Thoughts On The 2017 SVB Wine Report

Vinted on January 25, 2017 binned in commentary, wine industry events
SVB 2017 Wine Report

(image: svb.com)

Each year, Silicon Valley Bank (SVB) releases their predictions for the U.S. wine biz for the coming year, and every year I have my (typically snarky) commentary on the report (which, I should add, I usually find to be insightful – the report, I mean, not necessarily my snarky commentary).

The SVB report is Northern-California-heavy, which makes sense, given their clientele. It often makes also contains predictions that one might generously call “favorably perceived” by that clientele; in the 2017 report, for example, we’re told that Millenial consumers will move from imbibing blends into imbibing varietal wines, and will also pay more for the privilege. Which probably has a lot of perennially under-compensated Millenial wine lovers saying, “ok, sure, with what, the money I make by selling my f*cking blood?!??”

What I want to focus on for 2017, however, are two aspects emphasized in the SVB report, one of which the U.S. wine biz seems to be on board with (albeit a bit late), and another with which the U.S. wine biz seems to be, well, not so on board…

First, the good news: the power of Direct to Consumer (DTC) sales seems have gotten through the figurative skulls of America’s wine industry.

Unsurprisingly, the smaller the production, the more likely the winery/brand is to leverage DTC as a sales tool, given that consolidation within the country’s alcohol distribution tier has made cracking into the traditional sales channels more difficult. The empowering thing, as long-time 1WD readers will already have heard ad nauseum, is that engaging the consumers most likely to spend the bucks DTC-wise has never been easier.

SVB2017DTC

(image” svb.com)

I’m really happy to see this, and to see that smaller producers are increasingly leveraging online the sales king fu that they already have honed at with visitors at the cellar door.

Now, it wouldn’t be a 1WD commentary without tuf-luv style bad news, and so here it is – the wine biz probably isn’t well-poised to engage the next batch of consumers that they will need to woo if they want to remain solvent: my generation, the oft-unrecognized GenX-ers. According to the 2017 SVB report, “the Gen X cohort will surpass the baby boomers around 2021 to become the largest fine wine consumer demographic in the United States.”

Here are the numbers, starting with current trends, and then extrapolating that out to 2035:

SVBGenx12017

(image: svb.com)

 

SVBGenx22017

(image: svb.com)

U.S. fine wine sales, particularly in the premium tiers, is still an old (and probably mostly male… and maybe mostly white) game, at least as far as target marketing goes. But the shift needs to happen, and the phasing of marketing dollars to GenX consumers needs to be underway, lest some fine wine brands eventually find themselves without a cash-cow consumer base that pays the majority of the bills.

They’ve got their work cut out for them, too; the GenX generation has been largely ignored so long in marketing that we often don’t even know what to do with marketing attention when we do get it. Not only that, but even GenX-ers themselves don’t really know what defines our generation, so we have trouble articulating it in terms that marketers are used to using successfully with Baby Boomers.

In other words… best of luck, wine industry peeps! We’re pulling for you, but we probably won’t be of much help to you…

Cheers!

17

 

 

    Comments

  • Bob Henry


    “Unsurprisingly, the smaller the production, the more likely the winery/brand is to leverage DTC as a sales tool, given that consolidation within the country’s alcohol distribution tier has made cracking into the traditional sales channels more difficult. ”

    Evidence?

    “West Coast Wineries Are Up for Sale — Quietly”

    (A wave of recent deals show investors see opportunities in wine, while owners see an exit strategy.)

    Link: http://www.winespectator.com/webfeature/show/id/49221#.UoI_yAMMzG8

    Excerpt:

    “… While small wineries can succeed by selling most of their inventory direct to consumers and large producers have muscle with wholesalers, those in the middle — annual production of 5,000 to 15,000 cases, for example — can’t get much attention from distributors unless the brand is hot.”

    • 1WineDude


      Bob, are you requesting evidence, or offering it? Because I’d argue that your link supports my interpretation.

      • Bob Henry


        Offering evidence here that small producers have to take their fate into their own hands, and forge additional channels of distribution. Such as DTC.

  • Bob Henry


    ” the wine biz probably isn’t well-poised to engage the next batch of consumers that they will need to woo if they want to remain solvent: my generation, the oft-unrecognized Gen X-ers.”

    Joe,

    Gen X-ers are demographic cohorts in their early/mid-30s to mid-50s.

    Gen X-ers consume mainstream paid advertising-supported media (newspapers, magazines, broadcast and cable TV shows, national and local terrestrial radio shows, satellite radio shows) just like Baby Boomers do.

    (Gen X-ers might be more inclined to read it online instead of in print. More inclined to view TV shows archived on a DVR or downloaded for binge viewing instead of live.)

    Gen X-ers commute to work on the same major roads and highways (festooned with outdoor ads) as Baby Boomers do.

    And in five years around 2021 when Gen X-ers surpass the Baby Boomers in numbers, they will have lifestyles largely indistinguishable from Baby Boomers at that respective stage of their life.

    We call it “mid-life.”

    Joe, what winery marketing communications [*] and promotional efforts inaugurated decades ago targeting Baby Boomers (and continuing today) aren’t concurrently reaching you as a Gen X-er consuming mainstream media?

    What winery marketing communications and promotional efforts — not yet adopted — should be to reach you as a Gen X-er?

    ~~ Bob

    [*Only the very largest wineries have sufficiently large sales revenues to support paid media advertising budgets.

    And this year one imported wine brand — Yellow Tail — is spending in excess of $5 million to run a single 30-second ad on 80% of the local broadcast TV stations carrying the Super Bowl.

    The first wine ad airing during that sporting event in 40 years.

    Source: http://www.adweek.com/news/advertising-branding/yellow-tail-first-wine-brand-air-super-bowl-ad-40-years-175774%5D

    • Bob Henry


      The embedded link in my comment above isn’t working. Let me proffer this one:

      http://www.adweek.com/news/advertising-branding/yellow-tail-first-wine-brand-air-super-bowl-ad-40-years-175774

    • 1WineDude


      “Gen X-ers consume mainstream paid advertising-supported media (newspapers, magazines, broadcast and cable TV shows, national and local terrestrial radio shows, satellite radio shows) just like Baby Boomers do.”

      Will they use similar media? Yes. Will they respond to the same methods used within those media exactly the same way that previous generations did? No.

      • Bob Henry


        “What winery marketing communications and promotional efforts — not yet adopted — should be to reach you as a Gen X-er?”

        So elaborate: how does communicating with a Gex X-er aged 45 differ from communicating with a Baby Boomer aged 55?

        Has does eliciting a wine purchase differ between the two?

        I assert those individuals are indistinguishable as wine consumers. That “Gen X” and “Baby Boomer” are easy label artificial constructs by marketers.

        That 45 year old and that 55 year old are both living a “mid-life” lifestyle: with maybe a spouse/life partner, house mortgage, maybe kids (maybe kids about to enter or in college), still advancing their careers, and saving for retirement.

        • Bob Henry


          (Aside: how many wineries even know your age? List you in their Customer Relationship Management system — assuming they even have one — by demographic age group?)

          A better segmentation tactic is to sort you by visitor activity. Sort you by purchase activity.

          Those who come to the tasting room have voted with their feet to learn more about you.

          Those who place a second purchase order have voted with their wallet and embraced your product.

          Those are the folks to concentrate your DTC efforts on.

          They are already converts to your product. “Low hanging fruit” customers that need to be retained.

          Excerpt from The Wall Street Journal “Marketplace” Section
          (November 26, 2008, Page B6):

          “Marketers Reach Out to Loyal Customers”

          Link: http://online.wsj.com/article/SB122766322705958805.html

          By Emily Steel
          Staff Reporter

          It’s an adage of the business: Persuading a satisfied customer to return is cheaper than attracting a new one. Now, in the struggle to do more with less, that concept is becoming even more important.

          Acquiring a new customer costs about five to seven times as much as maintaining a profitable relationship with an existing customer, says Marc Fleishhacker, managing director at WPP’s Ogilvy Consulting . . .

          • 1WineDude


            Bob, I don’t disagree, but I think it is something that has to go deeper. I will probably not respond to the same cultural references to which a Baby Boomer responds, nor in the exact same way, for example.

            • Bob Henry


              A marketer cannot “buy” paid media advertising that largely or even exclusively targets Gen X-ers.

              That is too narrow a demographic.

              Media vehicles that deliver Gen X-ers concurrently deliver Baby Boomer and even some Millennials. (Think of it like the overlap in a Venn diagram of three circles: Gen X-ers, Baby Boomers, Millennials.)

              Excerpt from MediaPost
              (December 8, 2016):

              “40% Of Alcohol Beverage Buyers Make Their Decisions In-Store”

              Link: http://www.mediapost.com/publications/article/290633/40-of-alcohol-beverage-buyers-make-their-decision.html?edition=98740

              Fully 40% of U.S. consumers who buy alcoholic beverages haven’t decided what they’re going to purchase when they walk into the store, according to a new study from IRI.

              Of the 60% who do have a planned beverage purchase, 21% end up changing their minds in store, and 50% of those who change their minds ultimately buy a different brand than they originally intended.

              On average, Millennials, Gen Xers and Baby Boomers who are liquor purchasers buy liquor in a physical store 55 to 56 times per year — meaning, of course, that they’re making at least one, and sometimes more than one, in-store purchase per week. (Seniors buy liquor at retail 35 times per year, on average.)

              All generations drink regularly both at home and at bars or restaurants, but at-home frequency is higher. On average, between 66% and 76% of consumers report drinking at home at least once a week. Millennials are at the low end of that range, followed by Gen X (70%), Boomers (75%) and Seniors (76%). In comparison, 23% to 26% report drinking on-premise at least once a week (26% among both Millennials and Boomers, 24% among Gen X, 23% among Seniors).

              All of which points to “immense” opportunities for alcohol manufacturers to find new pockets of growth by engaging and influencing consumers while they’re in the store, point out IRI’s analysts.

              Beer, wine and spirits manufacturers are increasingly aware of the importance of working with retailers to win over consumers, according to Robert I. Tomei, president of consumer and shopper marketing for IRI. “When you consider how often most shoppers are going to the store, and that 21% of them change their minds during the shopping trip, you realize the impact that in-store signage, creative labeling and other marketing could have on your portfolio,” he stresses.

              UNDER-MARKETING TO BOOMERS, GEN X: BIG MISTAKE

              While it’s important for manufacturers to develop a strong, sustainable connection with Millennials, many liquor manufacturers are walking away from enormous shares of consumer dollars by under-marketing to Boomers and Gen Xers, stresses the report.

              Millennials’ share of liquor sales is increasing as they come of age, but Boomers are responsible for a disproportionate proportion of overall cross-category dollar sales, and nearly 50% of category volume.

              Boomers represent 33% of the U.S. population (nearly as large as the Millennial generation), and 45% of overall beer, wine and spirits dollar sales, 46% of wine sales, and 41% of sparkling wine sales. They are more likely than Millennials and Gen Xers to drink once a week or more at home, and they account for 42% of overall wine category growth.

              Beer, wine and spirits companies should also pay attention to Gen Xers, whose preferences, values and tastes are similar to those of Millennials, according to IRI. Gen Xers account for 21% of the U.S. population, and for a sizable 20% of total beer, wine and spirits dollar sales.

              . . .

              • 1WineDude


                “A marketer cannot “buy” paid media advertising that largely or even exclusively targets Gen X-ers.”

                -I am not sure that is the case, Bob. My understanding is that this is possible in digital channels. Not only that, but the content of such ads are what would be the thing about them that would be targeted to appeal to different age brackets.

              • Bob Henry


                “Beer, wine and spirits companies should also pay attention to Gen Xers, whose preferences, values and tastes are similar to those of Millennials, according to IRI.”

                There is a big gap in lifestyle between a 35 year old and a 50 year old.

                And yet each is considered a Gen X-er.

                The 35 year old Gen X-er’s “preferences, values and tastes are similar to those of Millenials.”

                Whereas a 50 year old’ Gen X-er’s “preferences, values and tastes” are similar to a Baby Boomers.

                (Which is “why” these demographic labels are artificial constructs.)

              • Bob Henry


                A question:

                How does a marketer know your age? Know you are a Gen X-er versus a Baby Boomer?

                An assertion:

                A marketing communications message delivered in a digital channel cannot “move the needle” on sales the way other media can — and do.

                Cannot equal the sales volume generated through retail store placements.

                Selling through digital channels is akin to The Long Tail.

                And The Long Tail has been discredited through research by Harvard Business School professor Anita Elberse:

                From The Wall Street Journal “Marketplace” Section
                (July 2, 2008, Page Unknown):

                “Study Refutes Niché [Long Tail] Theory Spawned by Web”

                Link: http://online.wsj.com/article/SB121493784638920147.html

                By Lee Gomes
                “Portals” Column

              • 1WineDude


                Some info. on that level of targeting – https://hbr.org/2015/11/how-marketers-can-personalize-at-scale

  • Bob Henry


    Read the HBR piece.

    It cites “anonymous website visitors” and the difficulty of data discovery:

    “Given the complexity of coaxing meaning from a wide range of data, companies tend to limit the data they use, generally focusing on the data that’s easiest to get.”

    If you as a consumer don’t self-disclose your age (data that is not easy to get), then online marketers don’t necessarily know whether you are a Gen X-er or a Baby Boomer.

    The only online marketer I can recall that insisted on asking for my age as a condition for doing business with them was Google — which captured my full birth date when I opened up a Gmail account. (Data that may support their ad targeting system.)

    I have never been asked for my birth date by Amazon. Never by eBay.

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