The opportunity of a lifetime

The US wine industry is still growing and there are still plenty of opportunities to be found, according to a panel of experts. In late May, Rob McMillan of the Silicon Valley Bank convened a webinar to look at the consequences of the pandemic on the wine trade and discovered the news is both devastating — and good.

He began by pulling up a slide of what happened on 20th March in California, when Governor Gavin Newsom ordered the state to “shelter in place”. It showed a dramatic 44 percent decline in restaurant and tasting rooms, a catastrophic situation for small wineries.

It gets worse

Things were even more dramatic in the on trade, where sales fell by 90 percent, according to Danny Brager, senior vice-president of alcohol, Nielsen. Since the on trade accounts for 20 percent of overall wine sales, the big question is: have direct-to-consumer (DtC) shipments made up for the loss?

According to McMillan, “it’s hard to figure out”. Some figures seem to indicate that shipments have risen; others that shipment rates are similar to the same period in 2019.
On top of that, California has been in oversupply of late. Jeff Bitter, president of the Allied Grape Growers, said that while the current inventory is a problem, it may be more of a blip than a long-term issue. “It’s obvious that the coastal areas responded to the change in the market last year and are removing more vineyards,” he said. “We are making the adjustments for the future that will help us out.” But right now, there’s lots of wine sloshing around in tanks looking for a home.

While it all sounds dire, Amy Hoopes, president of Wente Family Estates, believes there is a silver lining. “There is the opportunity to accelerate your engagement with DtC,” she said. “If you’re a larger winery, you can go create new brands or private labels.”

Wine customers, she said, were showing by their purchasing behaviour that wine is important to them. Wineries need to find a way to deepen the relationship — and that means data. She lamented the fact that so few wineries have invested in staff who can look at DtC data and interpret it and said that wineries need to improve their data collection capacity. “Any time you can get a name, a phone number, an email, you can start a conversation. You can interact.”

The panellists agreed that the pandemic has shown that DtC has to move beyond the tasting-room model, which relies on customers visiting the winery and signing up for a wine club. According to Brager, now is the time for wineries to build their digital offering, because “everyone is getting more comfortable with online and digital — sales are going up and it’s largely because new people are coming in who have never bought online before”. He said once consumers begin to buy online, the convenience and comfort ensures they stay online.

Hoopes says it’s important to stay focused on providing value and stay away from discounting. “Instead of trying to discount the bottle cost, you start to do things like include shipping as part of the offer, if they buy six bottles instead of two.”

The on trade

Max Heinemann, client manager of Wine & Spirits at Nielsen CGA, said that 63 percent of wine consumers had missed out on a “celebration event” while in lockdown, from birthdays to anniversaries. “This is a key opportunity to work with local bars and restaurants to find a way to meet in the middle,” he said. “A card can still be sent out that says ‘go down to Johnny’s Wine Bar to celebrate the birthday you had two months ago and get 20 percent off your bill’.”

McMillan agreed that restaurants will need help to bring patrons back, and they will be happy to partner with wineries.

Brager also noted that, while many consumers will be looking to trade down, total alcohol consumption tends to stay consistent whether times are good or bad. This means it’s a good time to trial new ideas, new formats and new packaging.

“We have an opportunity we won’t have again in our lifetime,” says McMillan. “Our entire country has been forced to have family dinners and — guess what — they want to have wine with them. We’ve established new habits and these habits aren’t going to go away.”