State of the Industry

I got my hands on a wine consultant's takeaways from a recent "state of the industry" presented by Silicon Valley Bank, and thought I'd share. I was interested in how different the recent trends are vs. the broader secular story of growth in the United States, particularly the aspects I've put in bold:

"The wine industry is at a tipping point: Volume has flattened. Over the past 4 years:

·         GenX demand has grown

·         Boomers are flat

·         Millennials are showing no growth

Millennials are likely suffering from inability to afford luxury products (indulgence gap).

Profiles of target consumers:

·         Millennials are debt strapped (student debt, many are working jobs below their education level)

·         GenX are gainfully employed (biggest current earners)

·         Boomers are retiring; change in lifestyle, income, diet

Is this permanent?

Millennials creed: Live large but carry little.

Experience-based services are the fastest growing product category of all

Does premiumization have a future? Prices can’t rise when volumes are flat or falling.

Millennials in on-premise outlets are focused on activities, not alcohol. (e.g. ping pong, bowling, axe throwing, darts). Large supply of fancy drinks are more appealing and interesting than wine, utilizing dry ice, smoke, sparkle, flame. What’s the equivalent for wine?

Cannabis is likely not materially affecting wine at this time. Only 13% of the millennials have used cannabis as a regular part of their recreation. Much smaller % for the other two major demographic groups.

Tasting Rooms

·         WA, Napa, Sonoma traffic is down

·         OR, VA are up

·         NY is mixed

Millennials don’t like conspicuous consumption or wealth.

Most successful TR’s are activity based, by creating an “engaging” environment, (e.g., picnic tables, corn hole type games, walks through the vineyard/cellar.) Sitting or belly up to the bar is not attractive to this group.

...

there is about a five-year window to address this issue of no growth."

Lafite in China

It appears that 1) Lafite in China did not release in 2015 as expected in the case. Up till 2018, the wine still was not released, signaling the difficulty and challenges of producing wine in a region with relatively unknown land, operations, and government relations.

Additionally, the local investment partner that Lafite had CITIC exited the investment in January 2018, before the wine was released. This also shows concerns about the wines to be released, as well as the future of Lafite China.

Source: https://www.thedrinksbusiness.com/2018/01/lafite-and-citic-officially-part-ways-in-china/

Funky Wine, Funky Cheese

On Wednesday night, I had the pleasure of joining a group of fellow Wine Circle members for a wine and cheese tasting event led by none other than our very own TA, Sarah Hoffman. We tasted a variety of whites and reds from the New World and the Old, and enjoyed a delicious sampling of cheeses from Bellwether Farms.

Out of all the pairings, one in particular really stood out to me. I was surprised to find the wine that I initially liked the least ultimately became my favorite, and all because of the amazing flavor marriage between it and the cheese. It was the third pairing Sarah led us through, a combination of a Domaine Des Carlines La Vouivre Chardonnay 2016 from Savagnin, France and a slice of 'Bellwether San Andreas', a raw sheep milk cheese inspired by the aged sheep milk cheeses of Tuscany. 

On the nose, as a fellow Wine Circler noted, this wine had some serious "stank." It was hard to put my finger on just what the smell was, but it was undoubtedly funky. It also had a cloudy appearance in the glass, which,  combined with the smell, definitely made me consider passing up on that particular round of tasting. But the wine definitely wasn't corked or turned. Was this perhaps that "barnyard-y" brettanomyces smell I had read about in our readings? Whatever it was, I assumed it was probably due to a more traditional production process than my relatively New World palate was used to. (Research after the fact did indeed confirm that the La Vouivre is naturally fermented, and goes through neither filtration nor clarification. ) So, I told myself, soldier on! 

Taking my first sip, initially all I could taste was a lingering quaff of that same rather off-putting funkiness. Eventually, though, it gave way to some really pleasing notes of pear, green apple and a bright minerality. I asked myself if this juice was worth the squeeze. Was this complex Chardonnay worth the stinkiness tradeoff ? And, even if I could get over it, was this a wine I could ever feel comfortable serving to guests at a dinner? Maybe, I thought, but this was probably not a wine that would be a repeat buy for a more casual wine consumer.

All this changed after a bite of the Bellwether cheese. The creamy mustiness of the aged sheep cheese complimented the funkiness of the wine in a way I could have never imagined. Suddenly, both wine and cheese were gone far too soon, leaving me wishing for second helpings all around. I've enjoyed many a pairing in the past, but this really illuminated how powerful a pairing can be. It truly was greater than the sum of its parts. Days later, I am still brought back to that magical marriage, and not just from a taste perspective. I think there is a significant marketing lesson to be learned here. For those "stanky" wines in need of broader distribution to a less funk-loving segment of customers, I think there is huge opportunity for them to be sold alongside complementary and similarly funky cheeses. The right pairing could be transformational for both the consumer's wine drinking experience and the producer's bottom line.

1st Amendment

We discussed briefly in class the apparent contradiction of the 1st Amendment and the intricacies of the Tied House laws related to the 21st Amendment. On the surface, prohibiting tweets that appear to serve as advertisements seems absurd. However, even when there's no conflict between two separate sections of the Constitution, restrictions on certain forms of speech seem to be both reasonable and within the bounds of the law. One of the most common examples of this is yelling "fire" in a crowded building (that is not on fire) with the intent to mislead people into a state of panic that could cause injuries. Another example is verbal assault / hate speech, although in my view restrictions on this form of speech should be limited to inherently injurious speech rather than focusing on the subjective interpretation of the speech by the listener (due to the dangers of allowing a "heckler's veto" in public discourse).

Neither of these examples seems like a truly analogous comparison to the limitation of the 1st Amendment that we discussed in class. However, I have been trying to think of other more relevant examples, and I wonder if a comparison can be made to insider trading. If I receive some MNPI from a friend at a public company then trade on that info and post the info here so that you all could get in on the action too, it would be ludicrous to defend my actions as an exercise of free speech. I would be using speech as a way to circumvent the law for my own economic gain. Similarly, it seems plausible to argue that the tweets in question in the Tied House cases are not protected speech after-all - the companies are just using speech as a way to circumvent the law for their own economic gain.

P.S. Even if the Tied House laws are "legal," personally I don't think they (and all the other convoluted policies stemming from the 21st Amendment) are good policy.

P.P.S I have no legal training, so please excuse any glaring legal naivete you notice above.