WIne Markets

How Millennials are Changing the Wine Industry

Article from Wine Industry Advisor

While the precise dates governing the birth years for the biggest generation in history known as millennials vary, (somewhere between 1976 and 2004), there is no dispute that they love their wine. The first segment of this group hit legal drinking age in the early 2000s, as U.S. wine consumption surged. It has increased at a steady rate ever since. Millennials are responsible for nearly 27 percent of the total U.S. wine consumption, second only to baby boomers (born between 1946 and 1964) who account for nearly 42 percent.

Approximately 70 million millennials are currently age 21 and account for 30 percent of weekly wine drinkers. As the number of aging, wine-drinking boomers decreases, the millennial generation is stepping in to fill the wine buying slack — and marketers and industry experts can’t help but notice. This generation’s whole approach to wine is vastly different from those who have come before them.

Millennials are the first digital generation, and their technological fluency shapes their buying decisions. They
have grown up with instant, on-demand access to information, price comparisons and peer reviews. They don’t wait for a special occasion to drink wine, nor do they stash wine in a cellar for a decade like their boomer parents. Wine is used to relax, to socialize with friends or family, with or without meals, while cooking, while hiking, during wine tasting parties, and on vacations. A 2011 study of 467 millennials by the Wine Business Institute at Sonoma State University showed that this generation drinks wine as part of their informal, everyday life, and therefore in larger quantities than previous generations. The study suggested that “ by linking into these motivations of socialization, relaxation, and fun regarding wine, marketers will be able to relate better to Millennial desires.”

Millennials are not fans of slick advertising or pretentiousness, and want authenticity and transparency from winemakers. They want to know the unique story behind their wine, how it is grown, blended, and by whom. Critics’ scores and gold medals hold little weight for them; instead they’ll value what their friends are saying about the wine on social media.

These wine lovers are experimental and they crave adventure. Traditional wine and food pairing rules don’t concern them. The per bottle maximum they pay for a celebratory quaff hovers around $20, but the daily drinking comfort zone is closer to $10. Millennials are active and they want their wine to be just as mobile and portable. This marketing shift is a challenge that the wine industry appears to be excited to tackle.

Companies are increasingly allocating more of their marketing dollars to social media advertising, and interactive online marketing strategies. Wineries have created digital marketing divisions and director of social media positions. They maintain active and engaged roles on Facebook, throw Twitter parties, curate wine blogs, and produce tasting videos to keep the wine chat flowing 24/7. Wine apps allow users to shoot a photo of a wine label and immediately access descriptions and ratings, adding their own tasting notes to the database. The Wall Street Journal noted that when it comes to wine apps, “Sometimes it seems as if there are almost as many wine apps as there are wines.”

Millennials value the connectivity and networking benefits of in-person social settings — wine bars and festivals are thriving, and tasting groups are forming. Producers such as Gallo, owner of Barefoot Wines, sponsor face-to-face events, like the World Series of Beach Volleyball. Stephanie Gallo, VP of Marketing, draws her inspiration from Starbucks, “which brought a premium product — gourmet coffee — into the mass market.”

The yearning for authenticity and the desire to know where and how the products they eat and drink are sourced has spilled into wine packaging. Millennials value eco-conscious products, and alternative packaging is evolving to comply. The proliferation of premium-boxed wines that use recyclable materials is illustrative of just that.

The wine company Bota uses soy-based inks printed on recycled, unbleached Kraft paper, bound with cornstarch instead of glue. Many box wine producers use organic grapes from sustainable, fair practice farms in California, Washington and Italy. To quench the millennial thirst for information, producers are including more product information on packaging as well.

Several companies now offer single-serving wine pouches. All this experimentation pays off for wineries because approximately 85 percent of millennials are willing to purchase an unfamiliar brand, according to the Wine Market Council. Just as long as that brand offers them sufficient information, authenticity, convenience, and eco-friendly, portable adventure.

The Core Beliefs of the Delightfully Successful

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Last year I listed some simple daily habits of the delightfully successful. Revisiting that article made me think. Success is based on action, but actions are the result of beliefs – so what do the delightfully successful people I know almost all believe?

1. They believe they don’t have to wait to be “selected.” They can simply select themselves.  Once upon a time most people had to wait: to be accepted, to get funded, to be promoted – to somehow be “discovered.”

Not anymore. Access is nearly unlimited; social media allows you to reach out to almost anyone. (Whether or not you actually connect is up to you and how you craft your approach.) Anyone can publish their own work, distribute their own music, create their own products, and attract their own customers.

You can do almost anything you have the desire and skills and drive to do; you don’t need to wait for someone else to discover your talents. You get to discover yourself. The only thing holding you back is your willingness to take the leap and try.

2. They believe being the first matters less than being the best.

Success is often the result of perseverance. When the first person to the game stops trying, stops striving, or starts compromising their principles and values, the person who relentlessly seeks perfection is the person who wins. Other people may be smarter, better connected, more talented, or better funded. But they can’t win if they stop trying.

Don’t worry about being the first one in. Focus on being the best one still in the game.

3. They believe success seems predictable only in hindsight.

Read all the stories of successful entrepreneurs and it’s easy to think those people have some intangible entrepreneurial something: some talent, or skill, or idea, or level of creativity that you don’t have. (Or maybe they were just born lucky?)

They don’t. Success is never inevitable. It’s easy to look back on an entrepreneurial path to greatness and assume that every vision was clear, every plan was perfect, every step was executed flawlessly, and tremendous success was a foregone conclusion. Incredible success only seems inevitable once incredible success has been achieved.

“You can’t connect the dots looking forward, you can only connect them looking backwards. So you have to trust that the dots will somehow connect in the future.” ~Steve Jobs

Success is never assured. Success is never predestined. If you’re willing to work hard and persevere, who you are is sufficient – because when you work hard and persevere, who you become is definitely more than enough to do something significant.

4. They believe personal success comes from service, not selfishness.

I don’t know anyone who has accomplished something amazing on his or her own. Great leaders focus on providing the tools and training to help their team do their jobs and achieve their goals. Great consultants put their clients’ needs first. Great businesses go out of their way to help and serve their customers by solving for the customer.

And by so doing they also reap the rewards.

Your odds of success are proportional to the number of people that want you to succeed.

When you’re in it only for yourself, initial success is always finite — and fleeting. When you’re in it for others, they succeed – and so do you.

5. They believe in doing a few things no one else is willing to do.

Only do what the crowd does and your career success will be no greater than the average of the crowd.

Every time you do something, think of a few extra things you can do that others aren’t willing to do. A little more research. Another look at something others have ignored. Another shot at salvaging a failed customer relationship. One more call, one more email, one more attempt to connect and build a relationship.

“There are no traffic jams on the extra mile.” ~Zig Ziglar

The best opportunities often lie waiting in fields other people can’t be bothered to cultivate. Find those fields and start cultivating.

6. They believe that the depth of their network is more important than the breadth

The downside of the ease of social media is that building a network can become a numbers game. Few people need numbers. Every person needs real connections: people they can help, people they can trust, people whom they care about and who care about them.
Forget amassing a huge network. Reach out to the people whom you really want to be part of your professional life for a long time.

7. They believe ideas are important… but execution is everything.

Ideas are not a product. There are notebooks, binders and computer files filled with ideas and high level plans that were never implemented.

Have an idea? Great. Craft a strategy. Set up a basic plan to implement it. Then execute, adapt, execute, adapt, and build something useful that wort of works. Success doesn’t come from ideas. Success comes from executing ideas.

8. They believe leadership is earned, not given.

Leaders don’t just bring in venture capital or negotiate a big customer contract. While certainly examples of leadership, those actions typically indicate a kind of leadership that is situational and short-lived.

Real leadership involves people. Real leaders consistently inspire, motivate, and make their employees feel capable and skilled and respected. Real leaders are the kind of people their employees follow not because they have to but because they want to.

How? They make people feel they aren’t following – they’re on a journey together. And that means their team has given them the permission to lead, a permission they’ve earned over time.

9. They believe in paying it forward.

Ever heard a colleague say, “I would be willing to work harder if I got a raise”? Or, “We would do a better job if the customer paid us more”? Or, “I would be willing to make a bigger sacrifice if I knew it would pay off”?

Successful people don’t wait to get a raise; they work hard to earn a raise. Successful businesses don’t wait for higher prices to deliver greater value; they deliver greater value to earn higher prices. Successful entrepreneurs don’t wait for a payoff to give their all to a startup; they give their all so they can earn a decent payoff.

It is common for people expect to be compensated more before they will consider doing more. Successful people see compensation as a reward for exceptional effort, not the driver.

10. They believe they will make their own history. 

Few people summit the Mount Everest of career success. Few people become household names.    But think about the past 20 years. Technologies, industries, and ways of doing business that were once science fiction are now commonplace.

The next 10 to 20 years will be no different. We can all be a part of whatever the next waves might be. We can all make a change in our industries. We can all make a change in our professions.

We can all stand at the forefront of a minor or major change, even if only in our niches or communities. When we’re willing to try something new, someday we will look back with pride on the part we played in history. Someday we will look back in pride on the part we played in making life a little better for others.

And isn’t that the best kind of success? The delightful kind?

Encouraging Workplace Collaboration

Highlight Meaning – From entry-level positions to seasoned managers, employees want to know what they do is meaningful. Meaning in the workplace includes individual purpose and company purpose. Those who are involved in the wine industry have an interest in and passion for wine, which creates a natural basis of meaning for motivation and enjoyment. The key is highlighting this shared meaning between all employees to foster workplace collaboration. Often it is too easy to slip into a state of complacency instead of shared meaning. When the focus is on meaning and purpose, positive work ethics and collaboration naturally fall into place.

Designate and Fluctuate – Not only do employees want to clearly understand their responsibilities, they also often want new experiences and responsibilities in the workplace. Responsibilities are often valued differently by each person, as one employee may think certain tasks are mundane while another may think the same responsibility exhibits trust in them. By learning about different responsibilities, you can balance out these perceptions and create a more expansive type of job awareness.

Create Community – Workplace interaction can reach a plateau, where employees relate to one another as acquaintances rather than as friends. By creating events for the workplace (such as a holiday party or birthday month celebration), you encourage employees to better know one another. When friendships form in the workplace, collaboration, teamwork and empathy naturally increase. From seasonal themes to sports and events themes, there are many options to get employees involved in working on something together.

When Not Everyone Agrees With You

News From Napa…
As I am sure you have all heard and seen the images from Sundays 6.0 quake.  Thank you so much for all the calls and texts, and emails.  We were very lucky – the Benchmark family is safe and intact. We had a few few minor breakages, but overall we are grateful and our hearts and prayers go out to our neighbors and friends who did not fare as well.  

We wish a speedy recovery to our industry friends and families.
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When Not Everyone Agrees With You
The more invested we are in an idea, the more likely we are going to present an idea persuasively. And even if we do present it well, there will likely be some resistance to some or all aspects of it. How we react to resistance is a determining factor in both the growth of our ideas and ourselves.

What is there to do when not everyone agrees with you? You could rejoice at the evident diversity of perspectives, but realistically, you must remember that this is not a personal evaluation. Keep discussions objective and tightly anchored to the original idea.

Perhaps you feel very strongly about something. As situations become more qualitative than measurable, the ultimate redress may be impossible to define. As you may have previously noted, others will have their ideas and beliefs at least as strong from another perspective.  

Perhaps you have taken great pains in presenting an idea. Opening ideas up to questioning allows you to use the knowledge gained from experience and research to further elaborate on the merits of the issue. As you rationally express your points, you will learn more deeply about the subject, as well as increase your general ability to maintain a positive and productive attitude.

When Bad News Happens to Good Leadership

As is most often the case, we prefer to exist in a predictable world, where life functions almost like clockwork and without significant interruptions.  We say we understand that this is not a real possibility, yet we balk at delivering bad news or accepting the reality of adverse situations.  (Why me? Why now? Actually, why ever?)

In the ebb and flow of life (and business) each perspective provides necessary feedback to keep the entities vital.  News can contain some of both positive and negative, and effective leadership can see and convey the promise in the bad as well as the cautions inherent in the good.  Just as physical pain is ultimately a natural safety feature to prevent worse injury, working through bad news can stop an impending problem from becoming potentially worse.

A good leader will recognize and not shy away from difficult situations. Let the buck stop with you.  If you are delivering a message, say it concisely, clearly and compassionately.  If your company is at fault, own the responsibility.  Any specific plan in place to prevent reoccurrence or to compensate for any inconvenience should be addressed in a concise manner.  Then get out of the way, rather than belabor the effect of any negative situations.

When you detect incoming trouble, what is your response?  Are others comfortable sharing information without fearing a negative reaction from you?  Do you respond in a confidence-inspiring manner, whether or not it involves immediately addressing the problem?

Bad news can make for some amazing teachable moments.  A good leader appreciates the opportunity to help solve problems and to show others how to learn and grow from them.

Contact us for current wine industry career opportunities.

Key Factors of Motivation

He who sees things grow from the beginning will have the best view of them. – Aristotle

Is motivation a plan, a state of mind, or an action? Motivation involves several key areas that start in the mind and move forward. First, in order to feel motivated, you need the energy of motivation itself. This energy can be found in the core of being where we find what matters to us.

Motivation for professional success, healthy living, and helping others all relate to one another because motivation increases with each area of life that we put energy into. The beginnings of motivation often relate to ambitions and the desire to accomplish, which is also what helps us maintain high motivation when we face problems and difficulties.

It takes time for motivation to turn into reality, yet through consistent efforts, we become able to actualize what we envision for ourselves. Motivation doesn’t stop when we accomplish one goal or one-hundred goals: it keeps propelling forward, feeding itself toward greater and greater accomplishments that lead to a profound sense of life purpose.

Another way to maintain motivation is to take pride in what you do. Jobs and tasks well done involve enormous attention to detail, awareness of extenuating circumstances, and knowledge. This process of attention, awareness, and knowledge doesn’t stop either: it grows as we grow. If we don’t take time to appreciate when we do a good job, then we in turn lose motivation. Whenever possible, congratulate yourself for the things you have accomplished.

Motivation and success mean little over time unless we care about what we do. In this sense, motivation becomes a way to create meaning in our lives. It involves understanding how and why you care about certain goals and aspects of life. Remember that no one can tell you what anything means to you, as you are always tasked with the responsibility of creating meaning for yourself. Everything you see and do has meaning, and other people only influence you as much as you allow.

The True Meaning of 'Ladies and Gentlemen Taking Care of Ladies and Gentlemen'

The True Meaning of ‘Ladies and Gentlemen Taking Care of Ladies and Gentlemen’

Above the door of any serving area in a Ritz Carlton hotel is a sign that reads, ‘Ladies and gentlemen taking care of ladies and gentlemen.’

We’ve always like that phrase because it is a dignified and courteous reminder that the way we present ourselves to one another matters greatly.

This is never truer than it is in a professional context. It should go without saying that the quality of your work matters, but the way you conduct yourself and the image you project are of great importance, too.

To put it simply, people like to work with other people who are clean, collected, well-mannered and polite. No one wants to work on a project with a coworker who is sloppy, and people will avoid a team member who is mean, spiteful or rude.

Remember — each of us is always on stage. You make have heard the saying, ‘You only get one chance to make a first impression.’ To that, we’d add that it only takes one misstep — one instance of thoughtlessness, one day of poor personal appearance — to undo many days of meticulous upkeep. This is why it’s vital to be consistently courtly and polite.

So, back to that sign on the Ritz Carlton; if you can carry yourself like a lady or gentleman in any work-related context, chances are that you are well on your way to being the sort of worker employers value and coworkers want to be around.

As we all know – in the wine and spirits industry we always want to be that person on and off the stage.

 

Are you Curious?

4 Reasons Why Curiosity is Important and How to Develop It

Curiosity is an important trait of a genius. I don’t think you can find an intellectual giant who is not a curious person. Thomas Edison, Leonardo da Vinci, Albert Einstein, Richard Feynman, they are all curious characters. Richard Feynman was especially known for his adventures which came from his curiosity.

2013 is a new year. A new time for all of us to discover what makes each of us unique and wonderful and how we pull that back into the universe.

In the Wine Industry, curiosity is the mainstay of our existence. Ask any Winemaker, if it wasn’t for curiosity wine would not be what it was is today. With the shrinking of the individual family wineries and the drive to recreate over and over again the same wine flavor profiles we may be losing what makes us special on many levels.  Not allowing ourselves to take the time to allow curiosity and discovery to take over we will lose what makes us special.

When looking at yourself or your team or your company…ask yourself, “Are you curious?”

If you discover that you have been in the weeds and lost your way to curious behavior..I have listed a few ways to take it back.

But why is curiosity so important? Here are four reasons:

  1. It makes your mind active instead of passive Curious people always ask questions and search for answers in their minds. Their minds are always active. Since the mind is like a muscle which becomes stronger through continual exercise, the mental exercise caused by curiosity makes your mind stronger and stronger.
  2. It makes your mind observant of new ideas When you are curious about something, your mind expects and anticipates new ideas related to it. When the ideas come they will soon be recognized. Without curiosity, the ideas may pass right in front of you and yet you miss them because your mind is not prepared to recognize them. Just think, how many great ideas may have lost due to lack of curiosity?
  3. It opens up new worlds and possibilities By being curious you will be able to see new worlds and possibilities which are normally not visible. They are hidden behind the surface of normal life, and it takes a curious mind to look beneath the surface and discover these new worlds and possibilities.
  4. It brings excitement into your life The life of curious people is far from boring. It’s neither dull nor routine. There are always new things that attract their attention, there are always new ‘toys’ to play with. Instead of being bored, curious people have an adventurous life.

Now, knowing the importance of curiosity, here are some tips to develop it:

1. Keep an open mind

This is essential if you are to have a curious mind. Be open to learn, unlearn, and relearn. Some things you know and believe might be wrong, and you should be prepared to accept this possibility and change your mind.

2. Don’t take things as granted

If you just accept the world as it is without trying to dig deeper, you will certainly lose the ‘holy curiosity’. Never take things as granted. Try to dig deeper beneath the surface of what is around you.

3. Ask questions relentlessly

A sure way to dig deeper beneath the surface is asking questions: What is that? Why is it made that way?When was it made? Who invented it? Where does it come from? How does it work? What, why, when, who, where, and how are the best friends of curious people.

4. Don’t label something as boring

Whenever you label something as boring, you close one more door of possibilities. Curious people are unlikely to call something as boring. Instead, they always see it as a door to an exciting new world. Even if they don’t yet have time to explore it, they will leave the door open to be visited another time.

5. See learning as something fun

If you see learning as a burden, there’s no way you will want to dig deeper into anything. That will just make the burden heavier. But if you think of learning as something fun, you will naturally want to dig deeper. So look at life through the glasses of fun and excitement and enjoy the learning process..

6. Read diverse kinds of reading

Don’t spend too much time on just one world; take a look at another worlds. It will introduce you to the possibilities and excitement of the other worlds which may spark your interest to explore them further. One easy way to do this is through reading diverse kinds of reading. Try to pick a book or magazine on a new subject and let it feed your mind with the excitement of a new world.

Ok, now that you have had good read about curiosity, if you are curious about the Benchmark process – please give us call 707 933 1500 or shoot us an email.  We would be delighted to connect with you.

 

The New U.S. Wine Market

The U.S. wine market fell off a cliff in September 2008, and it is still hanging in mid-air.

Far more has changed in this market than the behavior of the American consumer: The companies that distribute and sell the vast majority of wines have dramatically changed the way they do business.

To begin to understand this new market, Stonebridge Research created its Fine Wine Trade Monitor in March 2010, with support from industry groups including Napa Valley Vintners, the Paso Robles Wine Country Alliance and South African Winegrowers, and with help from industry leaders across the country.

From March to June 2010, we conducted telephone conversations of one hour or more with more than 50 top managers in the wine trade: eight distributors, 17 independent wine retailers and 25 full-service restaurants (both chains and independents, including national accounts) in the top wine markets in the United States (New York, Boston, Miami, Atlanta, Washington, D.C., Chicago, Las Vegas/Reno, Dallas, Houston, Seattle, Los Angeles and San Francisco) and several smaller markets.

In each conversation, we asked:

  •  How has your wine market been, over the last 24 months?
  •  How have you adapted your business?
  •  What is selling and what isn’t?
  •  What moves wine in this marketand what doesn’t?
  •  What notable trends have you seen in consumer behavior?
  •  What has been the impact of changes in distributor business?
  •  What can – and should – producers do?
  •  What worries you about the future?In the process, we learned what exactly this new market was and how the trade – wholesale, retail, restaurant – has changed to adapt to the new economy.

BEYOND GROCERY STORE DATA

We know that Americans are still drinking wine. They are just paying less for it. Consumers have changed what they buy, what they are willing to pay for it, and particu- larly, where they buy it – with consequences for everyone in the wine business.

You may have read that not only are retail wine sales rising, so are wine prices at retail. But that is InfoScan data, which is primarily grocery and drug store data, in the states where wine can be sold in those channels. In late 2008 and early 2009, grocery stores closed out – at huge discounts – most of the higher-priced, small-production wines on their shelves. Pretty much everything else has been heavily discounted.

So what does it mean if those prices appear to be increasing? Either that discounts may be some- what smaller or that consumers are taking advantage of better wines being discounted.

So, wine prices are rising…from what?

Are wine prices recovering?

What is really going on out there?

RETAIL

Here are some basics on wine sales. In the “normal” market, before the recession, it would take about three months to move an inventory of wine at retail (described in the trade as a “turn rate” of four times a year). Some lesser-known or more expensive wines might take longer to move. Thus, much of the cost of wine in all parts of the market is the cost of holding inventory. That inventory turn rate for wine has now slipped to once a year: 12 months to move all but the strongest brands and biggest values. This happened at a time when credit was becoming scarce and more expensive.

From the third quarter of 2008 through the spring of 2010, retail wine sales revenue declined 15%- 20% in most parts of the country, while sales volume – the number of bottles sold – rose. Many retailers found they were “working twice as hard for less money.” Wine would only sell with large discounts – 30% being the norm – or a special event. Many retailers cut staff by as much as 20%. “Hand-selling” of wine was an expense few could continue to afford.

Retailers also responded by cutting inventory, by 20% or more. They swapped out wines costing more than $50 for wines under $20. Anything that didn’t move quickly was closed out. Imports were the first to go, then smaller producers, library wines, multiple vineyard-designates, all those “new varietals” – all gone. And if they haven’t seen you lately, you are probably one of the brands they cut.

If it looks like retail shelves became filled with large-volume brands, they were. Risk-averse consumers were reaching for not only less expensive wines, but familiar labels from large producers able to fund the promotional allowances and discounts needed to sell wine.

The only alternative to discounting that seems to work has been special events with winemakers. Vintners’ travel is up 30% or more.

We do a lot of consumer research at Stonebridge. A few years ago, price was a factor in wine purchases – one of several, along with brand, variety, ratings, the occasion when the wine would be served, etc. Wine was, to use a wonderful phrase from Yankelovich Partners’ study for the California Wine Institute in 2005, a “safe adventure” – consumers were excited about trying something new, even dangerous, in wine. Well, that’s over.

Today no one is quite sure what consumers want, other than price. At least at retail, they are not being adventurous. Not that they are being given much of an option, either, because there is less and less adventurous wine on the shelf.

RESTAURANTS

Restaurants have been much more creative in responding to this economy.

The year 2009 was the worst for U.S. restaurants in almost 40 years. Full-service restaurants were the hardest hit, with particular pain coming from the loss of corporate and expense-account business. The average check was down 15%- 20%, but the average wine sale was down 20%-50%. Wine sales were down far more than spirits or beer, which were seen as more economical alcoholic beverages.

Restaurants responded by adapting their menus to allow customers to “manage their spend” through increased choices in more price categories and flexible portion size, prix fixe meals, special offers, food sharing and small plates. And they have adapted their wine lists accordingly.

Customers have been turning toward wine by the glass for several years, but in 2009, the shift was drastic, from bottle purchases to a cocktail, followed by a glass of wine with dinner. Restaurateurs described their new business as “selling more wine to fewer people at lower prices.”

The “sweet spot” for wine bottle sales dropped to the $40-$60 range from $90 or more – and it hasn’t improved. We even began seeing “house wine” again, albeit of better quality than in years past. With wine sales slowing, restaurants began cutting new purchases, cutting lists and selling from inventory. They put the expensive wines on special and when they sold out, they were replenished with wines they could sell for $40 or less.

Inventory levels were cut, long- term, to reduce costs. Individual orders got smaller – cases became six-packs and six-packs became two bottles – to limit inventory exposure.

Restaurants have long expected to be able to re-order regularly, monthly or bimonthly, for their more active wines, which became more important as individual orders dropped in size.

With the wines they do offer, restaurants have taken a different road than retailers. They are looking for “esoteric” imports, new wines, small producers, wines not available at retail. The last thing customers need to see on a restaurant list is a wine they could have bought in the grocery store or (horror of hor- rors!) at Costco at a fraction of the price.

Thanks to creative wine lists and support from energized sommeliers and trained servers, consumers have regained some of their cour- age to experiment with wine, seeking new, affordable alternatives to the more expensive wines they used to order in restaurants. Thus, wine sales on premise have been shifting toward small-production imports: particularly Veneto whites and Rhône reds. Restaurant traffic was revived in much of the country in 2010. Corporate and private dining business is coming back — yet wine lists have not returned to their glory days.

With restaurants and retailers heading in different directions, how do you build a brand today?

DISTRIBUTION

Now we get to the distributors.

Think about it: The whole structure of the three-tier system depends on distributors holding inventory. Inventory costs have multiplied as turn rates collapsed. Restaurants cut their purchases by as much as 50% and many closed. Retailers cut orders. Inventory credit costs rose and conditions tightened.

Starting in late 2008, most dis- tributors started trimming everything that had not moved in 30-60 days. During the past 18 months, there were hundreds of closeouts, if not more, flooding the market at discounts to retailers and res- taurants of up to 80%. Accounts often could not find out where to buy many of their usual wines.

Distributors have since cut 20%-30% of brands from inventory, primarily slower-moving small producers, library wines, new brands and imports.

One sales director described distributors as “triaging” customers, with major national brands at the top and smaller brands on the third level, described as the “if you are lucky, we might return your phone call” customer group.

Distributors have targeted inventory for no more than 30-60 days, even if it means out-of-stocks. They are not holding inventory for mid- season re-orders. Allocations go out once or not at all.

In the long run, long after the consumer starts shopping again, it is these changes in distribution that will have the greatest impact on the U.S. wine market.

WHAT DOES THIS MEAN TO PRODUCERS?

First, few, if any, producers will be able to depend on wholesalers to simply take their production off their hands and find a market for it. This situation has been coming for several years, and producers have largely been in denial.

The most immediate impact is on producer cash flow.

Distributors are decreasing what they are willing to buy, and completely eliminating some brands. In September 2009, wineries began dumping inventory to distributors with discounts as high as 60%, after spending much of the year insisting they could not even moderately adjust the pricing they had built up during the boom years.

The idea was presumably to clear out inventory to enable a healthier market with the new vin- tage, yet the discounts continue.

The expectation that pricing would return to old levels is unlikely to be met. Trade and consumers who purchased wines earlier in the year, at higher prices, felt betrayed, and those brands are likely damaged for the long term with these customers.

Next is the realization that producers are indeed responsible for generating their own demand.

Vintners need to nurture their relationships with their accounts, understand what they can sell and be out in the market to provide the training and support sales.

Independent sales and marketing companies are proliferating, assisting producers who can’t afford a sales force, yet this also adds another layer of costs.

Wine companies are learning they need to manage their distributors, monitor their inventories to avoid out-of-stocks, keep an eye on pricing to avoid closeouts, keep tabs on warehouse situations and check on deliveries.

They must work harder to make sure they get paid, and to ensure their wines are valuable to their distributors.

Finally, it comes down to more rigorously managing the business of wine: building sales planning and inventory management capabilities, and understanding and controlling costs.

Most important is to protect and improve quality while tightening business practices.

There is already concern that wine quality may be compromised as vintners try to protect margins, a counter- productive strategy when consumers are discovering that good wine can be found at every price level.

Cost savings will have to come from improved business, financial and operations management, with retaining and improving wine quality a top priority. Or, in the words of one former large-company executive, “taking money out of process to put into quality.”

What other options are there for producers?

Consumer-direct sales have revived in some regions, making up for some of the lost trade markets. But as ShipCompliant data has shown, consumer-direct is still a small segment of wine sales. Most wine will continue to be sold through retailers and eating-and- drinking establiishments.

Attention is gradually focusing on the opportunities for direct-to- trade sales, through so-called clearing distributors. There is anecdotal evidence of distributors setting up clearing divisions to process three- tier paperwork for a fee, leaving actual sales and physical distribution to wine producers. Many of the new sales and marketing companies and brokers, started by distribution veterans, are developing comparable services.

Restaurateurs report that distributors are proposing to take orders for smaller wines they do not usually stock, if the trade commits to pay in advance and to take immediate delivery, so that no inventory costs are incurred.

I had a conversation several months ago with a friend in the industry who remarked, with a startled expression, that he had just realized that he usually said “supply and demand” and I say “demand and supply.” Perhaps, he suggested, that says something about the industry and the market today.

Sadly, selling wine has always been more difficult than making it. Today, it is definitely what a vintner needs to think about first.

Barbara Insel is president and CEO of Napa-based Stonebridge Research Group LLC, a leading strategic advisory and research firm servicing the wine industry. Insel has led major projects for the French Trade Ministry, Wine Institute, California Association of Winegrape Growers, Napa Val- ley Vintners and many others. To learn more about Stonebridge Fine Wine Trade Monitor, visit www.stonebridgeresearch.com or contact Insel at binsel@stonebridgeresearch.com.