Home Wine Business Editorial Expert Editorial Five Months In – What We Have Learned

Five Months In – What We Have Learned

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By Joe Rance, BottleNeck Solutions

Expert EditorialThe COVID-19 pandemics effect on the market is essentially five months old now and we have some clearer data and patterns to use to make better decisions. It feels a lot longer than that as I write it. While fragmented by many factors and exceptions to be found we know that people are still drinking as they always have through all major economic and social events. The “where” and “what” are the usual moving targets. The data is readily available so I will avoid regurgitation of statistics. What I’d like to do is share are some nuggets of advice, intelligence and predictions I’ve heard from trusted sources close to the issues. While I am reluctant to take part in prognostications in such a unique time there is logic to these ideas and potential changing norms. 

Thoughtful Moves by Many

The wine business is a well-known laggard in marketing and driving brand awareness. The current situation has forced the adoption of new tactics, virtual and otherwise. Many were quick to react and embraced the need to own their destiny more than before.  The self-determinate moves many have made now should stay a part of the playbook moving forward. If you don’t have it in-house, a great digital marketing and PR company should be brought in.  Distributors are the first to say that they need producers to take control of their brand building efforts. With traditional account and consumer interactions removed, Distributors are fulfillment companies more than ever right now.  Producer brand building needs to remain a primary focus from now on. Our clients have taken the time to not only virtually engage with the trade and consumers more and in unique ways but have also homed in on the messaging and points of difference they can own. They worked on developing a compelling case as to why anyone should care about what they make and why they should make a purchase. As I have stated before, people don’t “need” your product. To a healthy consumer, alcohol still falls in the “want” category. Show them why they should want to buy your product over a competitors equally good product for the same price. If you are lazily reacting with deep discounts you will have a tough time clawing your way back to the price you need to stay open. Understand and own that your decisions now will have long term impact. 

Building Luxury Wines in the Off-Premise? 

Many producers quickly saw that with the on-premise closing they needed to open channels they were not traditionally selling to. Retailers are getting “allocations” of prize wines they never saw in the past. Some are taking advantage of this and, as one CA distributor stated, others are reluctant to partner too much with some of these producers because they believe once on-premise opens back up the “partnerships” will dry up. Reasons producers decide they will not sell to retail are varied but usually include.

  • Production constraints. They do not feel they make enough to support retail as well 
  • They have a traditional position that brands are built in high-profile restaurants 
  • If you want to drink their wine at home, you need to sign up for their club or buy DTC so higher margins
  • If wines are available in retail, there may be a scarcity optic they don’t want 
  • It’s illegal to set pricing in retail. If the wine does not sell it could go on sale to move through inventory or your brand is used as a loss leader to drive traffic to retailers and e-tailers.
  • Sometimes it is as shallow as “that is not the type of account we want to be associated with”

As stated before, people drink good wines at home and the more successful producers will be the ones that allow their consumers to buy wine where they want to buy it and that may not be through your or any critics favorite restaurants, DTC or a Club. They may want to try it tonight, or they may not want the commitment of regular annual purchases. I believe if the retail price is right and people will buy your wine via retail or e-tail, why not sell to them? 

Another interesting prediction for some of these producers that are now available in retail is that consumers now know what the retail vs. on-premise pricing discrepancy can be on these wines. Many restaurants may not be able to markup to a traditional 2.5-3x versus a 25-30% retail margin. That is not good news for restaurants, but we all must adapt. 

Distributors have stated that regardless of price point the most established brands are doing the best right now. Meaning the brands consumers know and trust most. Consumers will gamble less with their money, so they go with what they know and what is available. If you have focused too much on playing the scarcity game you will be hard to find, never tasted and unknown. Not a great strategy in these new times. I will spend about ten minutes looking for a wine to buy that may come up on my radar for whatever reason. If I can’t find it or its difficult to get my hands on, I move on. Plenty to choose from. 

I believe producers should continue to engage with retailers they may have not in the past. This should be more than just getting the placement. Partner with the accounts to utilize their methods to reach your target consumer. It is a chance to add value to their program and set yourself apart on brand building activities. We must learn and adapt from our experiences and now is a serious learning moment. Also, what does it say about producers that want to partner when times are tough and leave when its all good? It seems a bit too transactional.

Distributors and New Brands

If you are experiencing the double blow of decreased winery traffic (a trend that started before this mess) and no meaningful distribution you are sadly in a tough spot. In 2009 there were almost 6,400 US wineries. Today that number is closer to 10,800. Distributor consolidation on the other has brought the number of wholesaler options from about 3000 to 1200. Not good odds for the average unestablished producer. Wholesalers have been inundated by producers looking for distribution. Most have put a complete halt on new brands and may only talk to producers with a proven track record and not too precious of a model that is sales inhibitive. 

The approach of many producers in establishing new distributor partners is too focused on the wine. That sounds crazy but making good wine these days is frankly just and assumed part of the equation. Many producers send samples to distributors and hope they try them and give them a call back so they can engage on their selling points. If you looked at a distributor managers office, they are crammed with samples of unrepresented producers. We recommend the opposite approach. Develop a compelling reason why a distributor and consumers should care, then send in samples once you engage a distributor. Send a unique presentation that outlines your specific points of difference and reason for being. Most importantly is to provide a roadmap on how you will deliver value to their portfolio. Value is not just dollars made but the ease in making those dollars. If you show you have a roadmap to your mutual success that involves a commercial sales strategy, market value potential, programming, sales support, an activation calendar, accolades. Those are the elements most distributors care about. They don’t need more good wine. With wine sales essentially flat your goal is to prove why they should support your brand over another lesser engaged producer without a roadmap.    

Now is also the time to be cautious of new partnerships with distributors that are very on-premise and specialty products focused that can be easily replaced by a more stable distributor. They sadly may have cash flow problems because they will be the last to get paid were legal or accounts may choose to adjust their program to focus on distributors with products they need. Some smaller distributors I have talked to just need suppliers to provide deep deals to help with the cash flow issues. This will be a problem down the road for producers that took this approach. You are better off waiting to see who survives if you can. 

Conclusion

We need to be cautious of “might”, “may”, “could”, type claims of what the business will look like moving forward. Use them as data points to inform a well-rounded outlook that plans for many situations. Too much reliance on the noise can cause major confusion and feelings of hopelessness. We do know people will continue to imbibe wine and spirits. We do know that we need to be flexible in our approach. We need to be thoughtful in how we deliver our unique value message and remember who the audience is. Distributors are in the business of selling a product. We need to support that while taking more ownership of our futures. This business is not easy or cheap so if you thought that just making great wine is the key, you are likely now aware that that is just the start.

Expert Editorial
Joe RanceBy Joe Rance, BottleNeck Solutions

Joe Rance is a Principal at Bottleneck Solutions. The team at Bottleneck Solutions has a combined 40+ years of experience in the wine and spirts industry working for companies like Beam Global, Treasury, Diagio, Terlato and Huneeus Vintners. They specialize in managing the wholesale network for producers as well as advisors in developing a wholesale sales strategy for producers looking for better control of their business. Joe has a BS in Music Industry Studies from The University of Colorado and holds a WSET Advanced Certificate.

 
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1 COMMENT

  1. Great article. I agree 100% and appreciate the analysis and the tidy presentation of strategies.

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