Long Pour: the 2015 SVB Wine Report

Long Pour: the 2015 SVB Wine Report

I spent some quality time with the Silicon Valley Bank report and the video release. This is one of those reports that requires a ton of work by Rob McMillan and his team. Even though many of the conclusions might seem obvious in hindsight, these conclusions are much more valuable when backed up with data.

I watched the presentation of the report with Paul Mabray, Glenn Proctor, Amy Hoopes, and Rob McMillan. They make some interesting points – here were my favorites:

  • Glenn seemed a little skeptical of the report’s predictions for high growth rates for $20+ wines in 2015. The logic for the SVB prediction is solid — growing economy, lower costs for consumers driven by lower oil costs, more disposable income, better quality imports because of currency advantages. I think the question is whether the people who have traded down in the past five years are trading back up or the report expects new entrants to the high price category. Glenn also talked about the high volume of bulk wine available, which will drive down pricing and potentially give more quality to the wines under $20. He called out the possibility of a small crop in the future on top of fewer vineyards in California — that could lead to an interesting situation in future years.
  • Paul called out his strong viewpoint that there are a lot of wineries that are not investing in their direct business. While the obvious impact is their lower ROI in DTC sales, the less obvious impact is they aren’t engaging and learning from their customers.
  • Amy called out the growing number of suppliers that are unhappy with their distributors. It would be interesting to find out why — is it related to perceived attention, payment issues, investment in their brands? Or are they more focused on craft beer and craft spirits? She later called out the importance of thinking about these non-wine competitors when developing the message for your brand.
  • They called out the impact of social apps like Vivino in enabling consumers to get their wine recommendations from each other. If wineries aren’t watching these conversations, they aren’t learning. Then, in contrast, the regulations around wine tourism are making it harder for wineries to engage with customers.

 

Here were the findings that they called out in SVB’s overview of the report:

  • We expect to see the third consecutive harvest of heavy yield across most appellations.
  • Sales growth finished strong in 2014 and we are predicting a breakout year of growth in fine wine category -14%-18% ranges in 2015.
  • While a large supply of wines in cellars could mean depressed pricing, 2015 will be a year of both volume and price increases in the fine wine segment.
  • Wines priced below $7 a bottle performed poorly both on and off premise in 2014. This poor performance is expected to continue in 2015.

 

Everyone should read this report, but watching the video is even better.

Daily Swill for February 4

Daily Swill for February 4

It was a slower news day. Just a couple worth calling out:

For the first time in 165 years, San Francisco didn’t get any rain in January. A little scary. Even after plentiful rain in December, this probably has wineries nervous. There is wine in the forecast for this weekend, so that will help a little. The risk is in earlier bud break, lower fruit set, and less water for frost protection.

Accolade and Grant Burge completed their transaction. Grant Burge is a top-notch brand so Accolade is doubling down on Australia and betting on the higher end of the market. They must believe that there is potential for growth in the $15+ Aussie market.

There is a chance that the cork alternative where they chop up cork and glue it back together contains a carcinogen. FDA may be looking into it. No evidence that any specific micro-agglo corks are violating FDA rules but based on the number of bottles out there using these closures, it could be a major story.

Daily Swill for February 3

Daily Swill for February 3

The Wagner Family wants to build a winery on a bucolic stretch of land. While this type of news seems to come out at least weekly, the interesting part to me is that the Wagner Family is definitely in serious growth mode. Considering the buzz and heat around the Meiomi brand, that isn’t surprising.

Is there a correlation between the drought and wine pricing? The CEO of Naked Wines thinks so. Considering they a fair amount of bulk wine, I am inclined to believe him. That said, I think the drought will impact the 2014 vintage and I am guessing that the true economic impact hasn’t been felt in the bulk wine market (maybe in the bulk grape market?) I did just receive an offer from a high-end winery indicating that their vineyard yields were lower partially due to the drought. It will be interesting to watch the impact if we have a long-term drought because it will have a larger impact on plantings and vineyard management.

Utah… oh Utah, one day you will embrace the sinners that provide revenue to your state budget. If you ask producers that do business in all 50 states, they will likely say Utah is the hardest state to do business with. It is too bad because there are wine consumers that want to buy wine and it is a robust economy.

Is now the time for consolidation in the wine industry? This M&A advisor (self-interest?) thinks the UK drinks business is ready for consolidation. The analysis says that ~15% of beverage businesses are having financial issues. My question would be, isn’t that normal for this industry?

CA wine industry calls out British Columbia on its new grocery wine-selling laws. If you read the laws in more detail, it is just a win for the BC wine producers, not the wine industry as a whole. That said, even if CA wines were allowed on the grocery shelves, they would not do as well as they do in other markets because of the onerous import tariffs. Protectionism.

Strike and Techtel shares the results of the TTB’s 2014 review. What I found interesting is that the rate of non-compliance appeared to be lowest for wine. I wonder if that is based on higher tax consequences in liquor/beer or some other reason.

The Distilled Spirits Council put out a press release highlighting its growth. Surprises: they are taking share from beer even with the growth of craft beer. Not surprises: whiskey is driving the growth.

Chinese investors own 100+ chateaux in Bordeaux. What is interesting: most of the wine is going back to specific areas of China. Much like the Chinese domestic wine production, it sounds like the distribution and retail game is regionalized.

Daily swill: February 2

Daily swill: February 2

This is my first post which I will hopefully be able update regularly. The idea is to comment on the top few wine industry articles each day or two.

Restaurants’ business is up and they are optimistic — this is one of those news articles that is good for confirmation but should not surprise most readers. The economy is doing well so people eat out more frequently. I wonder if companies like Grubhub also contribute to this.

Mobile wine apps are impacting consumers’ behavior — after meeting with Heini from Vivino last week, I wasn’t surprised by this. Consumers are using apps to influence the wine purchases they make offline. But it is worth everyone in the industry taking note. Apps like Vivino, Delectable, and Hello Vino are extending their reach beyond wine geeks and industry folks. Cellartracker is perhaps my favorite wine technology in the past 10 years, but it never jumped the gap into the average consumer like the wine apps are doing.

This is just comedy — apparently this Napa Valley County supervisor is hoping to pull a Mark Sanford. But I can’t blame them for wanting to create a relationship with Mendoza.

The debate over whether states should privatize liquor stores has moved to Alabama. The author of this editorial works for the state ABC so he clearly has an agenda and is using statistics to press his point-of-view. It would be great to see a neutral perspective on what has happened in WA state.

Big time winemaker has to pay for negative environmental impact. Unfortunately, it won’t stop the project. Ego is a pretty powerful force.

This article highlights the weakening price on US wine exports, but I was intrigued by the comment that Chinese visitors are now responsible for the second most tourists to California. I was also surprised that EU exports were up more than any other region — considering the struggles in many of the individual economies, I expected Asian countries to be the fastest growers.

In non-wine news, Krave Jerky got bought by Hershey. I love jerky. While I was never a big fan of Krave, I was impressed with their marketing. Good for them in getting paid for their work. It is important to note that these transactions are far more common in food than wine, probably because they are economically better models for profit?