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May 5 2011
The funny thing about business models is that when start-up businesses position around new market dynamics they do one of two things: They paint the exact picture of their business for casual observers (and competitors) in Manet-style realism or they don’t, leaving the mind’s eye to make Monet-style impressionistic leaps.
Perhaps this is why Philip James’ new venture, Lot18, is being lumped into the “Flash wine site” category when it appears to be much more significant (even if impressionistic).
When I covered so-called “Flash” wine sites last July, Lot18 hadn’t yet launched and my opinion then (as it remains today), was to urge caution with many of these sites because most don’t appear to be businesses with a vision that can grow into full-fledged ongoing concerns with an impetus bigger than capitalizing on the short-term oversupply of luxury-priced wine as a retail operation. The word “Flash” has been equated to, “Flash in the pan” meaning that these sites will be here today and gone tomorrow. Many others have opined similarly, including a recent run of punditry from the New York Times, Wines & Vines and Palate Press.
While each of these articles touch on the obvious vagaries of the model with a winery-slanted spin about whether the online wine sales sites are predatory vultures, there’s a much bigger view to look at – a market dynamic that I think Lot18 sees as an ownable market space where other sites (and writers) see an ecommerce retail operation. And, it has virtually nothing to do with being predatory. Instead, it’s about creating a solution for a problem that has existed for ages.
Instead of viewing Lot18 like another in a long list of ecommerce sellers responding to the here and now, I think James sees a much bigger business model that can bypass the three-tier and capitalize on the age-old problem of winery inventory management vintage by vintage, a problem that has typically been handled very quietly in the three-tier, a system that is closed off to the majority of the boutique wine market.
It’s a subtle change in perspective, but rather significant. It’s the difference between selling a few wines that can sell at $60, but not $80 as a one-off deal based on the current economy and creating an entire mechanism for inventory management that has bedeviled the boutique wine market.
As one small Mendocino vintner without a distributor infrastructure said to me, “I’m ready to release my ’09 Chardonnay, but I need to move 70 cases of the ’08 first.”
Yeah, him and about 5,000 of his winery brethren, too. Likely, that’ll be the case next year and the year after, as well.
By common analogy, I think Lot 18 sees a wide and deep market-altering Amazon.com-style opportunity where others see Fatbrain.com, a little known ecommerce bookstore for technical books circa 1999.
Sure, I groaned when I read a recent article on Lot18 at Business Insider. There, James was quoted as saying, “No matter how fast we hire, we have more openings than we can actually fill.” In total, the short piece smacked of hubris. But, James also said something really insightful when he noted, “(Wine) is a $30 billion niche. It’s bigger than music, it’s bigger than Hollywood, and it’s bigger than DVD’s and cinema. I guess you can call that a ‘niche.’” That was on April 26th.
On April 29th James wrote a blog post at his personal site discussing in very obtuse terms the arrows that companies take in the back when they have, “First Mover Advantage.” He noted, “There’s a first mover advantage to what we do, and we’re happy to be leading the way. It’s not cheap going first, and that is the flip side, but by leading and paying to pave the way we do get to define a portion of the landscape.”
An alleged “Flash” wine sales site that launched in November having “First Mover Advantage?” What the …?
On May 2nd Lot 18 announced a $10 million dollar round of series B financing, adjoining a $1 million dollar sales month in March and April.
Clearly, there’s more here than meets the eye.
Despite having worked at three venture capital-backed companies, I don’t profess to know much about the VC game. However, I do know that in this day and age, VC guys aren’t throwing $10 million into the 40th wine-related “Flash” site and the 196th social commerce business plan they’ve seen in the last 12 months unless there is a vision for something that the rest of us can’t yet discern.
What precisely Lot18’s VC’s see is between Lot18’s business plan and the banker’s in wingtips, but what I think they see can best be typified by a quote from Jeff Stai, owner of Twisted Oak winery in the Sierra Foothills who was quoted in Palate Press regarding a sale at another flash wine, “… We sold 683 three-packs, which is roughly three pallets of wine. I’ll sell three pallets of wine all day at near-FOB!”
FOB is a wine industry term for the winery sale price to a distributor.
What Stai didn’t say, but he could have was, “If I can close out a vintage and maintain a margin that I’m happy with and not have to deal with the incredibly inflexible, non-partnership oriented three-tier, who greedily eat my discounts instead of passing them to the customer, I would love to.”
So, if we go back to quotes from James about how big of a market wine is and you consider that closeout discounting to this point has only occurred in the three-tier system, you can start to see the seeds of a business model emerge that’s much bigger and will surely outlast the “Flash” sales sites that operate like retailers in a short-term bubble.
There currently isn’t a vintage closeout or inventory liquidation mechanism in the wine business outside of the closed off three-tier system. Every other consumer packaged good vertical has a closeout function typically handled by brokers.
Ding, ding. This is why Lot18 is nationally hiring, “Wine Procurement Specialists” – these are the equivalent of brokers who facilitate the sale of goods that need to be closed out.
It sounds so simple, but really the business perspective difference in between being a small-time “Flash” operator and building the infrastructure that Lot18 is putting in place is significant in vision.
So, are these sites “predatory vultures” perilously taking advantage of wineries in short-term time of need, as has been alleged? It’s all in your vision of the business model – a model that I suspect is more Manet than Monet for those who look for the fine detail.
Photo credit: Demetrios Vlachos
March 17 2011
Unless you’re Rip Van Winkle snoozing since 2004 and awakening in the early spring of 2011, it’s not hard to persuasively argue (to say nothing of intuitively understanding) that digital marketing (in all of its permutations) is foremost on the minds of wine marketers for direct-to-consumer engagement.
That’s the fact. Here’s the reality: It’s wild and wooly out there. Making sense of it is beyond any one person and yesterday’s Twitter account is tomorrow’s old news. Yet, trying to figure out any one thing (like geo-location, for example), can take you into Alice’s rabbit hole leaving you more confused than when you began. This, I know.
Continuing what has always been a part of what I write about here – the intersection of wine marketing and wine enthusiasm – I’m altering these posts to, at the least, be more findable on the site by headline if not style.
Generally, I like to take sides on an issue and make hyperbolic proclamations that read like mandates (um, Glenn Beck without the apocalyptic bombast?). Instead, with this incrementally re-jiggered series of posts that will occur once every month or two, I’m choosing to just simply discuss a few things that have wine marketing implications (that I find of interest) while offering some context that I find equally interesting.
Of course, first up is the wine industry’s favorite internet poster child: Gary Vaynerchuk.
Gary V. and Dailygrape.com
On Monday, March 14th Gary Vaynerchuk announced on the 1000th episode of WineLibraryTV that he was re-deploying the web-based show that launched him into pop culture. During what he described as an “emotional” episode that seemed to me to have all the emotional sincerity of somebody cruising up to their baby mama’s trailer park in an Mercedes S-class to drop off eight months of child support back payments, Vaynerchuk revealed that the newly created Dailygrape.com would be the new home for his wildly popular wine review show.
WineLibraryTV (WLTV) isn’t going away, per se, but it will now only be used for special interviews and one-off activities, according to Vaynerchuk.
Citing a need to, “Innovate” and get out in front of trends, Dailygrape.com is available via your web browser and optimized for viewing on iPads and iPhones. As an iPhone/iPad application, Dailygrape offers a number of features for community and user wish lists, and access to additional Gary Vaynerchuk reviews.
Speaking of reviews, Vaynerchuk promised more of them, which he will deliver on…for the introductory price of $2.22 a month through the rest of year, delivered in a monthly newsletter. More on this in a second.
A couple of things jump out to me about Vaynerchuk’s move to a de-couple himself from his retail operation, WineLibrary:
1) He’s smart to not let his charisma and personality take him in business directions away from the core of what got him to this point – wine. Does Oprah become an icon and build a media empire if she took a left turn out of her afternoon chat fest three years in?
2) He’s smart to re-brand because his shtick is intrinsically linked to WineLibraryTV and his WLTV patois has a finite audience. The early returns on his first two episodes at Dailygrape.com indicate Vaynerchuk may be toning his act down from outsized caricature to energetic everyman. This can have a direct correlation on potential audience growth.
3) In order to be taken seriously as a wine critic, where there is ample room for deification with a younger generation, Vaynerchuk had to separate himself from the frequent denunciations that a reviewer can’t be impartial if they’re selling the wine, as well.
4) Dailygrape.com doesn’t offer an RSS feed – which means Vaynerchuk is no longer syndicating his content – an online model that has been predominate over the last decade; the notion that giving content away for free, everywhere, can help build a brand. No, instead of going to Google Reader to watch the show, you’ll have to go directly to the site, or the iPhone/iPad compatible application on your device.
This “innovation” that Vaynerchuk speaks of seems to me to be more of business-savvy maturation and a necessity with an eye on the next couple of years of sustaining growth for his personal brand.
What’s he’s doing is using internet feedback as a large focus group to answer perceived negatives while at the same time creating a branded media property separate from the womb of his retail operation, positioning himself as an accessible wine critic for a new generation. Rachael Ray has her 30-Minute Meals and Vaynerchuk is building on wine criticism. Through this process he’s also showing his cards for what we’ll be talking about two years from now, which will likely include:
1) Remember when we didn’t have to pay for anything on the internet? Vaynerchuk goes premium offering exclusive content to subscribers.
2) Vaynerchuk the respected wine critic with a fast-growing subscription-based newsletter, widening influence and Dailygrape shelf talkers at retail stores nationally
3) Multi-platform ubiquity
4) Extensible branding and the foundation of a media company à la Oprah’s Harpo Productions and Martha Stewart Living Omnimedia.
In sum, I’m careful not to confuse “innovate” with “necessitate” and, truthfully, it seems like the changes Vaynerchuk is making are as necessary as they are cutting edge yet I have a sneaking suspicion that Vaynerchuk’s star is not only going to get brighter, but he’s going to convert detractors in the process.
To see how my Vaynerchuk analysis skills were in March of 2007, a little over a year into WineLibraryTV, click here.
Next up: Pts. II and III of this post series.
February 26 2011
Over the course of the last year, I’ve been chronicling trending in sweet wines. From Jam Jar, the first semi-sweet red to forthrightly come to market with national intent, to Tim Hanni, a Master of Wine who is advocating a respected hierarchy for sweet table wines and their consumers, to the growth of Moscato both in acreage under vine and wines on the shelf. The growth of sweet table wine is palpable, even if a vocal minority views it as potably unfit plonk.
With national wine companies like Bronco nationally rolling out their Crane Lake Sweet Red in 2011, joining Gallo’s Barefoot Sweet Red that launched in 2010, the big guys see a market niche and sweet reds are taking their place next to Moscato in the opportunistic growth category…
…An opportunity that, to this point, has been the province of local and regional wineries…and their happy customers.
I recently attended the annual Wine Market Council research presentation in New York City. Combined with Nielsen data, the presentation presented a number of eye-opening insights into opportunities in the domestic wine business. Notable amongst many data points was a Nielsen slide that presented wine sales growth from state of origin.
Citing notes I took from the presentation, Indiana had 13.1% growth in sales value and 11.2% growth in volume. North Carolina had 9.7% growth in sales value while they increased 12.6% in volume.
Of course, the question that begs to be asked is: What is leading a Midwest and an east coast wine-producing state to grow their wine sales numbers at such rapid rates?
The answer it turns out is premium-priced, easy drinking sweet table wines – whites and reds—a fact that the national players are just now viewing as an opportunity, joining a party that has been going on for years.
Indiana’s bellwether winery is Oliver, a favored son and a winery that was named one of Wine Business Monthly magazine’s ‘Hottest Small Brands’ in 2004. In an interview with owner and winemaker Bill Oliver, he confirmed that Indiana’s growth percentages are largely attributable to Oliver’s increase in distribution throughout the country, from as far west as Colorado and throughout the southeast and eastern seaboard, with more growth on the way. In fact, Indiana’s top selling wine for the last eight years has been – yes, you guessed it – the Oliver soft red and soft white wine, a sweet wine made from vitis labrusca concord grapes that fly’s off the shelves of grocery stores and big box warehouse club stores.
In our conversation, Oliver cited two regional winery peers that have similar market profiles – St. James in Missouri who claim to have one of the top selling wines in the state year after year from their line-up of predominantly sweet and semi-sweet non-vinifera wines, as well as Duplin winery in North Carolina who also claim to be the producers of the perennially bestselling wines in their state from their line-up of Muscadine wines. To their credit, Duplin has been named a 2009 and 2010 Beverage Information Group’s Fast Track Brand Award winner—the award is given based on percentage of sales growth year-to-year, with a minimum of 10% growth each year.
These regional wineries, with case production and spot distribution that would make most producers in California blush, are doing something right.
As virtually every state in the union has fostered a wine industry over the last 25 years, almost every one, save for wineries in California, Oregon and Washington, have a sweet table wine line-up that acts as the profit engine for the winery. As Oliver noted, “It’s a no brainer. I want to keep the lights turned on; I want to send my kids to college, and we’re serious about quality.”
What is curious, however, is why it has taken this long for the national players to recognize the trend that sweet table wine sells exceedingly well between the coasts. Simply, why has it taken this long to give the people what they want?
The answer to why a sweet opportunity isn’t more manifestly addressed by the west coast wine industry is likely two-fold:
1) Sales data is notoriously poor making it difficult to spot trends that don’t start in your own backyard, or are shared over a cup of coffee
2) Save for dessert wines, sweet wines and their customers are viewed in a derogatory fashion by the fine wine segment of the wine industry
To wit, a recent Symposium at the University of California, Davis, the wine industry’s principal academic arm, called, “Sweet, Dessert, and Dried Fruit Wines: A Worldview” focused mainly on dessert wines, as reported by Wines and Vines magazine. The lone outlier discussing sweet table wine, Tim Hanni, from the Wines & Vines article said, “There are people out there who would love to drink wine, but we won’t let them” remarking on an institutional perception from the majority of the wine industry.
For his part, Oliver is hoping that more people don’t catch on to the trend as he cautiously watches Barefoot and Crane Lake move into markets where Oliver sells exceedingly well. Referring to Barefoot’s Sweet Red, he noted, “It tastes like Central Valley wine with sugar in it,” a stark contrast to the years of craft that have gone into making his Soft Red a high-quality people-pleaser.
In sum, we’re at the beginning of the sweet white and red wine trend. Typically, there’s trend trickle down from the large wine companies into the finer wine segments of the west coast wine industry over a period of years. Yet, until strapped west coast wineries, wrestling with how to grow, get the gospel, fast-growing wineries in the rest of the country are continuing their growth path on a foundation of high-quality, affordable, people-pleasing wines while muttering to themselves, “How sweet it is.”
February 19 2011
Wine Intelligence, a wine research firm based in London, released their “Portraits USA 2011” report this week highlighting six distinct groups of consumers based on their relationship with wine.
According to the press release and marketing materials, the research provides insight into six prevailing consumer-based wine segments.
To this I say, “Fantastic.”
I also say, “Constellation Wines did this in 2006 with their Project Genome study and the Wine Intelligence bracketing of consumers has more than a passing resemblance to the Constellation study that was hailed at the time as a ‘landmark’ piece of consumer research.”
Take a look at the three images below and tell me that they aren’t materially the same. The only difference I can determine is you can read a substantive summary of the Constellation research for free and the Wine Intelligence research will cost you $3,750.
No mention in the Wine Intellligence marketing materials about methodology or inspiration for their market segmentation, either.
PT Barnum said there’s a sucker born every minute. PT Barnum didn’t acknowledge, however, people with a memory like an elephant.
Wine Intelligence
Constellation Project Genome
Comparison Chart Between the Two
January 29 2011
Odds and ends from a life lived through the prism of the wine glass …
Millenials
At the 6th annual presentation of U.S. wine consumer trends given by the Wine Market Council (WMC) at the Museum of Modern Art in New York City on January 25, 2011, President John Gillespie said everything and said nothing when pressed about “What should wineries do” in regards to Millenials and marketing. Gillespie noted in response to the query, “It’s so complicated. But, you can’t ignore it. Or, you ignore it at your own peril.”
With that, wineries everywhere heaved a labored sigh. “Complicated” is right and “Ignore” is exactly what I think is happening.
“Twenty something’s.” “Generation Y.” “Millenials.” “Social media.” By now, these are titular reference points that I suspect most people are sick of hearing about, joining me in phraseology weariness.
It’s nothing personal; I grow weary of other phrases that collapse under the weight of cultural overuse, too. The next time I hear somebody say, “Thrown under the bus” I’m going to gather them up by the shirt collar and throw them in front of, well, the next passing bus… In addition, the irony is that for all of the so-called, “Sense of entitlement” that Millennial’s possess, our information culture has done a good job of making this generation feel like they are special by constantly keeping them in the headlines, particularly with the use of social media as some sort of marketing elixir (note: I didn’t use the overused phrase, “Silver bullet”).
Despite the omnipresent awareness of Millenials and social media, after having spent a couple of days in New York City this week at the Vino 2011 conference, I can’t help but point out that my sense of Millenial marketing, social media and the wine business writ large is that people have tuned out—just as I’ve reasonably tuned out, as well.
I sense that most producers in the global industry played out in the U.S. know that Millenials are important to the future of wine; they know that Millenials have taken to wine, yet they don’t sense the imperative and they really don’t know what to do to appeal to this youngest generation. And, of course, my sense of the situation is compounded by the fact that producers have been beaten to a bloody nub with the importance of Millenial marketing from the braying pundits who don’t have proverbial, “Skin in the game.”
In this case, it feels almost like a reverse case of the Preacher’s Kid – or “PK” in a Midwestern abbreviated colloquialism. As a strict parent if you tell the PK over and over that drinking, smoking and screwing is awful and horrible, the kids are going to do it out of defiance. Played out in the wine industry, a placid lull seems to have taken place whereby a non-focus on Millenials is manifest almost as a narcoleptic rebellion against conventional wisdom.
While I have the luxury of selective attention because I work in digital marketing by profession and can select what’s important to me based on what project I’m working on, the wine business has no such luxury regarding this key demographic.
Two elements brought this topic of Millenials, social media and the wine business back to front and center for me, giving me a, pardon the indelicacy, a “Holy shit” moment.
First, I was doing research in advance of my participation on a panel about Millenials and digital marketing when I ran across some astounding statistics from the Pew Research Center.
If reading through the technology adoption habits of the generations in the Generations 2010 research report released in December of last year doesn’t shake a wine marketer into a moment of despair when compared against their slate marketing plan tactics then I don’t know what will.
To wit, according to Pew, 95% of Millenials are online (the greatest percentage of any generation), 83% use a social network, and they lead in every category related to online usage.
As internet analyst Charlene Li has noted, “Social networks will be like air.”
Indeed.
The other key moment was information presented by Gillespie at the aforementioned Wine Market Council annual research review, co-presented with Danny Brager from Nielsen.
Unfortunately, in their finite discretion, the WMC chose not to provide a copy of the entire presentation, instead offering a peculiar abbreviated hard copy, leaving the meaty elements out of the distribution at the invitation only event. Despite the Three Stooges eye poke to the attendee’s, I did scribe some really critical statistics that should make any wine marketer sit up straight in their chair and adjust their somnambulistic gaze into focus with alacrity.
1) In 2010, wine represented the 3rd fastest growing consumer packaged good
2) Throughout the recession, Millenials have demonstrated the most consumer confidence of any generation
3) 91% of wine by volume is drunk by core wine drinkers
4) 51% of Millenials are core wine drinkers!!
5) 25% of wine consumed by Millenials costs $20 +
6) Of a total population of 71 million, 16M Millenials have yet to come of age
So, taken together, the fact that Millenials, essentially, live online, 1 in 2 is a “core” wine drinker, 1 in 4 bottles they purchase is over $20 and about 23% of them have yet to become 21, I would say that the implications are clear.
Get ye online, and get yourself in front of Millenials or, as Gillespie says with a paucity of detail, “Ignore it at your own peril.”
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