… ‘The Jeffersons’ … Lyrics by Jeff Barry & Ja’net Dubois
Moving on Up
In a conversation at the recent DBTA symposium at Ferry Plaza, Qupe winegrower Bob Lindquist (and many others) referred to 2009 as “a very tough year.” Well, even if US wine market conditions are still challenging, it seems as though a significant change in the direction in the US wine market has finally occurred, and that the lights in the marketplace have been turned-on. The dynamics of change are complex, and driven by multiple factors, including significant promotional spend and discounting. In addition, this uptick was aided by new wines entering new channels, and new route to market tactics being implemented by winecos who formerly relied on a few traditional channels, such as Tasting Room DTC efforts, and on-premises channel exclusivity. Some of the changes have happened due to innovation, sheer panic, or as a result of the ongoing recognition of wine market trends. But the evidence of a wine bull market is now unmistakeable.
Sometime in mid to late August 2009, an inflection point in the US market had been reached, as domestic wines sales took an upturn in both value and volume. As reported by Rachel Nichols in Wine Business Monthly on January 15, 2010, The Nielsen Company reported that “wine sales for October were up 2.3%” year/year. And in the rolling 52 week report dollar sales were up 3.5%, and for the same period case goods volume was up 1.7%, possibly reflecting higher price point wines entering the US Food & Drug channel tracked by Nielsen, and the concomitant significant promotional across the board spend for this period.
In a November 10th WBM article, Liza B. Zimmerman noted that “retailers, restauranteurs and wholesales” had expressed optimism that wines sales were indeed moving in a positive direction. But the YTD market seemed to be driven by the value segment; and, as noted by Suzanne Gannon in the November 2009 issue of Wines & Vines, by wines in alternative and environmentally friendly alternative packaging, with dynamic growth being shown by wines in Tetra Pak and bag-in-box formats.
The March 2010 Wine Business Monthly Retail Sales Analysis headline on page 56, reads “Retail Wine Sales See 6 Percent Holiday Bump, Signs of Life for $20 Sales,” with sales increasing in value by 6.3% and volume gaining 5.6%, with wine above $20 gaining almost 10% in both value and volume. This represented a dramatic change of events in a market that has been referred to as the toughest in years. A change in the trend line that not even CNBC‘s Jim Cramer or Danny Brager, Vice President of Client Services for The Nielsen Co. had forecasted.
A Sea Change
Consumer and market confidence seem to have returned with sustainable results now, not only possible, but probable for the remainder of 2010. The major sign beyond the US Food & Drug wine sales increase trends tracked by Nielsen, as seen by Think Wine Marketing, was the February 20, 2010 Premiere Napa Valley Barrel-Futures Auction. The Napa Valley Vintners reported that the auction raised $1.9 million, a figure that is a 30% increase over the 2009 results and represents the 3rd best revenue total in the Premiere Napa Valley’s fourteen year history. According to the Napa Vintners, the top-selling lot of the day was from Shafer Vineyards, a five-case offering of Sunspot Vineyard Cabernet Sauvignon sold to Napa-based Winebid.com for $37,000, or $616 a bottle. In response to the winning bid, Doug Shafer, President of Shafer Vineyards remarked that “It was exciting to see the support and enthusiasm for our wine, but it was just as good to sense the cautious optimism in members of the wine trade that things have turned a corner economically.” The sales at the NVV Premiere event marked a sea change in market sentiment by those close to consumers, the wine trade. Gary Fisch of New Jersey’s Gary’s Wines noted that his customers were “starting to drink more premium wines, and they’re calling for us to bring these kind of wines home.” And, JP Richard of Cache Road Liquors in Oklahoma observed that “you can feel that the energy is springing back.”
New Routes to Market
Nielsen trend analysis and auction results alone are not the whole story. A recent Think Wine Marketing survey of wine e-commerce sites revealed vigorous market activity and enviable revenue accretion in 2009. In response to my inquiry Shaun Bishop co-founder and President of wine e-commerce pioneer WineCommune and JJBuckley.com stated that “at JJ Buckley, revenues grew 19% in 2009 vs 2008. We focused on product selection, pricing and service – and customers responded. People are spending, but they want to be smarter about how they spend and are focusing their purchases with retailers they trust. We tried to make it easy for them to save money and get the wines they wanted.”
George Studdert of wine.woot! remarked that “my controller tells me that 4th Qtr numbers aren’t quite in yet, but conservative numbers indicate a 50% increase again this year over last making it three consecutive years of 50% or greater growth. We can also say that we shipped out in excess of 75,000 packages on behalf of wineries direct to the consumer.”
While both of these businesses are wine e-commerce sites, their individual models are significantly differentiated from one another. Of the two businesses, JJ Buckley is the longer standing e-commerce site (as WineCommune founded in 1999) with an established and recurring revenue base offering a dynamic selection of products on a daily basis, while functioning as a virtual bricks & mortar retailer. While wine.woot! is a newer business launching in 2006 offering 3 individual wines per week from selected wineries, allowing the featured winery to interact directly with clients, and functions as a marketing agent for each offer. Interaction seems to be the key to the success of both companies. The idea that relationships with customer and clients is paramount and that customer service is the driver that builds trust and sales. These are but two of the more than 250+ wine e-commerce sites available to US winecos, albeit two of the more successful operators in the space. In the long-tail, fast product cycle wine industry, and in this saturated market JJ Buckley and wine.woot! offer winecos a voice that seems to transform the “noise to signal” (<– term via VinTank’s Paul Mabray).
Wine e-commerce is a solution that many wineries have discovered, and one, that as broadband infrastructure buildout occurs, will become more popular with wine consumers. In the recent survey results of ‘Affluents,’ households with more than $100,000 net income, Ipsos Mendelsohn revealed that 98% of these households have a broadband connection and frequently shop online. However, e-commerce availability doesn’t appear to be the lone motivator, but selection, service and relationship development are the prime movers of purchase behaviors. With a 72% growth in worldwide mobile broadband data bandwidth usage in H2 of 2009, and the announcement by the FCC that “the goal is to bring super-fast broadband to every corner of the U.S. over the next 10 years, giving the country the fastest and most extensive wireless networks of any nation,” the trend of adoption of the wine e-commerce channel by a wide segment of US consumers will tend to accelerate.
The Aspirational Consumer
The idea of aspiration and the American consumer is a long discussed concept by psychologists, organizational sociologists, and economists, and defined as “being ambitious” and/or “desiring success.” And the idea of aspirational consumer behavior as defined in the ‘Business Dictionary‘ is that ”Consumer motives or goals can be represented by the values they hold. Values are people’s broad life goals that symbolize a preferred mode of behaving (e.g., independent, compassionate, honest) or a preferred end-state of being (e.g., sense of accomplishment, love and affection, social recognition). Consumers buy products that will help them achieve desired values; they see product attributes as a means to an end.”
Susan Hader in a MarketingProfs article notes that ‘aspirational consumers – (are) affluent and middle income consumers willing to pay more for high-end goods and services.” Purchasing these brands “provides aspirationals with feelings of success and status.”
Dr. Issac Mostovicz, a consulting academic with insights into drivers of human behavior in practical business situations, reports in the current issue of ‘Janus Thinking’ that he sees that the US is seeing the return of the ‘aspirational consumer.” “Trends happening in places such as Silicon Valley suggest that American’s with expendable income are regaining the confidence to spend it.” This conclusion is based on January 2010 retail sales figures. “The monthly sales numbers offered further indications of returning demand for prestige and luxury goods, with Saks and Neiman Marcus, the luxury fashion department stores, reporting increases of 6.8 per cent and 7 per cent, respectively.”
The Long View
In his article ‘Wine in a Downturn,’ Vic Motto, Chairman, CEO and Co-Founder of Global Wine Partners tracks the wine market through it’s ups & downs from 1973 on. An article worthy of review. Mr. Motto has on several occasions referred to the aspirational American wine consumer. Wondering if this observation has changed, I asked the following:
TWM: You’ve often said that the American wine consumer is aspirational; so, in light of the challenges facing the US wine market in the last year what’s your current view?
VM: “Hit by the shock of the recession, we all feel and are a little poorer, so our spending patterns reflect that. But, we don’t give up. As we recover financially, we always revert to our normal spending patterns. Old habits are hard to break. There are centuries of history that demonstrates this – including the post-recovery of the great depression, which went from the lowest low in U.S. history to the highest high. There are many reasons that premium wine sales will recover, including very important and ongoing long-term drivers of industry growth and premium trends with over 25 years of momentum behind them. But the core reason that premium sales are already beginning to recover is that we humans are aspirational. We always seek to improve our lives and quality of life, and we don’t give up on that – no matter what our status. People really do want quality, and they appreciate the difference. So, I wouldn’t bet against the American consumer, or the U.S. economy. I just don’t think that’s a good bet. The time for hunkering down is passing. It’s a good time to go long. I’m already buying better wine than last year. How about you?”
Insights and Recommendations
The just released qualitative and quantitative research study on today’s American consumer By Ogilvy & Mather Chicago in partnership with consumer insight company Communispace has revealed the emergence of a radically individualistic consumer who is re-imagining a more sustainable future for themselves. This post-recession consumer wants fewer, but still high quality consumables. “We are finding (that) consumers make very interesting trade-offs across seemingly unrelated categories in order to get their lives into balance while still feeling like they are treating themselves to those things that make them feel normal and well taken care of,” As discussed in ‘world tea news,’ the concept of ‘affordable luxury’ seems to be well applied to wine: “It seems that the next big buzz word for consumables is affordable luxury. The trends of consumers trading down their purchases due to the economy while staying at-home to re-connect and enjoy the finer things in life are fueling a new perspective in Americana. Add the fact that consumers are demanding higher quality products, faster without added cost or complexities; affordable luxuries seem to have found the perfect storm in the late 2000’s.” Another key attribute of the new consumer exacerbated by recent economics is the idea of ‘cocooning’ introduced in the 1990’s by trend forecaster/marketing consultant Faith Popcorn. Consumer cocooning is being redefined and actualized by this new consumer, who is eating out less, and socializing more at home, necessitating new route to market strategies by wine companies. The forecast by Ms Popcorn that cocooning would lead to stay at home electronic shopping, has in fact come true. So, as wine marketers, it is our job to identify consumer movement and consumer keys and develop a plan to create commerce.
Please note the following suggested steps to enact as part of your post recession marketing action plan:
Ramp-up your customer service: Pete Blackshaw, EVP of Digital Strategic Services at Nielsen Online, in his 2009 WITS keynote address said it all – “Service is the new marketing. It’s the most important activity.”
Route to market: Consider a diversification of your channel strategy and consider multiple market touchpoints, to include e-commerce. Note that single channel marketing strategies are no longer viable.
Talk to your customers: The idea of customer relationship management (CRM) may have morphed into the concept of “Social CRM.” But regardless of platform, understand that every consumer touchpoint matters. Develop, nurture and build a relationship with each and every customer. Make your customers your clients.
Ask your customers to talk to you: Today with so many ways to connect to your customers via social media (which you should monitor via Cruvee), don’t forget the basics, like the ‘contact us’ button on your web site, the basic 1-800 #, and those one-on-one conversations (remember talking to your customers) that you can have in person. And don’t forget those capture/feedback forms in your tasting rooms or at tasting events. Oh, and hand out a lot of business cards with your contact info.
Reevaluate your promotional spend: According to Olgivy’s Graceann Bennett “The consumer is moving forward, but many marketers are projecting the stresses of the economy in their marketing and are not connecting with the new consumer mindset…” “It’s time for marketers to reflect the new positive self reliance of today’s consumer and to tap into building relationships with more one-on-one marketing efforts” … “it is important for marketers to tread carefully into the discount space, because brands that are associated with deprivation and the recession may conjure up less than positive associations once consumers have a bit more cash to spend.”
Copyright © 2010 Think Wine Marketing Blog® All rights reserved.