Wow, I can’t believe how quickly the summer flew by.  Alas, summer is over, both fall and crush are here and it’s time for some more of my unsolicited thoughts on the wine industry.  There is a lot to discuss so I’m planning to split up some of my thoughts on several meetings and conferences I attended recently over multiple entries.  Initially though, I would like to focus on selling wine direct.  In case you have been stuck in a wine cave somewhere, the ironically-named HR 5034 “C.A.R.E.” bill is still being considered by Congress and its potential impact on destroying direct wine sales has not improved.  If anything, the bill has gained some momentum in garnering support within Congress and is best described in up-to-date detail on the Stop H.R. 5034 website.  I urge all wineries and wine lovers alike to join the movement to stop the passage of this bill.

Ok, politics aside, let’s get to the meeting I took part in a while back with several ultra-premium Napa and Sonoma winery owners and operators.  The topic du jour was selling direct, specifically to consumers and also trade.  To sum it up, everyone obviously wants to sell more direct because of the financial merits, but many wineries are finding it is not as easy as it sounds (or to simply model out).  Due to these tough economic times wineries are being forced to get creative and come up with different marketing programs other than the usual case/price discounting and free shipping to generate increased direct sales.  More wineries are becoming (and need to become) more involved with their current and prospective customers.  Exclusive events like winemaker dinners and wine club soirées are more popular, but also new programs like concierge services and VIP referrals are being used.  The bottom line though seemed to be that everyone I talked to was basically trying to get more involved in the customer experience and more closely track what programs and channels are working.

Increasing the number of customer touch points seems to be everyone’s modus operandi.  Or at least it needs to be.  Wineries need to continue furthering their brand image and the easiest way to do that is keep doing what they do best and stay consistent.  Consistency in communication, winemaking, customer service — in everything.  Consumers want to feel special.  We want to feel like we are important and at the same time get that warm fuzzy feeling of finding a great deal or talking directly to the owner or winemaker.  We need to be drawn in and trust that you will give us a great bottle of wine and possibly even a great experience, either on-premise at the winery or tasting room, or just at home with your wine.  As one person put it, “if you don’t have a value exchange, you have nothing.”  This lends itself to more interactive experiences such as special consumer events, VIP programs, phone calls, pouring at public wine events, by-the-glass programs and not surprisingly, an increase in social media outreach.

It seems that practically every winery is on Facebook or Twitter these days, but the reality is that many are not effective in their use of social media.  Several of the owners I heard from mentioned they either “don’t get it” or “don’t believe it’s a good use of their time.”  The underutilization and misuse of social media is only one reason some wineries are struggling to generate increased sales in this uber-competitive market where consumers are constantly bombarded with new labels and new wines.  One big allure of wine is this notion of romanticism and the opportunity for a consumer to get to really know a winery and its wines on a more personal level.  People want to share in this wonderful wine country lifestyle that combines beautiful surroundings, great food, terrific people and of course, superb wine.  Social media is one easy way to accomplish this.

The biggest disconnect I see though is that many wineries don’t embrace the concept of the “aspirational consumer.”  Using social media is widely viewed “a kid’s activity” and “not important for my target demographic.”  However, the fact that slips by many owners is that these younger social media users in their twenties (Millennials) are the same people that are not only driving increased wine consumption in the US but are going to be the target demographic in the future if you are an ultra-premium winery selling expensive wine.  Wineries would be wise in spending more time reaching out to these consumers that are maybe drinking cheaper wines right now and building brand equity in anticipation of these individuals moving up in economic and social status.  It is comparable to sports teams scouting young athletes at an early age when there is a lot of unrealized potential there.  They are making a bet that these athletes will continue to develop and reach a point of maximum utility, where there will be many more suitors and more opportunities for them.  The best minute one can spend is the one you invest in people.  What better people to spend time with than people who love wine?!

First and foremost, let me quickly comment on this ridiculous direct shipping bill introduced to Congress last week. A lot has been said about the so-called HR 5034 “CARE” bill (good overview/analysis here), but this bill, if passed, will effectively cripple the wine industry, destroying virtually every small winery that relies heavily on its direct-to-consumer business. Throw in the fact that the wine industry is already an extremely difficult business to operate in and we are looking at potentially thousands of wineries closing up shop for good. Not to mention it would eliminate consumer wine choices, stunt economic growth and provides further proof of something the American public largely already knows; that with enough money, power and influence, anything is possible. Conspiracy theorists would quickly agree and bring up the JFK assassination and the second shooter (or spitter), the “Frozen Envelope” rigging the Knicks’ selection of Patrick Ewing in the 1985 NBA draft, etc. But I digress. I truly believe this bill will decimate the wine industry (particularly California) and is the second most laughable idea currently being discussed politically (I’ll leave this up to your imagination).

Moving on, I had the opportunity to attend the Napa Valley Grapegrowers “Ahead of the Curve” seminar at Solage in Calistoga, CA. I won’t reiterate everything discussed there as it was one of the more gloomy seminars I’ve been to, but I want to highlight some of the takeaways regarding key success factors for the future of the US wine industry, California specifically. I have listed them below.
•Wineries need to brand themselves better. In an increasingly competitive and global marketplace, the use of the internet and social media to market and better disseminate key information to potential customers is critical. ◦Napa Valley in particular needs better brand recognition outside of the U.S. Most Americans equate Napa Valley to great wine, but internationally, Napa is just one of many great wine regions. Bordeaux has done this quite successfully – better than any other wine region in the world.

•US wineries need to be more cognizant of the increased globalization of the wine industry and the overall impact on its constituents. Wineries may want to consider spending more time focusing on exporting wine (or at leat planning for it), particularly to countries like China that are showing increased interest in making and consuming wine. Currently, China only consumes rougly .7 liters of wine annually per adult, as opposed to the US where we consume approximately 10 liters per adult, or 3 liters per person (#3 globally behind France and Italy). ◦Additionally, the current exchange rate works out favorably in terms of international demand as the Euro represents approximately 30% more purchasing power when buying American products like wine.

•More winery owners need to run their wineries as professional businesses, as opposed to hobbies. I mentioned this in a previous post and it still amazes me that many wineries do not operate with maximum economic returns as one of their primary goals. Of course, I’m a finance guy first and wine guy second, so that probably explains my ignorance here. ◦The wine industry is uber-competitive (there are over 7,000 wineries in North America alone). If that is something winery owners or grape growers do not want to do or cannot do, then achieving success is probably going to be quite difficult.
◦In order to effectively compete, especially on an international scale, there needs to be a certain amount of cooperation with fellow competitors to successfully penetrate new markets (See: Silicon Valley, Bordeaux, the music industry). It will be interesting to see if the wine industry ever comes around to this fact.

•Keep investing in R&D and innovation. Innovation breeds success. Things like solar panels, sustainable farming practices, oak alternatives and winery CRM software have all benefitted the industry. This kind of forward-thinking approach to continually improving quality and overall processes can consequently lead to lower costs and carbon footprints as well.
•Last, and probably the most important point: wineries need to not lose sight of what they do best. That is, keep making great wine and focusing on quality. These days, if you do not have a quality product, you will not even get invited to the party, let alone have a seat at the table.

These ideas are by no means all-inclusive or the end all be all, but other winery owners I have spoken with recently seem to more or less agree. Now, if we can just get them to agree on who makes the best wine!