Posted: Jan 16, 2020
On Tuesday the 14th of January 2020, Rob MacMillan of Silicon Valley Bank joined industry trend and marketing leaders to review part one of the state of the US wine industry. Here are some key take aways from the excellent analysis provided by the panel.
Their message revealed that there is a bit of a perfect storm on the horizon for 2020 due to pressures on the market place from the following:
1. Wine oversupply
2. Key channel over indexing
3. Competing categories
4. A rotation among the generations
5. A key need for a change to our approach towards the younger generation and new consumer views on health and wine.
The following chart presented by SVB was an eye-opener:
According to the panelists: The market is off balance. There is an enormous amount of bulk wine supply. Grape prices have increased without the consumer demand to support those price increases. This suggests that we are going to see a reset on prices on grape supply. The prices will experience negative pressure in the bulk market. In addition every major AVA in California had grapes which were unpicked. These conclusions based on the data should put our industry on notice.
Key channels are over indexing and or underperforming
The panel further revealed that DTC was over indexed and the tasting room volume of visits was trending down. This led the panelists to call the industry to an important change of approach in both the digital space and the type and quality of experience provided in the hospitality area of a winery. A logical conclusion from the group - Your tasting room personel should be savy not just in the "cool nights warm days story' but also in the tech/social media/digital/omnichannel space.
One of the rising stars to add to the categories competing for wine's mind share has been recreational Cannabis. According to the panelists, only 13% of consumers are consuming Cannabis. The greatest biggest pressure is still coming from the Beer and Spirits category. In addition, the sweetheart in the marketplace was the hard seltzer category. The RTD 43% growth was due to impressive marketing pressure.
Go-Wine commentary: While 13% is a relatively small amount, 13% of a large market is still significant.
A rotation among the generations
The key warning light was revealed when the SVB team showed this slide:
Take a look and let the data sink in. "Hello boomer." The boomers are the leading wine consumers but are indexing down. "There remain only 10 years before the last boomer hits 66." This was an aha moment during the video cast. At this time, our supposed saviors, the Gen X and Millenials are not purchasing at a level that can create the growth we would like.
A key need for a change to our approach towards the younger generation and new consumer views on health and wine.
The panel agreed that, we need to market and speak the language which will resonate with up and coming consumers. While outright prescribing wine for its health benefits can not ethically or legally be presented by manufacturers, the panel emphasized the need for a positive message based on "non-purchased" science facts and responsible consumption as part of a "healthy lifestyle". Mr. McMillan's suggestion that we shift labeling to conform with consumer product goods in other industries was brilliant. Why can't we place the words Non-GMO, Sustainable, Vegan, Natural etc. on our product to raise awareness across all consumers.
As they concluded the presentation some turnkey concepts were brought up by the panel to help our industry, these included:
1. Perhaps the era of the stodgy wine dinner should be replaced with consumer experiences led by wine ambassadors that are relevant, contemporary and drive emotional connection.
2. The Digital power of the social media echo chamber can not be underestimated. As a matter of fact, if we don't have someone dedicated to digital strategy due to budget constraints, then we need to enhance the education of our representatives by growing their understanding of the power of tech.
3. Be aware that the tasting room model in many cases is broken. How are we reducing friction at the point of delivery? How are we driving new members to our DTC as we experience attrition in our clubs? These questions need to be answered by our teams.
It is time to follow a "Blue Ocean" strategy so that we may create a bright future for our marketplace. Thank you Rob McMillan and team.
Team January 16, 2020
Images and Graphs: Silicon Valley Bank
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