Road ahead for wine business
Here’s a highlight from a panel discussion with North Coast business, law and financial experts during the Business Journal’s 20th annual Wine Industry Conference.
Participating on the “State of the Industry” panel were Lee Ann Pearce, manager of Food & Agribusiness Advisors, Wells Fargo Commercial Banking; Katherine Phillippakis, partner, Farella Braun + Martel LLP; Bill Vyenielo, senior business consultant, Moss Adams; and Mario Zepponi, principal, Zepponi & Company. This has been edited for length and clarity.
Where are we headed in the next six to 12 months?
Mario Zepponi: There's a lot of crowded wine portfolios that wine companies have, whether they're big or small. And I think that you're going to see, we call it in the industry SKU (stock-keeping unit) rationalization. What it basically means is eliminating product lines and simplifying it. … It's not just because of the distractions. It is because of all the consolidation that's been going on with wholesalers and the retailers.
And then now you couple it with this complete pressure where you have a breakdown in sales channels. And I think it's going to lead to wineries' wanting to be much more efficient in terms of looking at their winning brands and their losing brands and phasing out their losing brands to make it so they have more attention focused on where they're making money.
… To the extent that you're in the three-tier system, you need to invest in those partnerships, see how your distributors are doing, your retailers are doing. Sometimes, you have limited ability to make any change, but just the fact that you're engaging with them is critically important, because you're saying, "You matter to me." And typically, what comes around goes around.
The other thing that I would add is I think that when Constellation (Brands) made the investment in Empathy Wines, you would have thought that this was a multibillion-dollar acquisition. … Empathy Wines was a direct-to-consumer platform. They did about 15,000 cases a year. But what it represented to (Constellation) is that they need to figure out how to engage with the consumer outside of the traditional three-tier channel.
I think you're going to see that there's going to be a lot more interest in direct-to-consumer brands, as well as direct-to-consumer platforms. Because what you basically have is a situation right now where you cannot engage the way you comfortably did in the past with the consumer. So how does your brand survive in the marketplace? And if you don't have a social media platform or strategy, if you don't have a wine club that operates separate from a tasting room — all these different things — then you're going to be vulnerable.
What Constellation did was the shot that was heard around the wine industry. You're going to see a lot of people now double back and figure out, "How do I do it? Do I build it? Do I buy it? Do I do both?"
Bill Vyenielo: We are seeing a shift from how do we get through the rest of the year to a mindset that's how do we get through 2021 and into 2022. Opportunities are that we're seeing people are going to continue to consume wine, just in different locations. Home meals. We know that more wines being consumed in outdoor activities, so we're seeing some opportunities through innovations in packaging.
Canned wines, for example, the smallest category in the industry but one of the fastest growing. So if it's safe to be outdoors in an area that's socially distanced, canned wines fit that bill. We're also seeing boxed-wine sales increase pretty dramatically. That's a view of value wines selling to people being at home. … And I've been reading where some wineries in the upper-priced wine categories are starting to box their wines ….
We are seeing prices softening on the grape sales side as well as on the wine sales side, but the availability of high-quality grapes is on the increase. We're seeing a lessening of the excess inventory that did start with the 2018 vintage, so I think wineries are in a little better position to inventory. But it all I think means that you're going to see greater opportunities for consumers to have greater value, greater quality of wine, greater value on pricing. …
(W)e're seeing some opportunities where winery owners or just business owners in general are looking at some decreased valuations of assets. They're taking an opportunity to look at succession planning, perhaps making a transition or transfer of assets from their current operation to the next generation. There's estate planning that's related to that, and we're seeing a big uptick in that. …