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!