The Silicon Valley Bank (SVB) State of the Wine Industry Report for 2019 is out, and making headlines. While there’s a lot of information in it and some rich analysis, we thought we’d “dive a little deeper” into those sections that specifically address DTC wine sales and, subsequently, wine shipping and logistics.
The main takeaway we see is this: Wine is a luxury good where the consumer experience counts just as much as a quality product. And while we’ve known this for a while, the claim is now being borne out in the market, in a variety of ways. So, wineries who pay attention to the experience of their wine—especially the experience in the eCommerce stores and DTC wine deliveries—will win an important edge.
(The report also spent a lot of space discussing the changes in buying behavior happening as Millennials become a larger part of the market. That’s a big topic, and so it deserves it’s own post. We’ll address marketing to millennials, and not forgetting about Generation X, in subsequent blog posts.)
The Wine Equation: Value = Quality + Experience
One thing we’ve been hearing about a lot in the past year is the experience of wine. So we weren’t too surprised to find this section further on in the report:
“The current DTC model is a reaction to losing out on three-tier representation as the wholesale tier consolidated starting in the late 1990s. The enhanced tactics and strategies that have evolved in the tasting room and wine club over the past decade have allowed the family wine business to survive and thrive, but that strategy has always been limiting.
“The basic philosophy under which the tasting room and club models are executed is a reflection of a point of view we shared more than a decade ago: We aren’t selling chemicals in a bottle. We are selling value, and for a luxury good like wine, that is defined as perceived quality plus experience, divided by price, where “experience” is a placeholder for things like the shopping experience, the consuming experience, an experience enhanced by a venue or sound, the way your box of wine looks when you receive it from UPS, your online experience, every interaction at the winery, the way owning or consuming the product makes you feel about yourself and much more.” (Emphasis ours.)
Indeed, the idea of “experience” goes well beyond the tasting room. For example:
- It applies to the experience of opening a wine delivery. (See our Opening More Than an Order: Unpacking the Brand Experience or the longer white paper, How to Heighten the Experience of Opening a Wine Shipment.)
- It applies to the way you communicate with your wine club members. (See our report From Wine Club Promotion to Wine Club Experience: Lessons from Subscription Services.)
- It applies to customer interactions on your website and/or ecommerce store. (See our expert series interview with Andrew Kamphuis, president of Commerce7.)
Also, Experience = Opportunity
There’s still a lot of opportunity to bring a rich experience of wine to new consumers and loyal customers alike. Smaller wineries who do this sooner are bound to have a competitive edge.
For example, the report calls this out when it comes to restaurants:
“Family wineries aren’t engaging with the new restaurants and bars that are doubling down on experience. Wine is being outpaced by spirits sales and mixologists who are entertaining their patrons, while the wine business is still stuck on producing a product.”
What goes for restaurants is true of DTC as well. People are looking for what’s new and what’s cool; a subscription model that has an element of fun and a clear plan for reaching consumers is needed in order to stand out in the market. Again, from the report:
“The reality is that nobody has the formula for selling wine to a consumer who has never tasted or heard of your brand…solutions will evolve with new and transformed service providers and consultants, and with wineries that experiment and fail quickly, using different techniques (print, digital, phone, etc.) to connect with remote consumers.”
We are already beginning to see this change with expanded eCommerce offerings in the wine space. This might be the wave of the future, as tasting room visits are down and more consumers are exploring online. The report is very pointed here:
“DTC sales make up 61 percent of the average family winery’s revenue today, and almost all of that growth is dependent on a consumer first visiting the winery’s tasting room…[But] tasting room visitation in the regions of Napa and Sonoma has trended downward for the past five years…
“While great strides continue to be made to elevate the club and tasting room channel with metrics and training — and that should continue — consider this critical question: In an increasingly digital world, what industry would insist that its consumers first come to its place of business to buy its wares? That is what wineries insist upon today with the tasting room and club models. But now growth even in that important channel is also showing fatigue.”
Logistics and Shipping?
Of course, the elephant in the room is the sea-changes that are happening when it comes to logistics and shipping. For example:
- An ongoing labor shortage is driving up prices and lengthening shipping times.
- At the same time, the Amazon effect is creating expectations in consumers of shorter delivery times and better shipment tracking.
- DTC wine shipping laws are undergoing changes in many states, some of which are DTC friendly and some of which are not.
We discuss these and other trends in our eBook, which is worth checking out as you plan for 2019 and beyond. Those who are looking for new ways to break the traditional tasting room/wine club model would do well to take note of these challenges and find ways around them. Those that do, will be able to create a truly novel (and lucrative) wine experience.
If you’re ready to do some of this planning in person, or if you simply want to discuss your own observations, let us know.
The Copper Peak Team