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Challenging Times Ahead for US Wine

© i-Stock | New delivery services, new shipping laws and new technology will impact the wine trade for the foreseeable future.
A changing landscape will require a change in approach from the traditional way of selling wine.
By Liza B. Zimmerman | Posted Wednesday, 06-Mar-2019

One word united delegates at a meeting of the US wine industry this week and that word was "challenge".

New York's second annual Vinexpo saw a group of producers, retailers and wholesalers gather to share their perspectives on new trends and challenges for the wine industry. All of the executives said that while 2018 was a good year, it also presented sales challenges because of the erratic economy. They also noted that much change is likely to lie ahead in the years to come.

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The growth of the Direct-to-Consumer (DtC) market, new digital-sales technology, and impending national, and local, legislation were all sited as catalysts for impending change. As more wine purchases occur online there is less impulse purchasing. The number of states that have also recently legalized cannabis was also noted as a concern.

As a result, Rick Tigner, CEO of Jackson Family Wines (JFW), notes that as a result you had better be good at marketing to be competitive in today's wine sales arena. He added that added pressures are being put on the market as the Alcohol and Tobacco Tax and Trade Bureau (TTB) approved 125,000 labels last year so "the cost of getting wine on the market is continuing to go up".

A sparkling pink world

All of the panelists touched on the phenomenal growth of the both rosé and sparkling wine categories. Consumption, of both, used to be seasonal but has now become a year-round theme.

Chris Adams, CEO of the New York City-based Sherry-Lehman Wine & Spirits store shares that the key to driving interest in both categories is providing a range of regional choices across price points.  Tigner says he is a fan of rosé’s long-term longevity on the market.

"There will be entrants who will try to make a nickel, but the stayers will be around." People, he noted, "are drinking rosé all-year round, so we don’t make enough". He added that the love of pink wines is no longer a primarily female-driven trend, noting that there is also a "rosé brosé" movement afoot. 

Sparkling wine consumption is seeing a similar sales expansion. Not only, he noted, as are people drinking it all-year round. The appeal of Prosecco has also driven interest in other sparkling wine categories. "It has cast a great light on Loire, Cavas and domestic sparkling wines," he adds.

The growth of all of the categories, the bulk of which are imports, also poses a threat to domestic wines, which need to up their game. The rise of these two categories, Slater notes, "puts pressure on US producers to be more present in the marketplace".

Above and beyond these two categories' stratospheric growth, customers are still faithful to classic varietals, says Tigner. While consumers may experiment, "they come back to classic varietals". He adds that he sees growth across the boards for the classic West Coast wine growing regions of California, Oregon and Washington.

Generation  innovation

As younger demographics are buying more wine online and many older buyers move to making more of their purchase through the internet and a variety of applications, the story behind each wine brand becomes more important than ever.

Steve Slater, the executive vice president and general manager of Southern Glazers Wine & Spirits (SG) – which has grown from having a presence in three states to 45 since its founding – said that private label brands are of little interest to his company. "Because if those labels don't have a story or a family behind them, they will fade."

He went on to touch on how much the wine industry has changed in the past few years, noting trends like canned wine and alcoholic seltzer. Both of these categories continue to grow in terms of sales and consumer interest. The burgeoning DtC market, which now accounts for 10 percent of total wine sales, has also begun to account for a much greater market share than many wine industry veterans had ever imagined.

Legal cannabis is already impacting the wine industry and that looks set to continue.
© Independent | Legal cannabis is already impacting the wine industry and that looks set to continue.

He added that alcohol-delivery vehicles – such as Drizly and Minibar Delivery – are also making serious inroads into the wine retail business. Smart, home-meal delivery services – such as Hello Fresh – are also looking towards pairing and delivering wines to their customers where possible and legal. "The playing field has changed so quickly."

Part of the evolution in the market includes smaller wineries being purchased by family wineries and big corporations. Recent acquisitions include JFW's acquisition of Penner-Ash Wine Cellars in Oregon and Constellation Brands buying The Prisoner in Napa. He adds that current 80 percent of the 10,000 wineries in the United States produce fewer than 5000 cases of wine annually, making them vulnerable targets.

The market, according to Adams, "is more competitive and less certain than ever". Bill Terlato, CEO of Terlato Wines, concurs with Adams about how swiftly the market is changing, because of demographic shifts and new technology. "The world is getting smaller and tech is changing the landscape," he says. To be good digitally, he adds, "there has to be an educational component to it".

The high road

Most of the panelists – except SG's Slater as the wholesaler whose company has expressed interest in the business – expressed concerns about the expanding cannabis market and what it might do to wine sales. “"As marijuana gets into the industry labor costs have gone up," says Tigner. The cannabis industry used to pay much more on average than the grape growers, but as competition for labor grows on the West Coast after the devastating fires, labor costs are increasing for both industries.

Almost all of the panelists also expressed a need for a way to monitor at what level of cannabis is safe to imbibe and drive. Terlato suggests investing in companies that are working on the technology to monitor safe levels of cannabis consumption. Slater agrees that consumption has to be monitored and that much of the new evidence is coming from Canada, where cannabis is legal nationally.

Changing the legal landscape

The upcoming Tennessee Wine & Spirits Retailers Association v. Blair case that is currently being heard by the Supreme Court is also likely to have a big impact on the wine business. Attorneys for Total Wine & More, a small Tennessee retailer and the state of Tennessee all presented their cases in January and the outcome is expected in June. This is the first wine case to reach the Supreme Court since the landmark Granholm v. Heald ruling in 2005, which opened most of the country to direct shipping. The decision might go focus narrowly on residency permits in the state of Tennessee, or its ultimate outcome might affect how and where retailers all over the country can ship to consumers.

Slater says that while he couldn't predict how it was going to go, if it did open the market to greater retailer interstate shipping, "then all the walls will drop". Terlato concurs: "The route to market is going to continue to change for decades." Ultimately, he shared his hope, that the end market would reflect consumers' needs and that, somewhat surprisingly "a deregulated business won't look that different" than the current one, as all parties will have to continue to bring value to the business.

"We are in for another period of risk, growth and opportunity," added Thomas Matthews, the executive editor of the Wine Spectator, who moderated the panel. While climate change was rarely mentioned during the panel, Tigner says that looking to the future – given the recent spate of fires and climatic disasters – "that we are going to plant a vineyard that lasts 40 years".

Some of the winery attendees had serious feedback about the content of the seminar.

David Bowen, executive vice president at JFW, says that the upcoming years are going to be "transformative in terms of how the consumers are going to interact with the wine category". As a result, the average consumer is going to be more of a decision-maker in terms of the wine selected, as they are no longer picking up bottles off the shelf.

Purchasing wine, he notes, is going to be a lot more like buying a TV, as the purchase process will be linked to instant convenience. Middle Americans, he said, are just beginning to understand the convenience of Amazon. He adds that average family shopping visits used to range in the two plus times a week and have now downsized until an average of 1.5, meaning that impulse buying across categories is indeed on the decrease.

The bottom-line continues to be that wine industry executives are going to have to continue to innovate to stay on top of their game. Technology is here to stay and needs to be well-integrated in every level of the wine business.

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