Come one, come all to see the showdown of the century! In one corner, we have wine - an elite incumbent. In the other corner we have a newcomer that's only recently gained recreational legitimacy across 10 U.S. states and medical legalization across 33 - marijuana. Theoretically, these two drugs could act as complements in the market (e.g. buy a bottle of wine, and smoke the next day to cure the hangover), but this phenomena doesn't seem to manifest in sales. Instead, wine and weed appear to be in a head-to-head, substitute-based relationship.
The idea that weed is substituting rather than amplifying wine sales is supported across a variety of metrics. According to the Economist, marijuana legalization is likely to "encourage more women, baby boomers and high earners—all stalwarts of the wine business—to smoke weed instead". In various states, for example, legalization of medical marijuana is associated with a 15% fall in overall alcohol consumption. In California, winemakers complain that they can no longer afford seasonal labor to harvest their grapes because workers have better-paid, year-round jobs on cannabis farms. Wine Spectator is suing Weed Spectator, published in northern California, for trademark infringement.
Why are we seeing a substituent rather than complementary relationship between weed and wine? Perhaps for many of the same reasons we are seeing weak sales in the wine industry among Millennials. In a post-Great Recession America, getting "bang for your buck" is the golden rule of consumption among youth. On a per glass vs. per blunt basis, marijuana is both cheaper and more effective. Marijuana also lacks some of the education barriers that may scare many Millennials away from wine - with marijuana, there's no need to pronounce French names or understand optimal drink pairings. Additionally, marijuana is the new kid on the block. Having only been recently legalized (and, in the process, receiving commiserate media coverage), marijuana may excite and entice Millennial customers in a way that wine does not (at least, not anymore). The reasons for wine's decline in the face of marijuana are likely varied and complex, but I believe a large part of the answer lies in taking a close look at Millennial drug consumption.
Sunday, March 3, 2019
The rise of rosé
As we heard in class on Thursday, rosé has grown absurdly fast.
It's still just 1.5% of the U.S. wine market, but its sales (by volume) grew 53% in 2017. Who's driving the growth? Exactly who you'd expect. 40% of rosé drinkers are women between the ages of 21 and 34, and rosé does best in cosmopolitan, coastal cities. (The NYC area accounts of a full quarter of all imported rosé consumption!) The drink is helped by its Instagrammability and its strong association with summer. Consumers can't wait to crack open their first bottle of the year -- and post about it! (NB: Ironically, I had rosé with dinner last night, so the summer association doesn't hold firm.) If we look to France for a benchmark, rosé still has plenty of room for growth. There, it's more popular than white wine, accounting for ~30% of total drinking. Needless to say, the French drink rosé year-round. (Despite a much smaller population, they get through nearly twice as much stuff as the United States.)
Some background: rosé's star status is pretty new. Just a few decades ago, when people thought "pink wine," they thought "white zinfadel." Some people love it, but it's definitely not classy -- it has no place on a nice restaurant's wine list. Things changed in the 90s and 00s, when photographs of celebrities sipping rosé in France invaded travel magazines. Rosé became a staple of fancy parties, particularly in the Hamptons. (For some amusing reading, check out the stories about the great Hamptons rosé shortage of 2014.) And then, of course, came social media. It's not just the beautiful pink hue that earns rosé followers, it's also the ease of coining catchy hashtags ("yes way, rosé" and "rosé all day" are two popular examples). On social media, rosé is emblematic of a carefree life of travel, picnics, and pool parties. An aura of status, for way less than a bottle of Champagne? No wonder it's a hit, especially among millenials.
So, should you be launching a rosé brand for your final project? Well, the game is good, but the field is crowded. The growth of rosé's popularity in the U.S. is continuing strong, and domestic brands are making headway against French imports. But in a category that saw almost 400 new SKUs introduced last year, it could be hard to stand out. Novelty or a major celebrity endorsement might be the only way to cut through the noise.
Sources:
It's still just 1.5% of the U.S. wine market, but its sales (by volume) grew 53% in 2017. Who's driving the growth? Exactly who you'd expect. 40% of rosé drinkers are women between the ages of 21 and 34, and rosé does best in cosmopolitan, coastal cities. (The NYC area accounts of a full quarter of all imported rosé consumption!) The drink is helped by its Instagrammability and its strong association with summer. Consumers can't wait to crack open their first bottle of the year -- and post about it! (NB: Ironically, I had rosé with dinner last night, so the summer association doesn't hold firm.) If we look to France for a benchmark, rosé still has plenty of room for growth. There, it's more popular than white wine, accounting for ~30% of total drinking. Needless to say, the French drink rosé year-round. (Despite a much smaller population, they get through nearly twice as much stuff as the United States.)
Some background: rosé's star status is pretty new. Just a few decades ago, when people thought "pink wine," they thought "white zinfadel." Some people love it, but it's definitely not classy -- it has no place on a nice restaurant's wine list. Things changed in the 90s and 00s, when photographs of celebrities sipping rosé in France invaded travel magazines. Rosé became a staple of fancy parties, particularly in the Hamptons. (For some amusing reading, check out the stories about the great Hamptons rosé shortage of 2014.) And then, of course, came social media. It's not just the beautiful pink hue that earns rosé followers, it's also the ease of coining catchy hashtags ("yes way, rosé" and "rosé all day" are two popular examples). On social media, rosé is emblematic of a carefree life of travel, picnics, and pool parties. An aura of status, for way less than a bottle of Champagne? No wonder it's a hit, especially among millenials.
So, should you be launching a rosé brand for your final project? Well, the game is good, but the field is crowded. The growth of rosé's popularity in the U.S. is continuing strong, and domestic brands are making headway against French imports. But in a category that saw almost 400 new SKUs introduced last year, it could be hard to stand out. Novelty or a major celebrity endorsement might be the only way to cut through the noise.
Sources:
- https://www.forbes.com/sites/rebeccalerner/2017/08/09/rose-still-on-the-rise-in-the-u-s/#764a89b453d7
- https://vinepair.com/wine-blog/7-maps-charts-explain-rise-rose-in-america/
- https://www.thrillist.com/drink/nation/rose-wine-instagram-obsession
- https://www.purewow.com/food/rose-wine-trend-history
- https://www.wineindustryadvisor.com/2018/05/21/domestic-rose-gain-market-share-french
Wine etymology!
I loved learning more about the etymology of wine lexicon. Some highlights:
- Alcohol. Al-Kuhul. The Arabic phrase for metallic powder used as eye shadow.
- Sommelier. In Middle French, this referred to the government official who ran supply transportation... and this, of course, included wine.
- Merlot. In Gascon, a dialect of Occitan, merlau means a "little blackbird."
- Libation: In Latin, Libationem refers to a drink offering, such as pouring wine to the gods.
A deep dive into the etymology of "wine" in particular is fascinating:
- In Old High German, wini means friend.
- In Proto-Indo-European, wenh means love, desire.
- In Old Norse, vinr also means friend.
And some fun derivatives of wine:
- Good wine needs no bush.
- Wineberry. Wine + berry!
- Winebibber. A habitual drinker of wine.
Saturday, March 2, 2019
When the paintbrush drinks
All hail Vermeer... perhaps, ironically, the king of middle-class domestic interior scenes. I decided to scavenge for signs of wine in his work, and I was thankfully not disappointed.
Behold The Wine Glass, painted in 1660 and now displayed in Berlin.
I dug into some analysis of this work, and learned that Vermeer was inspired by De Hooch's The Visit when composing his painting. In addition, reminiscent of Delft church interiors of the 1650s, linear perspective helps to suggest a flow of light and space, imbuing an element of fluidity mirroring that of the wine disappearing down the woman's throat.
The man gazes at her, watching.
There is anticipation, trust, and an irrevocable sense of balance in this moment. What's most intriguing to me is that the wine in her glass is gone, yet Vermeer captures a hanging moment. She has just finished the last drop of wine, yet her hand is still poised at the bottom of her glass, waiting. Waiting.
Behold The Wine Glass, painted in 1660 and now displayed in Berlin.
I dug into some analysis of this work, and learned that Vermeer was inspired by De Hooch's The Visit when composing his painting. In addition, reminiscent of Delft church interiors of the 1650s, linear perspective helps to suggest a flow of light and space, imbuing an element of fluidity mirroring that of the wine disappearing down the woman's throat.
The man gazes at her, watching.
There is anticipation, trust, and an irrevocable sense of balance in this moment. What's most intriguing to me is that the wine in her glass is gone, yet Vermeer captures a hanging moment. She has just finished the last drop of wine, yet her hand is still poised at the bottom of her glass, waiting. Waiting.
Friday, March 1, 2019
Froze all Day and other wine cocktails
In class, learning about the massive rise of rosé, I started thinking more about how wine is starting to expand beyond the category of still beverages, served out of a bottle, and explode into many different offerings: different methods of packaging (kegs, cans, etc.), different preferences for presentations of wine (most of an emphasis on sparking), and different ways of consuming wine. The trend that has surprised me most over the last few years is the increased use of wine and wine products in cocktails -- sometimes even as the main form of alcohol (rather than a traditional liquor). I decided to do some more research to learn about this growing trend and what else we might see in the future -- profiled in two specific instances:
The first is the incredible rise of Frozé. Frozé became an 'endlessly' popular summer drink, mostly in urban areas, due to it's delciousness but also easy preparation. The trend began in New York City and took the nation by storm shortly thereafter. A large brosé movement also folled with men claiming on social media that they were not afraid to drink pink. Articles claim that some of the reasons that the trend really caught on was because consumers were developing a broader taste for French roses and were looking for a cooling refreshing beverage given long and drawn out summers.
The second instance that I found particularly interesting is Veuve Cliquot's new Rich Collection (pronounced rishe). This is a special collection in Veuve Cliquot's protfolio that is dedicated forwards cocktail mixology. It is meant to be served over ice (which is not traditional for champagnes) and is meant to have other ingredients added to it. They recommend adding tea leaves, or cucumbers to your champange before drinking, to enhance the flavors. The brand set up a dedicated bar to promoting its new collection at the Ocean House, a premium hotel in Watch Hill, RI, this summer. It served many different iterations of the Rich Cocktail (some spicy, some fruity, and some herbal in profile).
Sources:
Link to the Rich Collection: https://www.veuveclicquot.com/en-us/our-champagne/rich-collection
Link to Ocean House's Secret Garden Bar: https://www.oceanhouseri.com/culinary/summer-dining/secret-garden
https://www.theguardian.com/society/2016/sep/13/consumers-drink-pink-rose-sales-double-rise-frose-brose-english-wine
The first is the incredible rise of Frozé. Frozé became an 'endlessly' popular summer drink, mostly in urban areas, due to it's delciousness but also easy preparation. The trend began in New York City and took the nation by storm shortly thereafter. A large brosé movement also folled with men claiming on social media that they were not afraid to drink pink. Articles claim that some of the reasons that the trend really caught on was because consumers were developing a broader taste for French roses and were looking for a cooling refreshing beverage given long and drawn out summers.
The second instance that I found particularly interesting is Veuve Cliquot's new Rich Collection (pronounced rishe). This is a special collection in Veuve Cliquot's protfolio that is dedicated forwards cocktail mixology. It is meant to be served over ice (which is not traditional for champagnes) and is meant to have other ingredients added to it. They recommend adding tea leaves, or cucumbers to your champange before drinking, to enhance the flavors. The brand set up a dedicated bar to promoting its new collection at the Ocean House, a premium hotel in Watch Hill, RI, this summer. It served many different iterations of the Rich Cocktail (some spicy, some fruity, and some herbal in profile).
Sources:
Link to the Rich Collection: https://www.veuveclicquot.com/en-us/our-champagne/rich-collection
Link to Ocean House's Secret Garden Bar: https://www.oceanhouseri.com/culinary/summer-dining/secret-garden
https://www.theguardian.com/society/2016/sep/13/consumers-drink-pink-rose-sales-double-rise-frose-brose-english-wine
Where is the Craft Wine?
With the incredible rise in craft spirits and craft breweries, why is it that craft wine hasn't become the latest buzzword? According to the Craft Spirits Data Project, craft distilleries increased 15.5% from August 2017-2018. In addition to increased production of craft spirits, they are being increasingly demanded and consumed, especially by the millennial generation.
Does craft wine even exist as a category? The definition of a craft spirit from the American Distilling Institute is "Craft spirits are the products of an independently-owned distillery with maximum annual sales of 52,000 cases where the product is physically distilled and bottled on-site." (https://distilling.com/resources/craft-certification/). A few organizations have tried to apply this to the wine industry. For instance, the Craft Wine Association, a non-profit, certifies small-run wineries as "craft" and is trying to make craft as recognizable to the customer as sustainably sourced wine or biodynamic wine.
With continued consolidation in the industry, the wine industry might have a lot of learn from craft spirits and beers. Especially in terms of meeting millennial demand for new and innovative products, as well as through that have craft authenticity, there should be a marketable opportunity for wineries to distinguish themselves based on size and limited edition runs.
Other Sources:
https://www.craftwineassoc.org/index#what-is-ccw
https://www.winemag.com/2018/09/27/craft-distilleries/
Does craft wine even exist as a category? The definition of a craft spirit from the American Distilling Institute is "Craft spirits are the products of an independently-owned distillery with maximum annual sales of 52,000 cases where the product is physically distilled and bottled on-site." (https://distilling.com/resources/craft-certification/). A few organizations have tried to apply this to the wine industry. For instance, the Craft Wine Association, a non-profit, certifies small-run wineries as "craft" and is trying to make craft as recognizable to the customer as sustainably sourced wine or biodynamic wine.
With continued consolidation in the industry, the wine industry might have a lot of learn from craft spirits and beers. Especially in terms of meeting millennial demand for new and innovative products, as well as through that have craft authenticity, there should be a marketable opportunity for wineries to distinguish themselves based on size and limited edition runs.
Other Sources:
https://www.craftwineassoc.org/index#what-is-ccw
https://www.winemag.com/2018/09/27/craft-distilleries/
Thursday, February 28, 2019
The impact of legacy brands with pricing power
After last week's class I've been fascinated with pricing in wine. Far Niente is able to price at up to $180 per bottle for its cab sav. Furthermore, it's able to price its associated branded wines at a premium price point purely because of the legacy and powerful brand of Far Niente. The Chardonnay at $60 per bottle was excellent but I wonder whether the taste and quality is really >3x Charles Krug's Chardonnay priced at ~$20 per bottle. Peter Modavi mentioned that Charles Krug was a essentially a price taker in the mid market $20-40 segment.
This reminds of two publicly listed wine companies in Australia. One is called Treasury Wine Estates (TWE), owner of Australian's best known premium wine brand "Penfolds" and many others. The other is called Australian Vintage (AVG). For some context, TWE is ~ 10x larger than AVG with AUD2.7 bn in revenue vs AUD 275 million for AVG but trading at almost twice the valuation based on LTM TEV/EBITDA and P/ LTM earnings. A material amount of the difference is likely due to economies of scale e.g., fixed costs spread over greater sales units, and TWE has greater negotiating power over grape suppliers, distributors, and other customers. Another explanation for the value premium is that TWE's gross margins are around 43% vs AVG's of 26%. Some of TWE's brands such as Penfolds play in the ultra premium segment and they have been able to scale this. A lot of TWE's brands will be found at prominent business dinners in China. I doubt you would find many or any of AVG's there.
This reminds of two publicly listed wine companies in Australia. One is called Treasury Wine Estates (TWE), owner of Australian's best known premium wine brand "Penfolds" and many others. The other is called Australian Vintage (AVG). For some context, TWE is ~ 10x larger than AVG with AUD2.7 bn in revenue vs AUD 275 million for AVG but trading at almost twice the valuation based on LTM TEV/EBITDA and P/ LTM earnings. A material amount of the difference is likely due to economies of scale e.g., fixed costs spread over greater sales units, and TWE has greater negotiating power over grape suppliers, distributors, and other customers. Another explanation for the value premium is that TWE's gross margins are around 43% vs AVG's of 26%. Some of TWE's brands such as Penfolds play in the ultra premium segment and they have been able to scale this. A lot of TWE's brands will be found at prominent business dinners in China. I doubt you would find many or any of AVG's there.
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