I have been hearing about a “slump” in direct wine sales for some wineries in the Napa Valley this past quarter. Since direct wine sales are up nationally, I have been asking our clients questions and have found that direct sales have dipped a bit for wineries of all sizes along the Silverado Trail and parts of Sonoma this past April and May. The big question is WHY? Perhaps wine consumers have more choices than ever to explore wine regions close to home and aren’t making big travel plans during the spring? Perhaps out of area wine buyers are traveling to major wine regions during the summer for their big trip annually? Perhaps wine buyers are becoming more sophisticated with mobile and e-commerce buying tools that have opened access to thousands of real-time wine buying options. We don’t yet know the absolute reason, but can speculate based on the fact that there are now over 8300 tasting rooms in the United States and more options to buy direct wine than any other time in history. NOW is the time for winery teams to dig into data and create more meaningful conversations both in-person in between visits. Before I get ahead of myself with speculations, lets look at some facts.
Before the latest recession, the wine market rose by an average of 3.1% annually for the five-year period from 2003 to 2008, but after solid 3.3% growth in 2011, annual volume gains were well under 1% in each of the next four years hence. Still, consumption has increased by over 70% in the past two decades, despite two recessions in that time span. Sparkling wine is expected to outperform still/table wines and the overall U.S. wine market in 2016 for the eighth consecutive year, with a projected increase of 6% to 18.8 million cases—an all-time high. Looking ahead, the U.S. wine market is projected to continue expanding, reaching over 344 million cases by 2020, for a five-year growth rate of 1.3% annually according to the current edition of The U.S. Wine Market: Shanken’s Impact Databank Review and Forecast.
According to Source: “Wine Pricing…No Longer Sour Grapes?” from RBC Capital Markets, we have also learned that:
- When a consumer chooses to purchase wine that retails for more than $40, they are no longer buying that product as a consumer staple but rather as a lifestyle choice—and the same consumer who is able to afford and willing to pay more than $40 for a product has shown willingness to pay as much as $100 and above given that dynamic.
- Wine category dollar sales have grown 6.2% over the past year according to Nielsen (~300 bps faster than the average CPG category).
- This big trade-up on the high-end has provided room for sub-$10 brands to begin increasing price. And ultimately, pricing will directly result in margin progression.
I am personally seeing a big shift in how wine is being sold through tasting rooms and wine clubs over the past two years. The traditional conversion path from first-time visitor to wine club is no longer working for most winery teams due to the amount of competition we see in every region. On May 12th, I had the opportunity to join Rob McMillan, EVP & Founder, Wine Division at Silicon Valley Bank, for a lively discussion. Carol Reber, Chief Marketing Officer at Duckhorn Wine Company and Cyril Penn, Editor at Wine Business Monthly joined in our discussion around the results from the 2016 Tasting Room Survey. There were 800 respondents to this annual survey and some key take-aways include:
- Revenue from DTC sales now accounts for 60 percent of winery revenue, according to the survey. For wineries making less than 2,500 cases per year, that number is 74 percent
- Wineries saw their club memberships grow at double-digit rates during 2015. Across the country, the average net wine club growth rate was 16 percent
- The average time a typical customer stays in a wine club is about 28 months
- With the highest bottle prices it stands to reason that Napa would account for the largest annual revenue per member at $1,134. The average revenue per member across the country is $548.
- The average wine club member has a lifetime value of $1,280, a figure that reaches $2,587 in Napa
Download the full report in Wine Business Monthly HERE. Watch the recording HERE.