Observations on Wine - Shipping - Compliance
This is neither a retrospective on the wine industry events of 2008 nor a prediction of what will happen in 2009. These are simply my observations on wine, shipping and compliance issues as they currently stand.
Wine Sales Growth
I believe wine sales will continue to grow in the United States despite the economy. They may not grow as rapidly as in the last few years and certainly lower price tiers will benefit at the expense of higher end super-premium wines but overall wine sales will continue to grow. The reasons are pretty straight forward. Relative to Europe and some other parts of the world, not many people in this country drink wine with a meal or on a regular basis. There is still a large untapped market of potential wine consumers. Instead of battling over market share, the battle is still over opening new markets and attracting new consumers.
Shipping Costs Stay Where They Are
I think that despite the recent drop in gas prices, wine shipping costs will not drop substantially. For the initial period when gas prices were rising earlier this year, freight and carrier services were absorbing the increases until prices reached a point when that was no longer economically feasible and fuel surcharges and price increases became necessary. As gas prices go back down these shipping company’s want to get back the money they ate in fuel prices earlier in the year. The slow-down in the economy is reducing freight traffic and the volume of goods moved, which usually leads to higher unit costs. I’m no economist but it seems unreasonable that price cutting will happen anytime soon.
Shipping Compliance Increasingly Important
As I work with it daily, I continue to see shipping compliance as a critical factor to the success of any winery direct marketing program. The movement towards increasing state accessibility to direct shipment to consumers continues. Even hardcore prohibition states like Utah are creating some form of consumer shipping process (while Utah’s model is not truly direct it is a start in the right direction). To continue this push to open more states, wineries must get and stay compliant. Only if states see wineries playing by the rules will they acquiesce and open their borders to direct shipments. And remember, as states become more sophisticated in their knowledge of wine shipping, so do their accountability systems. It will continue to become more difficult to ship outside the rules.
Winery Startups Will Continue To Grow
The bad economy will likely thin out the herd of wineries in the market in the short term as some boutique brands operating in the higher price tiers cannot maintain their operations and some larger brands consolidate to survive. However, overall and in the long-term new winery start-ups will continue to grow. While the market may seem saturated with brands, there are simply too many new wine regions coming online to slow overall growth. The wine business has cachet and that will always attract capital.
Consumer Direct Works
With all the above said, I believe that a marketing campaign oriented towards shipping wine direct to consumers is the best way for boutique wineries to develop a base of loyal fans and sell wine at prices that can sustain their operation. It requires a targeted program using technology to reach consumers on a large scale. It also includes well-thoughtout, selective choices on which markets to target initially and then the long-term. It requires staying compliant to keep those markets open. Even with the increased cost of shipping, the margins derived from selling at retail direct can offset the increased cost and gain access to markets the small winery will never see in the 3-tier distributor model.
Finally, because they are my favorite: cool-climate Syrahs will continue to be the under-appreciated bargain of the wine world.