Grind your gears: the Silicon Valley Bank wine report is out

Wine-Searcher: US Wine Industry in a Tailspin.
https://www.wine-searcher.com/m/2023/01/us-wine-industry-in-a-tailspin

Morningstar: The wine industry’s biggest threat? Irrelevance with younger people.
https://www.morningstar.com/news/marketwatch/202301181205/the-wine-industrys-biggest-threat-irrelevance-with-younger-people

And it’s not really because of the cost, because McMillan points out statistics showing that younger people are driving a thriving trade in other luxury goods.

“Why can’t wine do that? Luxury goods appeal to the younger consumer,” McMillan said. “I think it’s entry points. If you walk into a Hermes store, a younger consumer without a budget, there’s some things they can’t buy. But you can afford a scarf. They have entry points.”

For reference, the cheapest Hermes scarf is about $225. Pictured below:

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I’m sure other people have thought this through further than I have, but I’ve often thought that wine might be the only beverage you need an education - or at least solid information and some experimentation - to drink satisfyingly. That might be the barrier. You can buy the right Hermes scarf on day one.

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There sure are a lot of barriers to entry when it comes to wine. There’s a pretty long history of there being rather humorless gatekeeping and unlike other alcohols, there’s a widely prevalent stereotype of a rude, joyless wine enthusiast - the wine snob.

Comparing it to other luxury goods I think misses the point of what those other luxury goods like fashion, jewelry or watches- they easily confer status on the owner in a variety of ways that wine simply cannot. Maybe if people started carrying their Scarecrow allocations around on bandoliers that would change…

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I agree, but one of his top-level conclusions is that there is no great entry level. Plenty of premium wine brands have entry-level labels and there are great wines at almost every price-point.

I think it’s more a culture thing. Thinking back to my 20s and the social scene, where one usually drinks: restaurants were charging 3x retail (which feels like a huge rip when your already probably pregaming to save money) and the wine selection at your average bar was plonk. Even at a club, where one might show off with a big purchase, a bottle of liquor was better bang for the buck and a known commodity.

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I think there is an amazing opportunity for a CA wine producer to come along, offer a small number of offerings with names that speak to what the wine tastes like (i.e. “Bold” for Cab, “Spice” for Pinot, “Butter” for Chard, “Crisp” for Sauv. Blanc, etc…), that list nutrition information and ingredients on the bottle and sells for $14.99. I’m in my mid 30s, and the problem I see over and over again with my friends is that they are intimidated by wine and its pretentiousness. Wine is natural, lower sugar, and relatively lower calories compared to a lot of other alcohol choices. Keep it simple, make it more approachable, and you’ll sell a lot more of it.

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People want instant gratification a Hermes scarf will give them that. And a bottle of 2020 Chave etc will not ymmv.

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Yeah, there are way more, better and more available entry points into premium wine than Hermes or whatever fashion brands like that.

Though I guess once you buy some Hermes scarf, you have it for a decade, whereas that great $35 Huet Vouvray, Sandlands or Lapierre Morgon is gone in a night.

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Holy cow, a Hermes scarf costs about $500. I’ll take a case of Huet and drink it over a decade.

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I wouldn’t wear a Hermes scarf if you gave me one for free.

Though I do live in coastal Orange County, so scarves don’t get much play around here.

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When we do market today, we are still largely selling “long warm days, cool nights
and special soils.” You know what I mean by that. We spend time talking about the
date of harvest, the pH of the wine, acidity and pick dates. We speak of the owner,
their background and their successes, if not also the family’s history. Some owners
put drone footage of their beautiful properties on their websites to entice visitors.

The first few times you hear the generic “family story” for a winery it’s kind of charming and nice. The 70th time it gets a little old. There’s also not much that distinguishes one estate’s story from another in the vast majority of cases (unless you view “formerly a doctor/techie/lawyer/banker” as differentiating compared to “well-off family farmer”). Large corporate wineries are generally even worse. I think there are better ways to differentiate some of these brands and wineries–one great way to start would be more having more variety in varietals–but maybe this similarity is just a factor of having 200,000+ different wine brands in the US that the article mentions.

What we are doing in the premium industry is selling white-linen hospitality and
gracious living, with a nod to the lifestyles of the rich and famous in many cases —
information that’s interesting to wine geeks and consumers over 60 but probably
not to the vast majority of potential customers. That message is at best wasted on
a younger crowd; at worst, it’s turning them off, as the data demonstrates.

I really don’t like the “lifestyles of the rich and famous” aspect of wine. Maybe that appeals to some customers, especially at the premium end, but I prefer a simpler, more direct form of interaction both in tastings and in marketing materials/information on websites. I love hearing the stories of the winemakers and how they put out a product connected to that piece of soil, not how exclusive their allocations/club tiers are (if your website lists “acquire” I already know I am not your target audience), how luxurious their tasting room/experience is, or how connected they are to wealth in some way. I don’t think that portraying wine as a luxury class symbol is going to be a winning argument for gaining market share among Millennials and especially Gen Z

The education challenge I don’t think is a bad thing necessarily. It’s been something that I’ve found intriguing and fascinating when done right and it seems in general that a lot of people are curious to learn more about wine (one key is to strike the right balance between being informative and approachable; André Mack’s YouTube videos are excellent on this front). The problem with getting an education is opportunity and price. One can buy dozens of different craft beers to sample from $3 to 6 a bottle or $7 to 10 a glass (or get a flight for $12 at the brewery) while that kind of opportunity to taste a lot of wine cheaply is considerably more difficult. As the article notes, “consumer trial is the acid test, and it’s one place where the wine industry is lacking.”

Perhaps more pessimistically, you can “use” a Hermes scarf or another luxury accessory on your own all the time. If you want to impress with or just share a bottle of wine, you need to have friends and have an in-person meeting with them. A decline in in-person socialization seems like it would tie into a decline in interest in wine compared to other displays of luxury (or even types of drinks) that work better alone.

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The SVB presentation and report is on course with past years, as the trends continue - great insights by Rob McM and team (by far the best in the biz, IMHO). The issues are complex…and often misleading. Everyone is touting the increase in “premiumization” (move to higher pricepoint vino), but I think much of that is smoke/mirrors. In reality, the younger crowd (<40) continue to buy more and more alt bevs (seltzers, etc.) as well as spirits, and thus further abandon the lower-end wines. So the overall average price points move up - by default vs by choice. Few wineries make wine fun…or accessible in easy ways. Therein lies the opportunity…some are doing it well - Scribe has the visit game down, as do some others. Butter does a helluva job marketing (aka BottleRock branding) that invites younger folks to enjoy the fun of the music scene. After that, I don’t know many others that are really moving in a positive direction from a branding and experience POV. We all have to remember that wine is a consumer product, not a unique category.

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Young people do not see the point in parties anymore: they would rather just Zoom. The only place they seem to come together is at cafes, but then they are interacting more with their mobile devices than with each other. It is a fickle, networked generation, with not much live interaction. I do not see how they would ever get together to share a bottle of wine unless it were sitting at separate tables in a hip wine bar serving the usual bio and orange wines, making them feel special for discovering these alternative beverages. Far more interesting to me is the non-alcoholic wine sector as a growth area. Did Silicon Valley Bank wine report talk about this?

I agree with you in that real, strong demand needs to transcend quality differences. That rabid demand is only generated because of outsized appeal relative to supply and that only comes from 1) marketing and 2) value.

Marketing is clear. How to market isn’t. To get past the education point (I disagree you need education to be sold on wine) you need the right influencer. There is a reason Cristal sold a ton of Champagne when Jay Z told everyone he was drinking it. If someone with millions of followers started talking about their love of xyz wine it would sell out.

Value is what I think people miss. As Chris said, you need an opportunity to get your moneys worth. Wine is gone in an hour or less so somehow you need to generate a lot of value for that moment of consumption. How? You need to be able to show it off before you drink it and after. For those drinking high-end Burgs etc, the instagram before/after, the stories and the use as essentially NFTs gaining you entry to parties provide the added value. This only works for the highest end brands (Hermes is in a class of less than 5 brands that are at its level), so sure DRC, Leroy, Rousseau, Roumier, CLB. That’s the equivalent. They are more allocated than Birkins and I wish the entry level was more accessible.

NB: young people are not buying and wearing Hermes scarfs. They are buying them and wrapping them around the handles of a Birkin. If they buy something entry point at Hermes, it’s the signature sandal or a signature bracelet (as Robert reminded, the H belt is another). All are obvious to the onlooker the person is wearing Hermes (tied scarf is much stodgier and less Hermes clear to the casual passerby)

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Phuck the scarf, the belt is where it is at!

See them all over now.

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Yes the H belt and Gucci GG belts come in and out of fashion. Again, another clear signal regarded as a staple item of the wealthy. Just like Dom/Krug are considered the standard champagne symbol.

The market for many luxury goods are fairly very concentrated, well structured and easily understandable. The Swiss luxury watch market is a mere 20 billion per year (less so than the Apple generates with its watch). Everybody knows the three hot brands (Rolex, AP, Patek) and the top 15 brands stand for 80% of the market.

The world of wine is much more fragmented, less easily to understand. Yes, there are a few big names and brands too but there are is so much more to choose from. Wanna venture out into the luxury wine market? Which of the 200 brands with above 100 USD Napa Cabs should I choose from (oh and don’t forget the all the other >100 USD Cabs from Bordeaux, Italy, Australia,… and that’s just Cab)? The only region that works very well with Gen Z is Champagne, but why? Probably because the big houses make 90% of the export and just the 6 biggest houses stand for 2/3+ of the revenues. Again fairly concentrated and easily to understand. This makes branding/marketing so much easier.

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How about fox stoles?

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I have turned tons of younger people on to German wine through my rieslingstudy events. If I think about why I would guess it has to do with the following:

  • I try to keep the events affordable
  • I intentionally have novices and long-time collectors
  • They are not stuffy
  • Music is an integral part
  • I promote them on social media
  • You can buy a great bottle of riesling for $20-25
  • Once the younger generation does some research and realizes the historical importance of these wines they want to know more and get hooked
  • Easy to start a collection with German wines

I could go on…I think there are some valuable lessons here.

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I do think smaller, affordable events focused on a region and/or varietal are helpful. I wonder if the wine industry can do more to support local wine shops – not just supporting more tasting events, but helping them market their business. There’s a nice wine shop in Indy that has an OK social media presence. They have a few big tasting events on rotation; the last one in November focused on Beaujolais. I see plenty of hipsters at these events.

The bigger brands are finding other ways to get the word out. While I am far from the TikTok generation, I just started seeing Youtube ads from Barefoot, featuring Patrick Warburton. The gist was that wine can be popped and poured to enjoy during the big game, without deep thoughts or analysis. This is the first wine ad I recall.