experience at that tasting, I had not perhaps appreciated the power of a good story, told by a trusted authority figure, to completely change the thinking of someone else. And not just to change their thinking: to actually change the way something smells and tastes to them!

I am in awe. Have to think more about this one. The host’s story didn’t work on me, but I’m not your typical wine consumer. Are average wine drinkers so unsure of their own perceptions that a testimonial from an expert can redirect them? Or does a good story, told passionately by a believer, somehow open up the mind of a skeptic so that he can perceive reality on a higher plane? If the latter is true, then what about a good story told passionately by someone who doesn’t even believe it, but is telling it only in order to sell a wine?

I don’t know the answers. There may be none. There may be different answers for different people. But I think all of us had better bone up on our story-telling abilities.


Some execs are “worried,” but really, there’s nothing to worry about wine’s future

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Nobody asked, but here’s my two cents on “top Golden State vintners [express] concern about the future of the $23.1 billion industry, especially among the discerning millennial market.”

That’s from Tuesday’s Santa Rosa Press Democrat, which reported on “a UC Davis survey of 26 senior executives” in the state, and found that “Everyone was a little bit worried.” Those execs included Joseph Gallo, from you know who, Jay Wright (Constellation) and my own boss, several levels up, Rick Tigner.

Seems the chief worry is “the intrusion into the wine category of spirits and craft beers,” according to the guy who conducted the survey, the well-known emeritus of Davis’s Graduate School of Management, Robert Smiley (who I had the pleasure of interviewing numerous times during my magazine days).

What do the execs base their impressions on? One of them said more “people are starting out with craft beers and then as dinner goes they switch over to wine.” I suppose this does “rob” the industry of that extra glass of sold wine. I like to start the evening out with a cold IPA, especially when the weather is warm, but that doesn’t stop me from consuming my share of wine. Still, I can see that if the theoretical consumer used to drink three glasses of wine at night, and is now drinking just two, with a bottle of beer making up the difference, that represents a 33% decrease in consumption.

Another exec wrote that he and his wife “have been having more cocktails than we’ve ever had in the past…”. That too, the exec speculated, “is maybe taking a little bit of the wine-by-the-glass business away.”

Then there’s the liquor store owner who said,“Ten years ago we were about 70 percent wine. Now we are down in the 60s.” Even with increased wine sales in the U.S., the execs are troubled by this nibbling away at the margins.

I have several reactions. One is that, after following this industry for more than 30 years, I’ve seen multiple times when winery execs were afraid that the sky was falling. It never did. Here in California, we’re coming off several boom production years (despite the drought) and quality has never been higher. Profits seem to be up everywhere at well-run companies, the mood is optimistic among employees, and with all the bashing California wine gets from certain quarters, it remains the best seller in America. Prices continue to rise, and where wineries are holding the line, they’re feeling pressure to increase—if only slightly—the cost of cases. That wouldn’t be happening if wineries felt truly threatened.

It is true that beer and spirits consumption is on the rise, but my feeling is that we’re becoming more of an alcohol-drinking country, so a rising tide lifts all boats. It’s also true, as I’ve insisted for years, that wine is fundamentally different from beer and spirits. Wine signifies aspiration. Beer never did; it signified only getting drunk. Neither did spirits signify anything, except a quick buzz at the end of the work day. Now, that is changing, because the craft beer and spirits producers have stolen from wine the concepts of lifestyle and aspiration that have always fueled wine. It is now possible to drink (as I do) great craft beer and spirits and appreciate them, not only for alcoholic punch, but for complexity, deliciousness and even (dare I say it?) intellectual interest. But I still believe aspiration goes along more with wine than any other drink. And America is an aspirational country.

What then for the wine industry? It can’t become complacent. It has to continue to appeal to its existing consumers, and not alienate them, as it learns how to reach out to younger Millennials. The messages and the products therefore must be extremely well-thought out and crafted with precision. But successful wine companies know how to do that. Believe me, they’re working overtime figuring this stuff out. If I were a betting man, which I’m not, I’d put my chips on the wine industry. Spirits seem to come and go in America; their fundamental problem is that they’re simply too strong for millions of people to drink on a regular basis, throughout the meal, for the rest of their lives. Beer always stays popular, but it’s craft beer that’s got all the excitement now, and craft breweries are small; they do not, I think, represent a threat to the wine industry in the long run, although some stores are giving them increased shelf space.

Wine, by contrast, has staying power. There’s a reason it’s been top beverage in the western world all these centuries, and is now becoming top beverage in the developing world, too. Human nature doesn’t change; wine is more consonant with human nature’s aspirational elements than either beer or spirits. It’s the Goldilocks of alcoholic beverages: not too strong, not too weak, just right. Am I an admitted booster? You bet. But that doesn’t make me wrong.


DTC, snobs and market segmentation: A personal view

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“Wines delivered to your door” has been the business theme of direct-to-consumer entrepreneurs since as long as I can remember.

I used to be a member of one of these subscription services, back in the early 1980s. I can’t remember the name (I’m sure someone out there will remind me), but they sold German wines that “arrived at your door” on a monthly basis. I didn’t continue, because I eventually reached the point where I preferred shopping for wine myself, in a store, especially if I could taste it or see a recommendation—and that is the point of this post.

There’s now another “delivered to your door” service, Club W, and while I wish them well, I don’t see how they overcome the challenges that led to failure of almost every one of these ventures.

They all promise the ease and convenience of having pre-selected wines that arrive at your door once a month. They all say the wines are “curated” by experts or, in this case, actually produced for Club W “by noteworthy winemakers who develop their ‘juice’ for Club W exclusively.” And they all make claims that they offer lower prices [even with shipping?] than traditional outlets.

That may well be true in Club W’s case. The claim that their “exclusive” winemakers “have great talent but may lack access to capital enough to get their wines made and into the market” certainly rings true. That is a common challenge for winemakers, especially younger ones, who may have access to interesting grapes, and are making interesting wines, but have no realistic way of getting them to far-flung customers.

What are those wines? I went to Club W’s website and tried it out. They ask you to answer a couple of (kind of silly) questions, and then, after you give them an email, Facebook or Twitter account, they “recommend” appropriate wines. For me, they suggested three brands I’ve never heard of: a Wonderful Wine Co. red blend from Paso Robles, a Black Market Cabernet-Petit Verdot blend from Livermore, and Casa de Lila Airén, a white wine from Spain. Beyond these three wines, there are others on the website I could buy. They all have attractive labels, and I wish I could go to a tasting and try them out, because at $13 a bottle, that’s pretty affordable. There’s also a “Curator’s Choice” menu for wines costing $14 and up.

Now, any and all of these might be wonderful wines. Or they might not. The problem is, even thought they’re just $13 a bottle, I don’t want to buy a pig in a poke: A wine I’m not familiar with. Under their “Tastemakers” dropdown menu they have the names and pictures of folks I guess are some of their winemakers: a fine-looking bunch of men and women, young and appealing. There’s also a cool recipes link. That’s all good.

So I have mixed feelings. A lot of thought obviously has gone into Club W. The website is really nice. But I just don’t see how they get around the fact that you can’t taste the wines before you buy, or even see what the critics have said, since they’re club exclusives and have never been professionally reviewed. (I do make an exception for winery wine clubs: people join them because they know and trust those wines, so even if they haven’t had the latest vintage, they possess plenty of prior evidence that they’re much more likely to enjoy the wine than not.)

Finally, although this isn’t Club W’s fault, I hate the way the Wall Street Journal portrayed Club W; their headline reads “Club W Raises $9.5 Million To Appeal to Wine Lovers, Not Snobs.” Can we please get over this “snobs vs. everybody else” nonsense? I mean, does Lettie Teague write for the “Snobs” in the WSJ? I have news for you: All wine writers write for the people who read them; all wineries produce wine for the people who buy them. There are indeed snobs in the world of wine, as there are in other arenas, but they are the exception to the rule, and to toss the word “snob” around so much is really misleading to young people, who may end up thinking that wine isn’t for them because they’re not snobs and don’t like being around snobs.

Instead, why can’t we talk about beginners, amateur wine lovers and experts? The experts aren’t “snobs,” they just have a lot of experience, nor are the beginners “idiots” because they have little experience. Some “beginners” will be “experts” someday; will that make them “snobs”? So really, anyone (writer, blogger, winery, ad agency) who throws around the snob word so insouciantly is just indulging in lazy language that moreover insults a significant number of wine lovers.

And then there are new wine companies targeting everybody: I got this blast email from one of them just this morming: I omit the winery’s name: “We here at ___ have created a wine that will capture thegrowing new generation of social media savvy, adventurous, health consciouswine drinkers as well as the seasoned, more experienced ones.” Talk about something for everyone! Beginners, Millennials, twitterers, greenies and granola munchers, Baby Boomers, old folks, and snobs. Sic semper, market segmentation!


Vintage 2014, and California declares war on small wineries

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With the first (light) rain of the season expected tomorrow (today, as you read this) north of the Golden Gate Bridge, I thought it was a good time to consider the 2014 vintage in California. So, as usual, I asked my loyal Facebook friends, who responded in force.

The story is this: short, compressed harvest. Record early, in many cases a month before normal. (This means that Autumn rains should not be a problem. If they actually come, which everyone is hoping they will.) A good crop, tonnage-wise, not a record, but then, it comes on the heels of two record-setting years (2012, 2013).

Quality? Overall, pretty good. The wines should be plump and approachable. Several people commented on soft acids, but that can be corrected in the winery. On the other hand, others remarked about high acidity, which also can be corrected, partially, through the malolactic fermentation. The exceptional drought has resulted in small berries but that should make for intense flavors.

Potential problems? Smoke taint tops the list. The Sierra Foothills have been hit heavy by wildfires. So has the extreme North Coast, but that smoke drifts down to the south. A second potential issue is that the warmth, combined with the drought, has resulted in fairly high sugars, especially in reds, but true phenolic ripeness lags a bit behind. I wouldn’t call this a statewide problem but it could result in some structural and balance problems. In a few cases, the crush rush could be a challenge for vintners running out of cellar space.

Several respondents commented on the inverted order of picking, with Cabernet coming in earlier than Pinot and some of the whites, a situation that has vintners scratching their heads, and which may be due to the drought.

Overall, the mood among vintners is positive. I’d call 2014 the third year in a row where there’s more cause to celebrate.

* * *

I must say I find this story disturbing. In brief, the State of California has fined a local winery for using volunteers. Seems the winery didn’t pay them wages, or worker’s comp, so Sacramento has cracked down with a fine so heavy, it looks like it will put this little family winery, in business since 1986, out of business.

The story was so preposterous, I called the winery to see if it’s true. I spoke with Westover Winery’s owner, Bill Smyth, who confirmed it. “The State is out of control,” he told me. What will happen now? “We’ll go out of business, 900 of our club members and thousands of customers will lose, and wineries all over California will be devastated.” Bill contacted his state assemblyman, who’s calling for hearings to “do something,” Bill says. But what exactly can be done isn’t clear.

What were the volunteers doing? “The same things as they do at all other wineries: work behind the bar, making wine,” Bill says. They’re friends of the winery who loved participating.

I’ve volunteered at wineries. I’ve punched down, cleaned tanks and worked in the vineyard, and enjoyed and learned from it. There’s something seriously wrong with this development. I hope things work out for Bill Smyth, and I hope that the California Legislature changes the law to allow volunteers to work at wineries. And how about Wine Institute? Guys, it’s time for you to use your clout in the State Capitol.


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