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Reflecting on the U.S. Wine Industry Upswing

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Robert Smiley is professor emeritus of management and served as dean of the Graduate School of Management from 1989 to 2003. He is co-director with David Block, Chair, Viticulture & Enology Program (V&E), of the UC Davis Wine Executive Program.  This year’s program will be on March 24 -28, 2013.

The wine Symposium Group and I conduct a yearly survey of wine professionals to better understand industry trends.  I presented the results of this survey at the 19th Annual Wine Industry Symposium in September. From this year’s data, we can conclude that the wine industry is definitely on an upswing in terms of consumer demand. People are buying more wine, both in volume and at higher price points. In the United States, there appears to be a very good grape crop this year with regards to quantity and quality.

That being said, the behavior is still markedly different from the wine-buying heydays of the mid-aught years. Five years ago, people were buying Napa Valley cabs and varietals almost with abandon. They were rushing to the latest hot vineyard or trendy winery, which is no longer the case.

The great recession has caused consumers to be more careful, and they’ve become more demanding with regard to quality and price point. That’s because in the interim during ’08, ’09, and ’10, they found some great wines at lower prices. In order to woo them back, higher-priced wineries need to deliver and demonstrate quality and make consumers aware of what they’re buying and why they should pay a premium.

It’s critical to note that although the outlook is rosy in the near term, there are definitely risks moving forward. There’s always the chance of another recession, and there’s a high probability that there might not be enough crops in the coming years to meet consumer demand. Europe, for instance, had the worst grape harvest in half a century.

Consumer Behavior and Brand Loyalty

Brand loyalty is a big issue when it comes to wine because of the sheer number of choices and stiff market competition. I don’t think you can lump all purchasers together in one way. Some are brand loyal – they’ve found the brand that works for them and they’re going to stay with it as long as they can afford to buy it

There’s also a strong variety-seeking behavior that’s very prevalent in the wine category, compared to almost any other category in the United States. These individuals are not brand loyal but prefer to experiment widely, deriving vicarious pleasure by buying wines from different countries if they can’t afford to travel there. They can’t afford to go to Chile, or Uruguay, or Argentina, but they can buy a taste of that country. It’s a low-cost way of getting an experience of that culture.

Linking Marketing Trends with Online Sales

Data from our survey demonstrated that wine professionals are increasingly using social media for marketing. Most cited Facebook, followed by Twitter, company blogs and LinkedIn as their preferred social media tools. Most wineries are trying to sell more wine online to defray distribution and retail costs.

What’s interesting to note is that the wine consumption is particularly high in the 20s and 30s age bracket. This is a generation that has taken to wine in a significant way, and the wine industry is very excited by this demographic shift.  This means that because wine drinkers are younger, they’re more agile with regard to social media. That being the case, social media has to be a prominent focus for this competitive marketplace, because that’s exactly where the customers will be found.

Sunny Skies Ahead? The Future for Wine

I was just in a board meeting where a well-known wine maker remarked that this is a very good period for the wine industry. It’s not true that you can sell what you want, all you can make, at any price. However, you can have an easier time selling your more premium wines this year, as compared to last year and the year before.

The challenge now is deciding what to do for the future, knowing that you can actually afford to make some choices because you’re making some sales. Two or three years ago, wineries were desperate and unable to make strategic choices – now they can. The questions to ask are: How do you position yourself? What do you think about the future? What varietals do you plant? What long-term contracts with growers should you enter into? There’s a whole series of choices on the table as a result of a generally improving situation for winery owners.

Wine Executive Program 2013

All of these recent industry trends will be covered in the Wine Executive Program curriculum. My talk and some of the other workshops are very much keyed to what’s going on in the industry.  We’ll also try to anticipate what some of the problems of the future will be.

On the other hand, curriculum regarding the science of grape growing and wine making will not be affected by short-term economic shifts. There’s an underlying structure and theory for some aspects of the program, including growing grapes, making wine, wine industry finance, and how to keep track of how you’re doing – those areas will not be altered. We’re very excited that for the first time, we’ll be guiding program participants through the UC Davis Department of Viticulture and Enology research vineyard and winery to see where and how our cutting edge research is conducted.

It’s always important to consider that the wine industry has a uniquely challenging legal and regulatory environment.  We’ll have a major session on that topic, taught this year by the General Counsel of Kendall Jackson, Michael Maher. He’ll bring a new perspective on the legal and regulatory challenges, which are many. Because of prohibition and its repeal, the alcoholic beverage industry is among the most regulated and strangely regulated industries. When prohibition was repealed, the federal government gave all regulatory powers to the states.  If you want to make wine and sell it across the country, you’ve got fifty different legal environments to deal with. Maher will talk about those issues, which Kendall Jackson faces day in and day out.

You’re invited to learn more about the Wine Executive Program, to be held March 24-28, 2013. Please contact us for inquiries or for more information.

For more blogs on other business issues , visit our Executive Education Blog.

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