The Two Wine Industries: Separate and Distinct
It is becoming abundantly clear that there exist today in the United States two very distinct and separately operating wine industries. One, the larger of the two, is dedicated to selling relatively inexpensive wine to the masses. The other is dedicated to selling relatively expensive wine to a smaller group of wine lovers. What’s interesting about these two separate industries is that there is less and less for their members to talk to each other about.
Take for example the recent Unified Symposium in Sacramento and one particular seminar entitled, “Adapt or Go Extinct: Removing Barriers to Our Industry’s Success”.
One of the panelists, Jennifer Jo Wiseman, vice president of consumer and product insights at E. & J. Gallo Winery, suggested that “empathy is the key to understanding consumers and meeting them where they want to be met.”
Ok. All good. Then, according to a story by Wines & Vines, Wiseman related this hypothetical story:
Lea, a woman visiting the grocery store with her 5-year-old son. Daunted by the idea of accompanying her child down the wine aisle (“a canyon of glass, according to Wiseman), she chose a bottle from the end cap display and went on with her day…’Lea is experiencing a lot of the barriers we see for many different shoppers,’ Wiseman said, noting her customer’s desire for a quick solution and reservations about poring over hundreds of bottles before making a purchase. Rather than assume Lea got it wrong by picking a somewhat familiar looking label and heading straight for the register, Wiseman said wine sellers should seek to empathize with Lea and figure out how to meet her needs.
What about this story could possibly appeal to or have relevance to the winery located in Paso Robles, Russian River Valley, Napa Valley or the Finger Lakes who can’t get distribution or who has distribution and can’t get their distributor to care about them, or to the winery sells $40+ bottles of Pinot Noir to tasting room visitors and wine club members?
The Wines & Vines Story continues:
“A corner of the wine industry believes the answer for Lea is in educating consumers about wine. Wiseman cautions, however, that not all consumers want to be educated. Plus, what other business model requires you to be educated before enjoying the product you’ve already paid for? “
It’s important to note that “corner” of the wine industry of which Ms. Wiseman speaks is selling somewhere in the neighborhood of $3 billion to $5 Billion worth of wine directly to the consumer and could care less about the dynamics of Lea and her undisciplined toddler.
Another speaker on the panel also had interesting things to say, but again, spoke right past an entire portion of the industry. Again, from Wines & Vines:
“Identifying that small wine brands can get lost in the grocery aisle—if they can get distribution there at all—Amy Hoopes, president of Wente Family Estates, suggested new wineries be willing to start somewhere with a smaller footprint. Get a following, especially among the social share-happy millennial set, and you could have distributors coming to your door instead of vice versa, she suggested.”
The vast majority of new wineries give very little thought to motivating distributors to knock down their door. In fact, the vast majority of new wineries are thinking about how they can get the inquisitive, wine loving consumer who is more interested in learning about wine, its intricacies and its history to bust down its winery’s door, rather than busting through a grocery store with toddler in tow.
What’s clear is that in addition to the emergence of two industries, there is also a need for two sets of tools for these industries. For the vast majority of wineries, those that are now concentrating on direct sales, events like the DTC Symposium and like the ShipCompliant DIRECT conference, both of which focus on selling more wine direct, are more relevant. Meanwhile, for the other industry focused on three-tier distribution, the Unified Symposium, the Wine & Spirit Wholesalers of American Convention and other main market events will be better suited for their needs.
Meanwhile, media relations I think will be important to both small and large wineries. The difference will be how and toward what end direct and mass market wineries approach the media, and which media for that matter. Some members of the wine media, like Wines & Vines, Wine Business Monthly a number of bloggers as well as many reviewers do an outstanding job of covering the small, more nimble, direct sales focused wineries. Other members of the media are a bit more content focusing on mass market wines.
Social media tools also can serve both industries, but again the way they are used by the two different industries will differ significantly.
An interesting question is the degree to which various trade groups can and will serve the two industries. Obviously the regional trade organizations that organize around AVAs are much more important to the smaller, direct sales focused wineries and they should be supported fully by the smaller wineries.
My belief is that the canyon between these two industries will continue to widen as we go forward. Despite what some say, there will also be an important part of the consumer base that does want more detailed information on the wine, the places where it was grown, the characters who grow it and make it and who will be willing to pay much more for wine because they desire more contact with the authentic. And of course there will be a much larger part of the consumer base that merely wants to avoid broken bottles in the grocery store wine aisle while still being able to pick up a bottle of juicy, fruity alcohol in wine form that will satisfy them at dinner or when their toddler is down for the night.
Very perceptive, I’m guessing the toddler insights resonated with you!
Jim, being the father of a Toddler, I understand the big wine companies’ focus on parents of toddlers. I understand perfectly.
Excerpt from Wine Spectator Online
(November 12, 2013):
“West Coast Wineries Are Up for Sale — Quietly”
(A wave of recent deals show investors see opportunities in wine, while owners see an exit strategy.)
“… While small wineries can succeed by selling most of their inventory direct to consumers and large producers have muscle with wholesalers, those in the middle — annual production of 5,000 to 15,000 cases, for example — can’t get much attention from distributors unless the brand is hot.”
“… ‘I’ve never seen more wineries for sale in California than there are today,’ [said Charles Banks, who through investment groups such as Terroir Selections purchased Santa Barbara Syrah specialist Qupé and Napa veteran Mayacamas Vineyards.] … Banks … estimates that between 30 to 50 percent of California wineries are either in financial difficulty or aren’t as profitable as they could be.”
Excerpt from MediaPost
(December 8, 2016):
“40% Of Alcohol Beverage Buyers Make Their Decisions In-Store”
Fully 40% of U.S. consumers who buy alcoholic beverages haven’t decided what they’re going to purchase when they walk into the store, according to a new study from IRI.
Of the 60% who do have a planned beverage purchase, 21% end up changing their minds in store, and 50% of those who change their minds ultimately buy a different brand than they originally intended.
. . .
All of which points to “immense” opportunities for alcohol manufacturers to find new pockets of growth by engaging and influencing consumers while they’re in the store, point out IRI’s analysts.
Beer, wine and spirits manufacturers are increasingly aware of the importance of working with retailers to win over consumers, according to Robert I. Tomei, president of consumer and shopper marketing for IRI. “When you consider how often most shoppers are going to the store, and that 21% of them change their minds during the shopping trip, you realize the impact that in-store signage, creative labeling and other marketing could have on your portfolio,” he stresses.
. . .
(Bob’s comment: But more importantly, you realize the impact that in-store salespersons play in guiding purchases as an “opinion leader” and “taste maker.”)
Excerpt from WineBusiness.com
(May 12, 2010, 2012):
“The Market for Fine Wine in the United States”
[Fine Wine 2010 Conference in Ribera del Duero (Spain)]
By Graham Holter
Associate Director – Publishing
Wine Intelligence market research firm (United Kingdom)
. . .
According to the data presented by [David] Francke [managing director of California’s Folio Fine Wine Partners], US wine drinking is compressed into a small segment of the population.
SIXTEEN PERCENT OF CORE WINE DRINKERS consume wine once a week or more frequently, which ACCOUNTS FOR AROUND 96 PERCENT OF CONSUMPTION. Thirty-five million adults drink virtually all of the wine sold in America, Francke said.
[Bob’s comment: The grocery store shopper with a toddler in tow is most ikely not one of the 16% who consume 96% of the wine in the nation.]
Excerpt from The Wall Street Journal “Marketplace” Section
(November 26, 2008, Page B6):
“Marketers Reach Out to Loyal Customers”
By Emily Steel
It’s an adage of the business: Persuading a satisfied customer to return is cheaper than attracting a new one. Now, in the struggle to do more with less, that concept is becoming even more important.
Acquiring a new customer costs about five to seven times as much as maintaining a profitable relationship with an existing customer, says Marc Fleishhacker, managing director at WPP’s Ogilvy Consulting . . .
[Bob’s comment: Wineries and retailers need to focus on their marketing efforts on retaining those 16% of core wine drinkers — the “low hanging fruit” — and not on trying to convert the other 84% into becoming more frequent wine drinkers.]