By Elizabeth Hans McCrone
We’re all familiar with the saying that “when the going gets tough, the tough get going,” but for an industry that was turned on its head this last year by the ravages of Covid-19, the better adage might be “adapt or die.”
That’s at least according to Stephen Rannekleiv, the Beverages Global Strategist for RaboResearch under the Food and Agribusiness arm of Rabobank, the Dutch multinational banking and financial institution headquartered in Utrecht, Netherlands.
Rannekleiv, who has been focused on the wine industry for the last 15 years, studied market trends and performance throughout the unprecedented events of 2020.
He notes that while the shocking decline of on-premise wine and other alcohol beverage sales spelled disaster for some companies, others saw their numbers shoot through the roof and are reporting one of their best years ever.
“It definitely shifted power into the hands of larger retailers,” Rannekleiv observes, “But this isn’t just about big versus little; it’s about fast versus slow.”
Rannekleiv refers to not just the dominance of larger companies that can more easily make up lost revenue from bars, restaurants and tasting rooms through increased online sales, but rather the ability of any business to build what he calls “resiliency into their corporate culture.”
“Some people said ‘let’s just sit back and wait for things to come back to normal,’” Rannekleiv points out, “ but others came up with creative ideas, email campaigns, getting on the phone, reaching out to customers … Companies have to get faster. Those that did were able to thrive.”
Rannekleiv’s premise is well illustrated in the October 2020 edition of the Rabobank’s Wine Quarterly newsletter that featured the revamping of Vina Concha y Toro (VCT), a Chilean wine distributor.
According to the article, VCT had always done well with its value wine portfolio, but strategists within the company realized that unless it retooled its offerings to appeal to the more premium marketplace, it could soon see a decline in market shares.
To accommodate the shift, VCT focused on two key areas for change: cost reduction and a commercial strategy overhaul.
Reportedly, the cost savings component allowed VCT to both improve profitability and free up funds to strengthen its commercial strategy.
The article states that the commercial overhaul to “premiumize” involved a complete shift in focus of its brands as well as its route to market strategy. The result was a smaller, more focused portfolio and a “rejuvenated sales and marketing force that appears more aligned to drive profitable growth.”
Apparently, it worked. VCT reported a 16.5 percent growth in revenue during the second quarter of 2020, which was well into the “quarantine peak” measure in many markets. Significantly, the report noted outsize growth of their key, premium brands.
“There’s a whole different mindset that goes with marketing premium wines,” Rannekleiv asserts. “Some people are able to adapt and get on board with new directions. Others who are not buying in can create a distraction … to let go of people who don’t want or can’t change can be difficult.”
But, he says, despite such difficulty, businesses need to be willing to make the tough decisions, to understand the marketplace and to continually ask themselves; “what do I have to offer? What skill sets do I have? What do I need to do to go on to survive and thrive?”
Rannekleiv believes that one of the key resiliency-building opportunities wine retailers have going into 2021 is centered within the restaurant industry where growth during the Covid-era has been driven by takeout and delivery.
As Rannekleiv notes, “no one is ordering wine with their cheeseburger,” yet people still may want to enjoy a drink with dinner if there were ample legal and convenient ways to do it.
“We need to be thinking about on-premise being a smaller share of the overall market and also tap into the takeout and delivery occasion. The market is changing. How does wine play into that? How do we adapt to it? Or, do we lose the occasion?”
Rannekleiv admits that the loss of on-premise activity in 2020 has hit the wine industry hard. He said when consumers shop for groceries in brick and mortar facilities, alcohol has historically been about 5 percent of their basket. Once that shifts to online purchases, the amount of alcohol drops to .7 percent.
He does see the beginnings of a shift in marketplace strategy with many restaurant retailers ramping up efforts to include alcohol sales with their offerings.
“This is the issue,” Rannekleiv insists. “You have to make sure restaurants understand how much they’re missing by not offering alcohol. How do you create something that makes sense in a takeout? Where does wine fit in? Those are the challenges. That’s what we need to do to adapt.”
Rannekleiv counsels all companies, large and small, to “listen to the market.” He emphasizes that the market conditions are always changing and that there’s no room for complacency in response.
“If you can’t adapt, you won’t survive,” he warns. “No one has a God-given right to succeed. Those not willing to adapt will fall by the wayside. That’s the way it’s always been.”
Read more Bold Predictions from industry experts.