As humans, we’re evolutionarily engineered to fear change. And for good reason. It often presages hardship in some form, whether social, emotional, physical, or economic. Certainly, we’re all experiencing both fear and hardship in many ways at this moment, even if (and I count myself among the number of extremely fortunate) we’re simply working from home in our pajamas with a well-stocked kitchen and wine cellar. Watching the economic toll the pandemic takes on the entire economy has been heartbreaking, and in particular its effects on the wine business and hospitality industry.
Where the wine industry is concerned, much has been made of the realities that were forced upon 95% of American wineries almost overnight when tasting rooms, restaurants, wine bars, and retailers all closed their doors to the pandemic. To those of us watching from afar, that was a kneecapper. To those in the industry, it seemed a slash across the jugular.
In every major crisis, there is the moment where it is upon us, in which we often freeze in fear. Then there is the moment we react, driven (often by adrenaline-fueled desperation) to compensate for the change. And then there is the moment, where we first have a slight bit of perspective on just what it is we are going through, regardless of whether the crisis itself is over.
For the American wine industry, that first brief moment of perspective may have been yesterday, when Rob McMillan, Executive Vice President and Founder of the Wine Division of Silicon Valley Bank hosted a video conference entitled “State of the Wine Industry – Special Edition.” McMillan is perhaps one of the foremost analysts of the American Wine Industry and his annual State of the Wine Industry report is required reading for anyone interested in American wine. He brought several expert guests along to spend an hour analyzing the first real tranche of data that exists about the actual effects of the pandemic on the industry.
Reports of Our Death Have Been Greatly Exaggerated
The data presented offers a somewhat startling picture that, at least on the surface, suggests that rather than the bottom dropping out of the wine industry as many of us feared, in fact, the wine industry is doing better than it was projected to do before the first news of COVID-19 hit the airwaves.
But let’s unpack that a little before we get too excited. The data presented on this video conference by Danny Brager, Senior Vice President of the Nielsen Group’s Beverage Alcohol Practice came from the scan data collected at grocery stores, chain liquor stores, and other larger retailers who report sales data to Nielsen. That means of course, that unless a winery’s wines are sold in such outlets, they are not included in any report of sales.
And what do those sales data say? That instead of the basically flat (zero) growth projected for American wine sales this year so far, sales are instead up 28% in volume and 31% in value over the past 9 or 10 weeks. Panic buying of wine was a real thing, folks. Of course, ask your average 6ooo-case-production winery in Dry Creek Valley if their sales are up 28% in the last 8 weeks, and you’d be thankful you’re forced to do so from six feet away, lest you get a fist in your facemask.
Succumbing, Surviving, or Thriving in the Pandemic
The fate of smaller wineries in this time of upheaval depends, and will continue to depend on just how digitally savvy they were, or how digitally savvy they are becoming in the face of the new realities being thrust upon us all.
Beyond the shocking increase in wine sales numbers, perhaps the most interesting single slide presented in McMillan’s conference was his analysis of the direct-to-consumer channel mix of smaller winery sales before and after the pandemic thanks to data from VinSuite (an e-commerce provider that powers e-commerce and back-office systems for the wine industry). Or in less business-speak, where and how smaller wineries are managing to sell wine to their customers in this crazy time.
The green box on the left is pre-COVID-19 and the green box on the right is post COVID-19. Pay attention to the size of the blue and purple areas in particular. Blue represents POS (Point-Of-Sale — i.e. Tasting Room), purple represents e-commerce sales and green represents phone sales. What you see is that in the space of two weeks, most wineries dramatically shifted their sales channels to e-commerce, phone, and their wine clubs. That is, those who had the capability to do so.
Here’s another look at the same data, but this time as gathered through a survey conducted by McMillan and Silicon Valley Bank:
The above graphic demonstrates the truly remarkable shift that some wineries were able to make under extreme circumstances.
The Lessons That Need To Be Learned
You see, you can’t shift business to your e-commerce channel unless you have one. You can’t call your customers and sell to them on the phone unless you know who they are. You can’t send promotions and drive sales into your wine club unless you run it with something other than pencil and paper.
During the webinar, McMillan showed this devastating, but not particularly surprising chart:
More than half of the wineries that McMillan spoke with don’t have anyone, even part time, whose job it is to answer the most basic questions about that winery’s customers — who they are, what they care about, when they buy, what they buy, etc.
This pandemic has made concrete the adage of desperate times and the desperate measures that become required. If you can believe it, in desperation, many wineries actually picked up the phone and called their customers (in addition to customers calling them, of course). They knuckled down and (gasp) sent promotional e-mails to their winery club members (and maybe even the thousands of people who were lapsed winery club members). Maybe they gritted their teeth and offered up free shipping on their web site.
And what happened? They drove 50% more sales from their wine clubs. They took phone and e-commerce sales from 3% of their business to 26% of their business. Yes, some of these numbers might represent more of what “happened” to wineries rather than their ability to effectively execute, but the lesson to take from it remains unchanged: many of the things that wineries were forced to do in the pandemic they could have been doing all along.
Which brings me around to the question in the title of this piece. Will wineries learn from this pain and the extremity of today’s circumstances, or not? Here are some (not all) of the crucial lessons that this pandemic has to teach.
You must have a modern, functional, mobile-friendly, e-commerce web site
Selling online is the new normal and is non-negotiable. When customers show up on your web site to buy your wines or join your wine club, they have to be able to do so quickly and easily.
You Must Know Who Your Prospects Are: Get An E-mail From Everyone
You can’t build relationships with people you can’t talk to, and you can’t sell wine to people you can’t reach. For most of the wine industry, the only list of e-mails that seems to matter day-to-day is the list of people who are actively buying wine off their mailing list. That’s because many wineries don’t make an effort to get contact information from different types of customers — those who stop by a tasting room, for instance. Even worse, many wineries have huge lists of customer e-mail addresses that they do nothing with. As if somehow when someone decides to cancel their club membership they can never be contacted again. And these days, it’s not just e-mail addresses. You want phone numbers, too.
You must know who your customers are, what they’ve bought, and how to contact them
A spreadsheet of customer names doesn’t cut it. You need a database that lets you do that voodoo-like thing called CRM, Customer Relationship Management. It’s a pretentious, business-y term, but what it means is keeping track of as much information about your customers as you can so that you can answer questions such as: which customers are most valuable? Which customers are most in danger of going away? Which customers are most likely to buy the latest offer? Which customers are your best advocates?
You Must Actually Build Relationships With Customers
You really find out who your friends are in a crisis. Most wineries have a purely transactional relationship with their customers. They make offers, customers buy, they say thanks, and maybe offer some perks for loyalty. But how many wineries ever communicate to customers without something to sell? How many actually reach out to get to know their customers better beyond their preference for white over red? Very few indeed. Which is why it felt strange as hell to be getting e-mails for the past few weeks from wineries expressing “best wishes for my health and safety in these trying times” along with an offer for free shipping on half cases. Relationships are the currency of today’s world and the basis for building long-term value in any business. For any winery that needs to sell direct-to-consumer they are essential.
You Must TURN Customers INTO Advocates
There’s nothing in the world of marketing with higher ROI than word-of-mouth. Most wineries have scores, even hundreds of loyal fans who can easily, happily be conscripted to spread the word. Amy Hoopes, President of Wente Family Estates, shared an anecdote during the webinar about getting a branded postcard from a friend during her shelter-in-place. It was a postcard that a winery had given to its most loyal customers with the hopes that they’d send it along to friends to connect from a distance. In addition to a pretty picture of the winery, it contained an offer for her to use that friend’s member-only price to try a bottle of wine, and her friend happened to be recommending the Sauvignon Blanc. She bought a couple of bottles, liked it, and bought a case. For the price of a printed postcard and postage, they sold 14 bottles of wine and started a new relationship.
You Must Provide Value
One of the biggest conundrums presented by the pandemic surrounds the idea of lowering prices. What should wineries be willing to do in order to get a sale in the most trying of times? “Don’t discount if you can afford it, you will be much happier on the other side of this pandemic,” suggested Paul Leary, Founder and Principal at Assemblage Consulting Group, during the discussion. Once people have paid $45 for your Cabernet, they are not that excited to pay $55, no matter the circumstance. Yet this crisis is a buyer’s market. Just look at some of the comments on the list of winery DTC deals I posted here on Vinography. Some consumers feel that a single-digit discount simply wasn’t enough, and unfortunately Amazon has ruined us all against paying for shipping. There are no easy formulae for creating a perception of value, but economics teaches us that it is required to make a sale.
You Must Stay On The Dinner Table
“We have an opportunity here that we will never have again in our lifetimes,” said McMillan towards the end of the session. “Our entire country has been forced to have family dinners. And guess what, they want to have wine with it.” Earlier in the session Max Heinemann, Wine & Spirits Client Manager at Nielsen shared statistics showing that for those consumers who have ordered alcohol to go with their takeout meals, 60% have also purchased red wine and 50% have also ordered white wine.
“We’ve established new habits,” continued McMillan, “and guess what? They’re not going to go away. Companies have figured out that working from home works. We’re going to have 2 income families with both people home by 5 PM, without the time required for a commute.”
Those people are going to sit down to a family dinner together with far more regularity than ever before. Our job is to make sure they’re drinking wine.
* * *
It is not, in fact, true that the pair of Chinese characters that make up the word crisis also include the character for opportunity, despite a nearly infinite number of English-language motivational speeches to the contrary.
But even though we fear change, it can still be the best thing for us. Especially if we’re willing to learn from it.
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