Prepare: It’s About To Get Real Ugly Out There
It doesn't seem unlikely that the American economy will see another 1.5 million jobs lost between November and February.
Ten percent unemployment by late 2009 isn't a fantasy.
Credit is about as easy to come by as a California-made Albarino.
I'm betting that 2009 will be the first time since 1992 that total gallons of wine consumed in America will decrease from the year before. And it won't be a small drop in consumption, either.
So, what's a new, tastingroom-less producer of 500 cases of $60 California Cabernet Sauvignon to do? Seems to me there is a choice to be made by these folks: Sit on your inventory and wait and hope Americans develop an attraction for older Cabernet. Or, lower your price. Typically, it is believe that it's much easier to lower your price on a wine than to bring it back up to what it was before you lowered it.
I've been in the wine industry for almost 20 years. I've never seen worse prospects than I see today for the American wine market. Ironically, I'm guessing that's going to put me, Wark Communications, and others of my ilk in demand.
Face it, if you're selling wine at $25 or above and if you don't do enough volume to produce a mass marketing budget, you better be prepared to get nimble and strategic. You better get ready to target your marketing dollars. You better be prepared to identify market opportunities and market segments and grab them. You better be prepared to tell a much more compelling story to buyers than the next guy. Because...it's going to get very, very ugly.
The value of wine brands and wine properties in the U.S. is dropping as I type this. And the drop isn't near the bottom. We'll see lots of very well regarded wine brands change hands next year…if we are lucky. If we are not lucky, we'll just see them fade away into bankruptcy.
The point is this: If you work in the wine business as a producer, retailer, distributor or if you provide the producers and marketers with accessories, equipment or services, you better get your house in order if you want to stay in this business.
True to form, my timing as a new importer of small-production Italian wines is lousy. Fortunately, most of the juice will retail for $25 & under.
My wish for 2009: We all make it.
“So, what’s a new, tastingroom-less producer of 500 cases of $60 California Cabernet Sauvignon to do?”
I’d recommend lowering prices too. The stuff won’t age (and especially not long enough for Americans to come to prefer aged reds). Besides, it was not worth more than $18 per bottle to begin with.
Tom,
I demand that you take down my picture–you hadn’t asked permission to use it…
Tom,
I demand that you take down my picture–you posted it without permission…
Looks like I’m repeating myself–but not exactly…
Agreed. What’s important is to be nimble to the market conditions. Producers and the like cannot walk around in the middle of a monsoon pretending they are dry. Think critically, respond to the storm, don’t just react. If you put your mind to it, you’ll find some actual dry spots you can claim until you ride this out.
Tom,
I concur with your observation. And it does not matter the size of your business – you darn well better work both smarter AND harder to stand a chance of simply surviving, and, if lucky, thriving a little in the near future.
I hope you continue to ‘report’ on this and that the industry in general reports on what they are doing themselves and seeing in the marketplace re: what’s working and what’s not . . .
Cheers!
Tom, you are absolutely right. Every indicator right now that I look at continues to get worse–both general economic and consumer related. Retail sales for November (released today) fell off a cliff, down nearly -7.4% from last year, real retail sales are down -10.1%. Check out the chart on this page for a visual representation of this disturbing “trend.”
http://calculatedrisk.blogspot.com/2008/12/retail-sales-off-sharply-in-november.html
It is funny that you point to the low end segment of the market being the safest. Here in Oregon I think we are seeing low end producers take the hit while demand remains pretty good for the little guys ( ie higher end wines ).
Lowering prices should be a last resort, once you go in that direction it is going to be hard to come back. Now is the time to make the most of existing relationships; retain your current customers and expand efforts to increase thier loyalty. I suspect people are going to be less ‘adventerous’ in thier purchases and will go with what they know. Make sure those who know you also know you want their bussiness.
Not only will it get ugly sale volume-wise, but the competition for the same customers is going to get cannibalistic.
I’m already mysteriously getting allocations and communications from wineries I’ve never approached, and that don’t appear to be spin-offs from any I buy from.
For those w/ little cash for marketing- Social Media is the only way to go / grow. Sales will be done bottle by bottle vs case by case.
This data is from Oct but it is revealing nonetheless. If you assume that high-end producers have more exposure to the 100K crowd and sell a proportionately greater amount of wine direct via the web than the low end, then this data is somewhat supportive of the anecdotdal reports mentioned above.
*Retail E-Commerce (Non-Travel) Growth Rates by Income Segment
Excludes Auctions, Autos and Large Corporate Purchases
Aug-Oct 2008 vs. Year Ago
Total U.S. – Home/Work/University Locations
Source: comScore, Inc.
Retail E-commerce dollars spent
Aug-Oct 2008 vs. Year Ago
$0 – $49,999 3% 21%
$50,000 – $99,999 1% 45%
$100,000+ 14% 35%
Grand Total 4% 100%
Damn Tom, that pic will give me nightmares for sure!
Yep, any wine companies carrying old school bloaters (especially outdated marketing ideas or staff) around, will have to skim the fat next year.
I agree that the QPR for many Cali wines needs a market adjustment.
Here’s to thriving, not surviving!
Damn Tom, that pic will give me nightmares for sure!
Yep, any wine companies carrying old school bloaters (especially outdated marketing ideas or staff) around, will have to skim the fat next year.
I agree that the QPR for many Cali wines needs a market adjustment.
Here’s to thriving, not surviving!
Gee Tom, you’re throwing in the towel pretty quick. Not to be pollyanish or anything, but:
–there is almost no correlation between change in income in the U.S. and change in wine volume consumed from 1991-2006.
–there is only a modest correlation between change in per capita income and change in avg. retail price of wine in the U.S. from 1991-2006 (r-squared of .39)
–the academic literature (such as it is) on the effect of economic conditions on wine consumption mostly finds limited or no effect on volume of consumption and is conflicted on the effect of economic conditions on spending on wine.
–Historically California wine prices have been strongly affected by supply conditions. The last two recessions coincided with periods of growing oversupply, whereas while the current trend is towards decreasing supply relative to demand.
So it’s not unreasonable to conclude that while business conditions won’t be good, for the wine industry they won’t be very very ugly either. The one thing that might be different this time around is that in the last two recessions the wine drinking demographics were barely scathed, whereas in this recession some of them (certainly the New Yorkers!) are taking a hit. Without crunching numbers, my guesstimate is that in 2009 volume will be slightly up, dollars moderately down and on-premise and the $30+ segment will be the only really ugly spots.
Tom–
As a 30 year veteran of the Napa-Sonoma industry, as winemaker and most recently a winery equipment supplier, I have some grave concerns for the coming years. I’ve lived through several cycles, but this is the worst. It will be interesting to see how the Unified Wine Symposium show in Sacramento in January pans out. Investments in shiny new stainless tanks, presses and bottling machinery are going to take a big hit. Consumables like vineyard and winery chemicals, and oak chips, will probably remain stable, but the barrel market will be interesting to watch, especially for the high-end French cooperages. American oak barrel producers will probably be scrambling to steal market share, and many wineries will probably be looking at oak alternatives to barrels. The central European oak barrel market may explode, but there isn’t enough 2-year seasoned wood in central Europe to satisfy the potential demand. Interesting times, indeed.
Tom–
As a 30 year veteran of the Napa-Sonoma industry, as winemaker and most recently a winery equipment supplier, I have some grave concerns for the coming years. I’ve lived through several cycles, but this is the worst. It will be interesting to see how the Unified Wine Symposium show in Sacramento in January pans out. Investments in shiny new stainless tanks, presses and bottling machinery are going to take a big hit. Consumables like vineyard and winery chemicals, and oak chips, will probably remain stable, but the barrel market will be interesting to watch, especially for the high-end French cooperages. American oak barrel producers will probably be scrambling to steal market share, and many wineries will probably be looking at oak alternatives to barrels. The central European oak barrel market may explode, but there isn’t enough 2-year seasoned wood in central Europe to satisfy the potential demand. Interesting times, indeed.
I don’t know what happened, but my post was entered twice, the first time under Christian Miller (apologies to him).
Nah, CircusBoy; it’s the way this format lists the author’s name that made you think you posted under Christian Miller’s name.
And to Christian: not that I disagree with your take on past performance–I agree fully. But I do believe that many are not in full understanding of this particular downturn. This economic problem is not your run of the mill recession. This time, as in the 1930s, the systemic nature of the problem is going to cause serious pain all around.
Of course, one of the reasons for the 21st Amendment in 1933 may have been to get people drinking again, to forget their troubles. But as you point out, people likely drink more during such sadness. That’s good news and bad news: the less money we have to spend, the more crap we will be forced to drink!!!
Should have voted for Ron Paul and brought us on the Gold standard, but you can still save your winery’s ass(etts) by offering high quality wine at a good price. I think that people will continue to drink wine, but lower on the price spectrum.
And that new proposed excise tax increase looks almost as scary Tom’s picture
“not that I disagree with your take on past performance–I agree fully. But I do believe that many are not in full understanding of this particular downturn. This economic problem is not your run of the mill recession. This time, as in the 1930s, the systemic nature of the problem is going to cause serious pain all around.” (Thomas P)
I agree that this recession is looking quite different, but I’m not sure that it necessarily follows that it will be very bad for the wine industry. The 1930s is one analogy, but so is the 1990s in Japan, during which wine consumption grew in that country. It’s not that wine consumption is immune to recession, just that other factors can have a countering effect. Supply-demand balance and shifts in taste, culture and retail trends have had more impact on our industry’s health than the overall economy.
Christian,
Again, I agree with your premise. But this is not just a recession that we are experiencing. The present meltdown in the economy is a lot more serious than a regular business cycle slowdown. Predictions are impossible–as every economist who opens his or her mouth proves daily–but the signs of distress to the system are clear.
It was a credit crunch that gave us the Great Depression, not a down business cycle.
This is the big one. All previous recessions were concentrated in sectors, such as the dot com bust, but while this collapse was triggered by the real estate bubble, the effects are widespread, in all sectors of the economy, here and abroad. I have Internet friends in Paris and Netherlands who are unemployed and may be so for years. Expect to see the Dow below 5,000 by April, and the entire Baby Boomer retirement funds wiped out.
Expect people to be drinking cheaper (by the way, of the last case of two-buck chuck, five bottles were corked!)
Hobo time.
History always shows when things get bad alcohol, tobacco, gambling and the strip club business get booming increases in sales. If you are running a remarkable business model with a remarkable product at a remarkable price hold on to your seat and get ready to bring in giant revenue. Poor Business always blames its inabilies on the economy and etc. The truth is there are too many of us making too much overpriced overcropped plonk with bad labels and poor consumer direct sales implimentation. Those with good business models will be embaassed at how well the will do. Just remember when thing get bad people get drinking and smoking and gambling. Right after Katrina New Orleans had record months at the casinos and strip clubs. After 9/11 alcohol and tabacoo flew off the shelf like never before. Our sales went up 300% while all of our non-vice selling neighbors went out of business. I would rather be in the wine and alcohol business than any other during these tough times. A lot a vitners hang on the coat tales of sucessful vitners and will lose their shirts but this is just natural selection in the business cycle. If you you build your business on being remarkable you will always have remarkable sales. Take care.
Great, just what we needed more doom and gloom prophetizing. Careful what you wish for; the first to fall by the roadside might be your advertisers!
So this will be a good time to stock up on some newly discounted wines? What are some suggestions for cheaper wines? It seems that most producers will be in the same boat.
I guess I’m not seeing this as a ‘doom and gloom’ message whatsoever – just a realistic take on the current economic state and how it might apply to the wine industry.
There have been some great points made about what this will mean to both consumers and producers, and I will be at Unified to witness how it is affecting that side of the business.
I do believe that those in the industry who are not proactive in how they handle the current downturn may be more adversely affected than those that do take action . . .now . . .
Cheers!
I guess I’m not seeing this as a ‘doom and gloom’ message whatsoever – just a realistic take on the current economic state and how it might apply to the wine industry.
There have been some great points made about what this will mean to both consumers and producers, and I will be at Unified to witness how it is affecting that side of the business.
I do believe that those in the industry who are not proactive in how they handle the current downturn may be more adversely affected than those that do take action . . .now . . .
Cheers!
How about unheard of wine regions/
And I had thought 2009 would be a good year for us to start to export to US… Total sales of Port Wine felt by 13% between January – October 2008, when compared with the same period of 2007. But, as some of you point out, there was a change in the consumers preferences, buying more standard Port (+1.9%) instead of premium Port (-17.1%).
http://www.ivdp.pt/en/docs/Porto/Table%202_2008.pdf