The Highest Return on Your Time Invested

Each year I get to write a State of the Industry report that's pretty well received in the wine business. Its even used as part of the curriculum in several U.S. Colleges and Universities which my mom thinks is really cool. She thinks I should be given an honorary PhD by one of the Universities but I haven't been able to donate enough money to a place of higher learning so as to receive that kind of recognition. Der Weinerschnitzel is considering offering me a fellowship, but thats still in early discussions.

Anyway ... this year we will be releasing the 2014 Annual Wine Industry Report in January. Before I can write the report, there's a lot of research that has to be done. That process starts with the Annual Wine Conditions Survey. The survey gets us very interesting observations such as the chart to the left that shows Millennials really don't move the needle on fine wine purchases, but Gen X'ers do. 

Or how about the one one at the top of this piece that showed the wineries themselves thought that they could take some small price increases during this past year. Of course that doesn't mean prices would increase because its just the additive opinion of over 450 wineries, and in fact we predicted price increases would be hard to come by in 2013, and they were. What it does tell you is the market participants intentions, and that has to be a factor in considering predictions. 

I would like to ask your winery to participate in the 2014 Wine Conditions Survey. It takes less than 10 minutes. The survey opened last Friday and was sent to 5,000 wineries throughout the US with very good initial participation thus far. There are just 15 survey questions, 4 of which are identifiers such as the region where you produce wine. The remaining 11 core survey questions are geared at understanding vintners' challenges in the present operating environment. We condense the results and those comments then return results, charts, and detail in a non-identifiable manner so winery owners and operators can get a better feeling for what your peers see.  To get a better sense of what you get for your participation, here is a link to what we delivered last year: [LINK]. 

Many of the AVA's encourage their memberships to participate since they receive their own gratis bench marking reports. You might see an email in the next few days from your own association so don't think we are spamming you. If you are on the mailing list, you will get one 'last chance reminder' from us and that's it. We never add people to mailing lists, and never use the survey as a tool for marketing.

 

While the survey is a Nationwide one, our East Coast brethren and sistern in the business haven't been quite as active as I'd like, so this year we are reaching out to some new AVA's particularly in NY and VA and hoping for a better sample from which we can deliver better regional bench marking. If you are able to help your AVA along those lines, we would appreciate it if you directed them my way.

The 2014 survey will be open through the end of business Friday, November 8th. If you would like to participate this year and receive the free results, you can do so by starting here: [LINK]

If you would like to permanently add your winery to the list for the survey and our State of the Industry publication that follows, please email me at rmcmillan@svb.com.

Feel free to offer any other thoughts you might have in the comments section which follows.

Millennials Aren't All That

Louis B Shrimperton III "LB3"

I have a large degree of respect for Tom Wark's dog Louis B. Shrimperton III. "LB3" as he likes to be called, serves as Tom's sounding board when Tom writes his daily blog and he's also a Millennial with a distinctive opinion. Having descended from the Flying Nun as you can clearly see by the above resemblance, he's able to give Tom a high-level perspective on things.

On rare occasions Tom writes an interesting blog and he did so this last week writing "Unsubstantiated: Millennials, Wine & the Meme." Tom addresses a pet peeve of mine when reporters and writers repeat equine excrement in what I've referred to as the Millennial Myths. That's the notion that Millennials are driving the wine business. Here's one quote from a newspaper article I cited in a recent blog I penned:

"the U.S. ranks third in total wine consumption, and is gaining rapidly on the leaders. Much of the (3.3% ~ 850,000 case) increase can be attributed to the Millennial generation"

The problem with this quote and an unending string of others ..... they just aren't real or helpful in describing wine business opportunity.

Here's reality:

• The Millennial Generation even today, represents only around 15% of total wine consumption.
• Millennials are drinking inexpensive wine.
• Millennials may or may not be any different than the generations in front of them when it comes to wine drinking.
• Millennials aren't in their prime spending years and have no wealth or earnings.

Large wine company's selling cheap wine should be marketing to Millennials. Fine wine producers will need to cater to them when they are 35-55 years old and in their prime spending years; not because they are Millennials. The reason to market to them will be because they want and can afford fine wine.

Really something gets lost in the discussion of cohorts: They aren't measured by when they were born. The number of years of each cohort vary by as much as 100%. The cohorts are defined and measured by factors demographers apply over different era's and time periods that "they" think link a generation. Gen X'ers for example are a 10 year cohort while Millennials are about a 20 year cohort. Boomers were a huge birth bubble but Millennials ..... they aren't all that. As a percentage of the population, they are vin ordinaire

The following animated gif courtesy of Calculated Risk demonstrates this important point.

Age Shifts in US Population

Starting in 1950, the chart shows how the US population has evolved. You can see how the wave of Boomers has dominated the US population and how that wave has swept through the decades. They hit those those prime spending years of 35-55 in the 1990's - which not coincidentally was the same time the consumption of wine really took off. 

What about Millennials? Where is that wave? Well ..... there is no wave. We are moving to a period which will have the over 70 age group as the largest, and the rest of the population pretty well disbursed evenly. The Boomers were every marketers best case scenario when that happened. The Millennials wont be. That's just a fact, not an opinion.

Where should the US Wine Business be marketing? Its a pretty easy answer: To whoever will buy their wine. Its not the 70+ cohort because they will consume less even if they can afford it. Its not the Millennials because they can't afford it. Its the Boomers and the forgotten Gen X.

I've been encouraged by recent remarks from the Wine Market Council who is altering their historic evangelical pro-Millennial message:

"Lets get the Industry to focus on high-frequency wine drinkers." (Consumers who are responsible for more than 90% of all high-end wine sales and 40% of all 750ml wine purchases between $10-$20.)

"While Millennials are increasingly important customers, when one looks at the total dollars spent on wine, it's still heavily skewed toward Boomers.... If one is concerned about dollars, Baby Boomers perhaps shouldn't be excluded from one's marketing efforts."

Its a double negative, but I think the Wine Market Council is saying Boomers should be included in one's marketing efforts. That's progress but the argument I've held for years now is the Gen X'ers are the ones being left out of the conversation and yet, they represent the second largest demographic consuming wine today. So what about marketing to Millennials? I suggest you wait until they might have the willingness and capacity to buy the product you produce. I've checked back with LB3 and he tell's me from a high-level, I have an excellent view of the landscape of Millennials. I would have talked a little longer to him, but he just took off.

What do you think? Please log in and offer your opinion and by all means, please share this on your favorite social media platform.

Experiment or Die

Stupid mistakes and do-overs. Come on. Admit it. You've made your share. I made a similar mistake to the lumberjack in the above video. Trying to save a couple hundred bucks by not hiring a professional, I cut a tree limb away from my sliding glass door. Cutting straight down with a chain saw the limb cracked and held together by the fibrous bark. Like a hinge it pivoted down, perfectly connecting with the glass door below shattering it to pieces. It cost me $1,200 to replace the door and I've never made the same mistake since.

How does your organization treat failure? Are mistakes something that end up in performance reviews, or brought up later in a conversation when a point is being made? Failure is a component of learning and innovation. Do you have a philosophy surrounding failure in your business culture? Are there written values that talk about the process of innovation?

We have a lot of experienced people at Silicon Valley Bank and a long culture of innovation. Those people have had the most opportunity to make mistakes so you can argue are the biggest failures. After 30 years since our founding, the bank has been trying various things to celebrate the milestone. One thing we're doing is offering 30 weekly pearls of wisdom from people who've been here the longest. This week marked my 24th year at the organization and coincidentally my quote was the one shared this week.

The World According to Rob

The way I see the world, there are tactical failures and strategic failures. On the strategic side of things you have to be able to try old things in new ways, or discover brand new solutions. Why? Because the world and business is evolving every day. In fact I think the wine business is operating under something of a Moores Law and the pace of change is redoubling at an exponential rate. Are you keeping pace?

Weapons of Mass Culture Destruction

So many business cultures are full of doubt. "What? That's a crazy idea. That will never work..." Ever hear that one? I can't tell you how many times someone, in response to a new idea asks me: "Who has ever done that before?" as if we have to have someone else as a template before trying something new. If that is your culture, you will never be an industry leader. You will never be first to market and have a first-mover advantage. Sure there is a risk in failing, but if you judge people by their failures, then they are failures. Judge instead by their successes. If you really want to judge by failures and you are a hiring manager, then you better look in the mirror because you hired them making you the real failure. Apparently you would rather hire lemmings who don't take risk versus hiring people who are willing to try and fail.  

If you aren't allowing people to experiment and fail to evolve the business, you will die because your competitors will blaze by you. You might also look at management because there is potentially an issue of managers asserting control instead of allowing employees to use their God-given talents to succeed in the manner in which they will be the most successful.

But they are always making mistakes!!

Sometimes the best answer is the simple one

It's not the volume of mistakes made. Its learning and improving from the mistakes that really is important. If someone can't learn, then maybe they aren't in the right job. But if you hide daily mistakes, I guarantee the mistakes will continue, particularly in tactics and daily execution.

I worked in an organization years ago that had a fear of failure. In fact I remember being told by a senior person, "The first rule of banking is: Blame someone else." Making mistakes in that culture was a certain way to have a short career. Guess what? Few people have long careers there unless they get really good at deflecting blame and playing politics. The culture sucks. What happens in that environment? Mistakes get buried. You never can help people grow because all mistakes are magnified, they show up on your performance evaluation, and client care suffers because you can't address hidden issues. Failure happens still. It just goes underground and everyone walks around talking about what an awesome job they are doing because its a mistake-free environment.

Celebrate Failure !!

My view is you have to develop a culture that celebrates failure because failure is a key component to success. You have to have values embedded in the business culture that reward and encourage those who try and fail. Failure is a form of tuition. You paid the tuition so you might as well harvest the learning and evolve. If you lack business values that protect this critical success element, your company is already dying. 

Here are some other thoughts to consider in your winery business culture:

• Does your culture have the puritan ethic to punish failures?
• Do old mistakes get brought up in passive-aggressive ways? "Oh boy. That sure didn't work out .... haha."
• Are those who naturally have ideas given a platform for you to harvest their thoughts?
• Do those who question process get an open opportunity to voice their solutions without fearing political backlash from others supporting or running a business process?
• Do your managers use ideas that come from others and then give credit where credit is due? or ... Do they take the credit themselves for ideas?
• Do managers ignore other's ideas and only implement their own to elevate themselves?
• How do you know you have a culture that has a wide funnel to hear new ideas? Are you only talking to managers?
• Do you have a stated business perspective regarding innovation and failure, or is it left unsaid because "everyone gets it?"
• Are successful ideas given lavish attention? Or are successes no different that any other positive thing in business?
• Are failures talked about openly so everyone can learn? Or are the feelings of the people considered first? In an environment that truly celebrates failure, open discussion of failure is no big deal.

What do you think? Any examples of successes or failures from your past? Any thoughts about the way successful and unsuccessful companies create a culture surrounding innovation and failure? Is there anything here that stimulates your thinking and resolve to effect change?

Please log in and share your thoughts with the community, and by all means - share the discussion in your favorite social media platform.

Grape Prices are Heading Lower.

Total Wine Sales Continue to Move Higher

About six weeks ago I was asked to speak about the economy, the environment for the US wine consumer, and the fine wine business. The meeting was part of a management retreat for a large wine company and included an acquaintance of mine who we will call "Deep Gullet." It included many of the distributor partners of the company as well so there was quite a wide perspective on the business. This wasn't a client of mine and never will be, but I took the invitation because I thought I might learn something from Deep Gullet and the other presenters. I did and came away with two important perspectives:

1. The small 2011 vintage was really difficult for fine wine distributors. Allocations were more the norm for their retail accounts because there just wasn't enough wine produced.
2. Attempting to increase bottle pricing - even in an allocated environment has been like pushing a wet string up the hill.

Overwhelmingly everyone believed 2012 was going to be a lot better from a supply perspective given the large and record harvest, so the allocation issue was probably temporary. The second issue however was about the consumer and that didn't seem to be going away. That got me wondering again about the popular press reports on supply shortages.

In the 2013 Annual State of the Wine Industry Report released in January of this year, I predicted that we were going to see a soft first half of the year economically, but an improved second half. You can read the report if you want to check my thinking. We predicted a 4th consecutive year of lower sales growth in fine wine; something between 4%-8%. It's still growth but growth has been slowing for some time. 

At this stage, we appear to be tracking well to the overall growth estimate but will have to wait to see sales results for Oct-Dec to see if we were correct in our annual prediction. After exchanging some G2 with Deep Gullet we discovered we were of the same belief: What is clear at this point is while wine consumption continues to increase in volume as seen in the lead chart, GDP is stalling and the middle class aren't able to fully participate. Yes .... Americans like wine and are drinking more in volume, but they aren't paying more in price to support winery production cost increases. The following chart is really descriptive of that point.
 

Source: Nielsen Beverage Group

My friend Danny Brager from Nielsen presented the chart to the right recently at a conference in which he was speaking. While all F&B categories are up 1.7% in price on average, wine is only up 0.20%. Consumers aren't accepting price increases for wine or spirits for that matter. The economy isn't supporting price growth and inflation seems to be well in check. I'll spare you the in-depth analysis of what's happening in the country that's holding back economic growth but here are some high-level bullets:

1. Housing has indeed recovered most of its value now which is a huge help to the middle class... should lead to a bit of a wealth effect and release pent up demand in sectors, and allow more movement between jobs in different regions. That should have helped support a better second half of the year as I'd thought, but now I have my doubts because of higher interest rates and Sequestration 2.
2. Youth unemployment rates are still very high in the main industrial countries of the world (Yes Virginia, the Millennials aren't reading the press about how they are driving growth in wine sales. They are a big cohort but have no income.)
3. Boomers are hitting retirement age. They drove the growth in wine since the middle 90's so that is a big accelerating headwind in the face of fine wine purchasing.
4. The wealth gap is widening. The wealthiest Americans have recovered their pre-crash wealth and are spending. The middle class while improving off the bottom, need real work to spend and while the unemployment rate continues to decline, the US labor force is shrinking. There are fewer people working than before even if the unemployment rate is falling.
5. The Fed announced last week they were postponing tapering. While the markets loved it, the reality is we are careening to another 'fiscal cliff' on funding and proving the S&P upgrade of the US credit rating earlier in the year might have been premature. What the announcement means is the economy isn't doing as well as the Fed would like and they are going to keep throwing economic crack at the market until they are a little more certain there is a recovery. In the meantime however, the long bond in the US has gone up dramatically since May and that means the middle class is less able to afford the houses to which they were aspiring. We see that in the sharp decline in new mortgages application rates.

Now move to grape and wine prices over the past 2 years. With most predicting a grape shortage by April/May of 2012, growers began to recover pricing that had been depressed since the recession started. Then we had the 4MM ton harvest of 2012 and the shortage - to the extent there was one, went away. Since non-bearing acres are so low and planting stagnated in the last decade - not even keeping up with vine replacement, most wineries looked through the heavy 2102 crop and still were willing to pay higher prices this year. With the the 2013 harvest now well under way, tanks are full and there is still a lot of bulk wine for sale. It looks like the harvest is coming in large once again. 

Prices Have been Dropping as Volume of Bulk Increased

So where does that leave us with grape prices? Add it up:

• Current 2012 Bulk Prices are flat to trending down
• The economy is not seeing the growth I'd hoped for in the back half of the year.
• Consumers haven't been willing to pay more for wine and based on the recovery sluggishness, I can't see them willing to pay more going into the holidays or even 2014 at this point.
• Producers have been paying more for grapes and getting their margins squeezed because the costs can't be passed on. 
• Supply isn't short for wine right now, and it looks like we'll have two back to back large harvests.

That leaves me and Deep Gullet to believe we won't see new grape contract price increases in 2014. Taking all the factors that impact price into consideration, the only question at this point is longer term supply. Are there enough acres planted? Should grape buyers look through the the large 2013 harvest again and view 2014 as likely short? If some of the higher tonnage of the past 2 years is a result of changed farming practices - and there is that possibility - we may not be as short, even in the long term as many have predicted. In the meanwhile while we ponder the balance of grape supply and demand, there are plantings taking place.

My conclusion is all things held equal, at the end of the 2013 harvest we should see downward pressure on grape pricing.

What do you think? Please share this piece in your favorite social media app, and log in to share your views with the community. The wine world wants to know what you think!

Are You Adjusting Your Marketing To Boomers?

Never Bet Against A Dog That Tells You They Can't Play Pool 

 

"If you aren't starting to make some adjustments in your current marketing strategy to Boomers, you will lose your most important current wine buyers sooner than you think, and another winery will pick that consumer up who will adapt to their changing preferences."

 

 

 

My mother plays pool, has an occasional nip, likes pink and is a dog. She's actually a wonderful person, but I've been trying to break her from nipping for years. Now it seems the years themselves are actually slowing down her nipping, which isn't good for the wine industry when considering her in terms of her Mature Cohort. A non-nipper wouldn't be the person a winery should try and attract. (Don't play pool with her either.) 

My mom can nurse a large bottle of moscato for a month. Obviously if she is representative of her generation, when it comes to developing a strategy to attack the geriatric set there are probably better places to invest your precious resources. But if you listen to many in the wine press, they will say its the Millennials. I believe if you sell fine wine and that's what you are going to do, I suggest you would be better off investing in my mom's cohort today because they can at least afford your wine, if you can convince them to buy it.

Millennial Myths

We've been writing for years on the Millennial Myths, the most prevalent one being Millennials are driving fine wine sales. That's absolutely false. They aren't driving sales and there shouldn't even be a debate. I found -this article- from 2009 which is a good example of the kind of confusion that's been layered onto the discussion. Take for instance this quote:

"the U.S. ranks third in total wine consumption, and is gaining rapidly on the leaders. Much of the (3.3% ~ 850,000 case) increase can be attributed to the Millennial generation"

Market Share of Wine Sales Sorted by Cohort

It wasn't true in 2009 and isn't true today. What is true is the Millennials have the highest growth rate, but like all segments with low numbers of consumers, the high growth is because of the small base versus the growth in the nominal consumption of the segment. 

The chart directly above is one I used for a speech in Sonoma in May. It's from a survey we do of West Coast Wineries and shows that Millennials represent less than 15% of total wine sales. That's pretty consistent with Nielsen information as well.

Don't Market to People Who Can't Afford Your Product

The way I make practical sense out of the avalanche of miss-communication and demographic-goguery, is to break it down into component parts. Buyers of anything have to have the willingness and the capacity to buy. For example, my 20 year old Millennial daughter wants a new Range Rover - she has the willingness. But as a sophomore away at college, she doesn't have the capacity in her budget. I've heard some people argue that you need to market your wine to the Millennials now because they are the future. In the same breath, I've seen market research on Millennials where they feel they aren't being catered to because they want less expensive and better wines. The truth is DOMESTIC wine should be marketed to Millennials as a category, but its the lower priced wines that attract those consumers today. For now though, lets just stipulate to the belief the Millennials have a greater willingness to drink wine than any previous generation ( .... its not a proven fact either because the data aren't available from previous generations, but lets just go with it.) Do Millennials have the capacity or disposable income to buy fine wine?

I looked to the most recent information provided by the U.S. Census Bureau on both wealth and income levels. The data reveal that the older boomers have the most wealth followed closely by the Matures, with Millennials having amassed only about 2 percent of the Boomer wealth still early in their careers. 

I also reviewed the top 20 percent of all wage earners sorted by age. Again its the Boomers leading the pack as the highest paid, followed by the Gen-Xers, the still working Greatest Generation, and last again are the Millennials. So if it was only the capacity to buy, that information might suggest a winery should have a plan to go after the geriatric set since they have the capacity. The problem is, the older generation doesn't have the willingness - or maybe the kidneys to be a dominant cohort in wine sales. Back to the question, where do you invest your precious marketing budget?

Boston Consulting Group Matrix

The answer isn't binary. Your marketing budget needs to be spread out a bit but focused largely between high growth segments, and those segments where you have a high market share. 

The basics of the now legendary Boston Consulting Group's Growth Share Matrix is pictured to the left.  My mother the dog as the chart shows, falls into a segment in the lower right quadrant that has a low market share and low growth rate. In the BCG Model, she is termed a dog and that is the cohort you want to put little if any of your marketing resources. The above chart on Market Share shows the Mature Cohort has a 14% share of fine wine sales now. That's about the same as the Millennials, but you should be investing more in the Millennial Generation versus the Matures because Millennials do have growth upside while Matures will be turning up daisies making them ineligible for wine purchases relative to Millennials. Plainly, there is no growth opportunity with my mom's generation.

Between the remaining cohorts - the Boomers and Gen X, where should you invest more of your attention and marketing dollars today? The Boomers are far larger than Gen X and they have more capacity to buy, but you really should be investing a fair amount of your time and effort now attracting new Gen X consumers instead of new Boomers. Gen X are - or should be, the current stars of the portfolio looking at the matrix. They are the consumers that are going to drive your sales growth higher as the Boomers kidneys hit retirement age.

It's True: My Mom Gave Birth to a Cow

To keep it fair, while my mom might be a dog, as a median aged Boomer, I am a cow; a "cash cow" to utilize the BCG model. I may not be able to beat my "Dog" mother in a game of pool, but I can swim better than her. I just need a little help lifting all that dead weight out of the pool these days. 

Anyways ...fine wine producers have to be relevant to Boomers because they have the highest market share in wine purchases still, and they will for some time yet. You need to "milk" the Boomers by spending less vigerously versus Gen X. You need to utilize this cohort to fund investments in product development and marketing to other growth cohorts. But if there is something you can do with the Boomers today in terms of investment, its looking for product changes that might elongate the length of time they remain your wine buyer. That is a very important consideration and worth contemplation and further investment. That will return a solid current ROI.

Why Will Boomers (and Matures) Slow in Wine Spending?

You may think that you are doing the right things to market to Boomers today - just like you always have, but that's no guarantee of their future behavior relative to your wine and purchase preferences. The Boomers are evolving and without adaptation of your brand strategy, you might find them growing away from you before the Millennials come to rescue your sales growth. I wouldn't expect the Matures to adopt Millennial behaviors that would keep them as a viable sales cohort .... generally speaking that is, but even they might benefit from answering the following question - Why will people slow their spending after age 60? Answer that and you will find a correct path to market to Boomers and even Matures as they age in the next 10-20 years. 

While part of the reason they spend less is retirement, the reason they will decline in market share is really because they can't continue to drink like they did when they were Millennials (sic). So the simple solution is, consider making some wines that are lower in alcohol but maintain the other attributes the older set prefers. That's easier said than done in the warmer AVA's, but there are available technologies to make a wine that has a traditional flavor profile and has less alcohol, and might fit their pocket book as well.

To that end, last week I came across an article advertising some new marketing research about the size of the Low Alcohol category. link. One statement in particular stood out to me:

"Once considered a niche outsider product category, lower alcohol wines are now growing in stature in many markets around the world. Across the 8 markets looked at in this report, buyers of sub 10.5% ABV wines now account for 38% of consumers, or in other terms, over 80 million regular wine drinkers -making a rather compelling case that this is a market sector which can no longer be ignored. From the 8 markets analysed in this report lower alcohol wines are currently performing best in the USA, Germany, Canada and UK where the number of lower alcohol buyers and consumption of sub 10.5% ABV wine is the highest."

I think that's where we should leave it for today. Hopefully that gives you some food for thought.

What do you think? Should you be spending all of your time marketing to Millennials? Are you investing in the best growth opportunity for today (Gen X)? Are you seeing declines in purchasing from Boomers and falsely attributing that to lower income from the recession? Are the Matures worth marketing to still? Where should you invest your precious marketing dollars and time selling your wine?

Please log in and offer your thoughts to the community.

Wine Sales In the Last Half of 2013

The Best View of the Housing Bubble Pre-Crash

I recall giving a speech in August of 2008 to about 125 growers and winery owners. The speech was on the economy and I pulled up the slide above to demonstrate what I was seeing ahead of us. This was at a time just after Lehman Brothers collapsed where it had become apparent that we had crested a market high in housing and entering a bearish period. What the chart says in brief, is the historical average ratio of existing home price divided by median 4 family income is 2.8 times. That's what the red line is. With a ratio of 2.8 times, if a family made $100,000 a year, they could afford a $280,000 home. You can see what happened by late 2006 into 2007.

We are taught in school that in economics, measures have a tendency to revert to the mean. But talking heads everywhere were suggesting back then that what we were experiencing was a normal correction. Maybe, but the chart above along with some other indicators told me otherwise and I suggested we were about ready for a nasty correction and reversion back to the mean, and that correction was going to be huge and take years based on the slope of that line. 

If that weren't enough, I also suggested the growth rate in wine would fall to flat (zero percent) growth. I really thought there was a strong chance wine sales growth could go into negative territory for the first time in memory - but predicting that would get me permanently banned from the Economic Optimists Union so I fudged up a little on the forecast. I was actually being optimistic on what was ahead for us, but people didn't hear it that way. My speaking invites started falling like the stock market. I've never been invited back to speak in front of that Grower Association again. From all sides the message was, "If you don't have good news to report, then we'll find someone who can." Well, OK then, go ahead and listen to your excessively optimistic speakers and see if I care. My dog still likes me and my mom still ...... well ...... my dog still likes me anyway.
 

"The housing correction poses the biggest risk to our economy. Our economy and our markets will not recover until the bulk of this housing correction is behind us." Treasury Secretary Henry Paulson, 11/12/2008

This video was what we saw just months after the speech I made noted above. It was pretty stinking gloomy. The stock market was in the crapper and home prices crashed. With speed never before seen and perhaps treading on Constitutional Authority, the Government and Secretary of the Treasury Hank Paulson started to make investments in the Banks through the TARP program and several other initiatives. Ben Bernanke started to throw money at the financial system and economy. The banking system and Detroit were stabilized. But with the markets dragging bottom and hundreds of billions of dollars being thrown at US industry, the average voter started asking the question, "When do we get a bail out?" The answer came soon enough though most of America missed the memo when Fannie and Freddie were put into conservatorship to protect the US mortgage market from vanishing, causing a free-fall in house prices.

So where are we today? Fannie is actually starting to repay the bailout money (Self serving note: the Bank bailout through TARP was paid back with a sizable profit to tax-payers thanks to the strings Paulson put on that Bailout.) Of course Detroit is now going Bankrupt, but the American Auto Industry was able to rationalize their insane Union compensation plans, and has a chance to pay back a large part of that bailout, if not all of it .... well most of it anyway. The economy isn't healed but the most recent Case-Shiller Index had this happy news last week:

"As of May 2013, average home prices across the United States are back to their spring 2004 levels. Measured from their June/July 2006 peaks, the peak-to-current decline is approximately 24 to 25 percent. The recovery from the March 2012 lows is 16.5 percent for the 20-city index."

Essentially the news is, housing prices are back! In the Bay Area consumers even see an overheated market again with multiple offers and short listing periods. So I was wondering now ...... just where is the recovery in terms of the measures in the chart at the top of this page? My speech back then said that we had to revert to the mean. Paulson said we wouldn't see the economy and markets recover until we had the bulk of the housing correction behind us. Did we get there? The current information out there suggests we have reverted to the mean and are now showing home values at 2.85 times median income. Of course the bad news in that is we will likely see growth in home prices slow now due to investors cashing out and more of the average mortgage payment going to interest, thus reducing the amount of house a person can afford. Being an optimist, we are at least not looking at another bubble. Housing growth will take place as median incomes rise.

Consumer Comfort Index at 5 year high

Don't get me wrong. There is a lot to do still to heal housing and the mortgage business. Banks aren't able to make home loans anymore and sell them as packaged securities. Prior to the crash, that was half of all new bank lending. Now it's 0%. Banks now have to keep the loans on their books or sell them to Fannie or Freddie for the present. While its nice to know they are starting to turn the corner, last week President Obama outlined plans for the wind-down of the Governments involvement in those institutions. Having just gone through qualifying for a home loan, I can tell you first hand that the mortgage business is dramatically different than it was.

In the SVB State of the Wine Industry Report released in January, we predicted bumpy going in the first half of the year and an upturn in the back half with average fine wine sales growth in the 4% - 8% range. While there are still plenty of variables out there that can throw that forecast off, I think at this stage with the good news in housing and retail sales hanging in still, its remains a good forecast.

The middle class consumer is showing resilience, housing is now below 6 months of inventory which typically signals a short market, and the Fed is talking about ways to slow their bond purchases in response to what seems like a healing economy. We have a lot to look forward to in the last half of the year, and I'm hoping my pre-recession gloomy speeches will be forgiven by the organizers in hindsight, and maybe my phone will ring again since I have happy news to report? Oh well  ..... at least my dog loves me.

What do you think? Where is the last half of the year headed? Are we going to hit my sales forecast for fine wine this year? What about the mortgage and housing markets? Are they going to stall or improve? There are lots of moving parts but please log in and offer your perspective for the community.

Do You Like Drinking Day-Old Wine?

My mom used to go to the Day-Old Hostess bread store. She would get apple pies and Ho-Ho's and freeze them for our school lunches. They were really good....maybe not that healthy but Hostess advertising said they were healthy snacks back then - wholesome goodness I think was the pitch line, and even day-old Hostess snacks never were stale. Of course now we know it was due to the overuse of preservatives which by themselves can cause a corpse to never decompose.

There is no Day-Old Wine Store for good reason. With Twinkies and Snowballs, freezing made the product usable on my schedule. With wine once its opened, you either drink the whole thing or risk letting the remnant oxidize. Personally, I hate oxidized wine but there's a dilemma. Do I drink a really nice bottle with dinner and have some left that might not be consumed? Or, do I drink a lesser bottle and not be as concerned if I have to dump it? Of course I can just drink the whole bottle, but the calorie thing is becoming a real problem these days .... maybe it was the Twinkies. Either way I blame it on my mother pushing me into addiction. Twinkies are a gateway drug you know.

I can't tell you how much day-old wine I've had to dump over the years. I'd hate to think about what that cost me; maybe thousands of dollars given my drinking habits stemming from my traumatic childhood. While I've not found a solution to my Twinkie addiction, I have found the solution to my dilemma of wasted wine. If you like this solution as well, there is a deal for you at the end of this blog - only for SVB on Wine readers.

 

Meeting Brain Pickers

Gadget to Hold Your Glass When Drunk

In my role at Silicon Valley Bank, I get lots of calls from people wanting to pick my brain. It's probably why I can't remember what day it is anymore. Brain pickers come in all flavors; as investors, the press, people with a business concept, and on occasion people who have the latest and greatest new product or gadget. Some of the ideas are novel but never has anyone presented me with something that I saw as a disruptive or transformational innovation. That changed in September of 2012 when I saw the beta model for the Coravin Wine Access System.
 

Gadget to Never Buy Wine Again

In August of last year I got a call from Josh Makower. He told me he had a product that "preserved opened wine for months" and "the transformational potential of the product for consumers, restaurants, and wine producers would be unprecedented!" To say I was skeptical would be a massive understatement as I've seen hundreds of gadgets in wine fail, but a few things intrigued me here. It turned out Josh had been involved with several successful medical start ups with Silicon Valley Bank on the Tech side of our organization, and he was a part of NEA which is a top tier Venture Capital Firm. He also said he was bringing his colleague Nick Lazaris who was one of the early CEO's of another of our technology start ups, Keurig.


The "AH-HA!" Moment

Gadget So Your Glass Never is Empty

Josh brought in one of the beta models of the Coravin system. With a special needle that's used in the medical field attached to a device that looked like a rabbit wine opener, he easily inserted the needle through the capsule of an unopened bottle. Then, pressing a button with his thumb and pumping in argon gas, he pumped out a single glass of wine. He removed the needle and the cork resealed itself. That was interesting but not earth shattering to me. Then the ah-HA! moment came: The bottle was half full, had the original capsule intact, and was first opened 4 months prior! This was not day-old wine! We popped the cork on an unopened bottle for a side-by-side comparison:  No difference whatsoever. The wines were identical. Now that WAS earth shattering. A wine that had the first glass poured months prior, tasted the same as an unopened bottle. My mind started racing to applications.

Gadget to Turn Wine into A Tree

I could have a glass of white, pinot, and cabernet every night at dinner and never worry about spoiling a bottle. Corked wine? A fine wine retailer or tasting room customer could take a very small sample and test it with reactive test strips to check for specific flaws before taking it home (First someone has to invent those strips). Tasting rooms could use an industrial version with a 1 ounce meter on the gadget that could be attached to a larger argon tank thus eliminating waste or accidentally pouring oxidized wine. My mom could drink her magnum of moscato one glass at a time for 2 months without the wine changing. That case of wine you bought a decade ago and stored ... has it reached the point where its time to drink it? The applications are limitless.

Product Release

On Monday July 29th; almost a year from the date I took the meeting, Coravin announced the launch of their new wine storage system. Robert Parker had interesting comments saying, Coravin is “the most transformational and exciting new product for wine lovers that has been developed or invented in the last 30-plus years.” He also posted a series of videos about the Coravin System based on his own testing. You can find those on his e-robertparker.com website.

Gadget to Make Sure You Spill Wine

I don't think the product is perfect yet:. The argon canister only contains enough gas for about 15 pours. It would be nice if that handled a few more glasses but I'm guessing we'll see more canister options at some point in the same way we saw so many different extensions from Keurig through the years. In addition, the product at first blush is a little pricey at USD $279.00. That said I drink a bottle of wine at that price on occasion so maybe its a bargain? Thinking further, after paying for the machine itself, we're talking about getting the freedom to try any wine in your cellar and not worry about spoiling it for 66 cents a glass based on 15 pours at $10 for a canister. Given the price of those bottles, the all-in price actually seems very reasonable, so I take it all back. Its a fair price.
 

Some of the skeptics out there might think I have a personal interest in promoting this. I assure you I don't. I haven't been asked to recommend this product by anyone and don't have any incentive. I'm just really jazzed with the utility of this gadget and the people behind it. The applications for the consumer, winery, restaurateur, and wine shop are game-changing. Me? I just can't wait to have any glass I want any night, or share any bottle with a friend without having to drink the whole bottle.

A Deal For SVB on Wine Readers

The good news for you is I did contact the founders last week to let them know I was going to dedicate the SVB on Wine Blog to the Coravin product. So while I don't get anything for recommending this, they have offered to anyone reading this blog, 3 gratis argon canisters if you buy a package between now and Friday August 9th using the PROMO CODE: SVBWine. You can do that through this link to the Coravin website.

As a final point, for those commercial wineries interested in trying this out, reselling these in their own tasting rooms at some point, or have other questions about commercial use, I've been given the contact at Coravin for additional questions and discussion. You can contact John Fruin, National Sales Manager here: john@coravin.com.

What do you think? Did you hang in there and read another exceptionally long Blog? Are you skeptical of this product like I was? Log in and offer your thoughts about this product or any other storage devices that you are using and appreciate.

Do You Know the Location of the First Successful Winery in the US?

This week we're moving off the normal marketing, economy, and business issues and asking a basic question anyone working in the US wine business should know:"Where was the first successful commercial winery in the United States?" Do you know? I confess I didn't know for sure. I remember thinking Jefferson was a really important figure in American wine and he worked at establishing a commercial presence in Virginia early on, so maybe Virginia was first? Surely with the native vines in existence, there must have been a successful wine businesses established before the time of Jefferson?

I had this debate over a bottle of wine with someone smarter than I last week. The discussion of "firsts," depending on where you live and who is telling the story can change dramatically, so the interwebs - which everyone knows is the possessor of all that is true - can sometime provide false information. The reality is the real beginning of the US Wine business has been butchered in history books and folk-lore. There is however a definitive rendering of the subject.

If you haven't ever read A History of Wine in America, I highly recommend spending the time to do so. I've even linked a free Google e-book to the above title so you have no excuse. The book sheds a bright spot light on the subject and will have you the envy at your next party where you win the attractive table centre piece for getting the right answer. That said, I know many of you are Cliff Notes kind of people and wont spend time in the book, so if you want the shortcut to the answer, read on.

 

The history of US winemaking started as a fight between native varietals

Native Grapes, Norton

which didn't produce good wine, and vinifera based grapes which could produce wine but couldn't take the cold, rain, humidity, mold, fungus, and pests that were native to the New World. Bracketing that, the realization must be that while the Colonies were set up to be exporters of wine and silk to the Old World, the inputs to create wine took people, and the people were distracted by trifling things like getting enough food early in the New World's existence. Then there were the occasional wars, least of which was the one that started around 1776. People headed off to fight and nobody tended the vines. Some encouraging starts to winemaking were noted at various times after slave labor from indigenous Indians and Africa was added. The US Civil War then became another one of those events that put a damper on the production of wine and grape growing in the Eastern US.

Some bullet points of early winegrape growing and winemaking:

• Grapes that can be used to make wine have been on the Continent of North America since before Leif Erikson discovered America in the year 1001. Seeing abundant vines he proposed to name the new country Vinland.
• Paris Island in South Carolina is favored as the likely first place wine was made on the Continent in the

  

  East Coast in 1640

  year 1568 by Spanish colonists but that's not a commercial success.
• Dr Laurence Bohune is the first winemaker whose name is known. He made wine from Native grapes in the year 1610 in the Jamestown settlement.
• In 1672 Charles Calvert, the proprietor of Maryland laid out 240 acres of vines using a 'hogshed' of vines from Europe. The vineyard died the next year and as many other vineyardists at the time, suffered from the success of the tobacco industry which pulled people and resources away from wine experimentation.
• Robert Beverly (b.1673 d.1722) was one of the largest of Virginia landowners and in 1705 wrote the first comprehensive history of Virginia, including the planting of his estate which he named Beverly Park.
• In no colony before the Revolution was there any enterprise that systematically grew and harvested grapes, and then crushed them for wine outside of a few individuals who had modest production.
• The first successful commercial winery in New York was founded in 1839 at Washingtonville on the Hudson. Its still in existence today under a successor name.

Lore notes some other likely places where commercial operations could have first started including Ohio, Georgia, North Carolina, Texas and California among others. Vinifera grapes were planted and never did well in the US East Coast which is why Jefferson was such a fan of Madeira wine. He couldn't get his vineyards to produce and wine from Europe often came spoiled. Wine from Maderia however was enhanced by the journey to the Colonies. That was a better bet for Jefferson than the local native wines made.

The first successful American wineries using vinifera grapes were established in drier conditions in El Paso in the New Mexico Territory. The region produced up to 200,000 gallons as early as 1846, but sadly that business died out soon thereafter for many reasons including the California Gold Rush which led to a massive migration west ..... that people component again closed out that business.

California's history books suggest the wine industry started with the Spanish Missions through Father Junípero Serra in 1769, but the first clear reference to the planting of grapes at a California mission comes from San Juan Capistrano in 1779; ten years after the arrival of the Franciscans in California. Besides, the secularization of the Spanish Missions in Texas and California in 1833 led to the nearly complete demise of mission wine production by 1844. So its hard to call that the start of commercial winemaking in the United States.

Mission Espada Chapel, Weches Texas

Of course Texans like to say they were first but then again, Texans like to think they are first in everything. Talking to a docent on a tour of the missions there a few years ago, the local perspective is Texas wine history was identical to California's with the establishment of Spanish Missions in the state in the 1650's, and since that predates California which likes to say they were first, they must be first - right? That's not entirely accurate because the Missions didn't operate commercial wineries. They made their wine for communion and made it from Mission grapes which never proved successful for commercial wineries. In fact the record shows the production from the Missions was never sufficient even for the Mission's sacramental needs.

General Vallejo who presided over the secularization of the Mission at Sonoma in 1835 has been given perhaps a little too much credit over the years in advancing the cause of US wine production in the North Coast of California, as he inherited his vines and replanted to some non-mission varietals, but produced only about 540 gallons of wine in total.

Image from a L.A. Wine Company 1876

Winemaking in Los Angeles started shortly after 1781 when a group of 11 families comprising 44 Mexicans settled by the river. Felipe de Neve, Governor of Spanish California, named the settlement "El Pueblo Sobre el Rio de Nuestra Señora la Reina de los Angeles del Río de Porciúncula." Right after the city name was thankfully shortened, grapes for wine were planted. It wasn't until 1833 that a Frenchman named Jean Louis Vignes imported European varieties to California by way of Boston and around the Horn and started making vinifera based wine. By 1846 the total non-native population of all of California was estimated to be no more than 8,000 while modest in size, that was the start of the California business nonetheless. In 1848 under the Treaty of Guadalupe Hidalgo, Mexico formally ceded California to the United States and wine in California took off after the Gold Rush population explosion. California just wasn't first in commercial wine production.

Wine Festival In Vevay, Indiana

The answer to the question is probably a little surprising to most Americans because the first successful commercial wine operation was in Vevay, Indiana located along the Ohio river at the southern end of the State. The first vintage of wine was created in the year 1806 or 1807 using native grapes and production increased thereafter with 800 gallons produced in 1808, 2,400 gallons in 1810, and 3,200 gallons in 1812. The effort was influenced by John James DuFour who in 1825 wrote his treatise "The American Vinedressers Guide." The industry is continuing healthy in Switzerland County, Indiana to this day.

Here is the definitive wording from A History of Wine in America for all those who want to suggest another solution to the question:
 

 

That's it then. Indiana of all places. Go figure? As a final footnote, you probably noticed A History of Wine in America has 2 volumes. The first volume is the beginning to Prohibition and the second volume is from Prohibition forward. I've only used Volume 1 in this blogpost, but if you're interested in reading that, here is the Google e-books link: Volume 2.

So .....how did you do on the poll? I can tell you for a fact neither I nor my smarter friend got the right answer in our debate. I thought for sure it had to be in New York, Virginia, or maybe Texas if the US meant the land encompassing the current US and included the then possession of Spain.

Log in an offer your thoughts. How did you answer the poll and why?