Co-authors: Deborah Steinthal, Scion Advisors® , Erica Valentine, Scion Advisors® and John Hinman, Hinman & CarmichaelLLP.
PRELIMINARY RELEASE!
- EXECUTIVE SUMMARY (this blog)
- LAST 24 MONTHS: NEW REALITY (this blog)
- HOW TO PREPARE FOR NEW OPPORTUNITY (this blog)
- NEXT 24 MONTHS: KEY PREDICTIONS, THE NEW ROAD (Weeks October 20, 26 and November 2)
EXECUTIVE SUMMARY
“Over the next 24 months, consumer demand for wine will continue to grow globally and the United States consumer will be leading the way. However, the wine industry will see the fall out of weak players as the strong get stronger”, predict industry advisors, Steinthal, Valentine and Hinman.
The Great Recession has accelerated the professionalization of the wine industry. Figure 1 illustrates how wine industry A-players are adopting new business practices at a faster rate, managing more strategically, and building more financially-viable businesses.
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Stronger Will Get Stronger
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Weak Will Drop Out
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Pruned, profitable product portfolios
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>$50 category takes long term hit
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Focused, differentiated brands
− Wine culture shifts as consumers seek closer social connections with their favorite brands.
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>100 ‘hobbyists’ quietly close doors
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Stronger, leaner teams
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100’s of jobs lost
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Cash becomes king
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100’s of equity lines close down
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More diverse sales channels
− 100’s of new retail private and control labels launch
− 100’s of new consumer channels launch
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1000’s of brands drop out of national distribution
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Selective growth thru acquisition
− Excess grape supply gets absorbed by $12-25/bottle wine categories, driving category quality up.
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100’s of properties sell and/or go into foreclosure
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Next generation owners step up
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Next generation owners drop out
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Figure 1 – Over the next 24 months: A-Players are Building More Financially-Viable Businesses
In November 2005, co-authors Deborah Steinthal and John Hinman published a groundbreaking whitepaper: The Perfect Storm: U.S. Wine Market Liberalization, defining a ten-year framework for change. We predicted that interlocking dynamics - the forces of globalization, consolidation and wine market liberalization, would drive change in all tiers of the Wine Industry (see Figure 2). By 2015, U.S. wine consumers would benefit from better access to higher quality wines for the price, dramatically accelerating innovation created by the forces of competition.
Figure 2 - Five Interlocking Dynamics Continue to Have a Dramatic Effect on the Wine Industry
Four years later, as we move into the fall of 2009, we ask ourselves: what has really changed? The purpose of this article, Perfect Storm Revisited, Part III, is to challenge our assumptions and ask ourselves: What is ahead for wine business leaders; How to prepare for future opportunities and challenges. In this article we also want to revisit our predictions in the context of what we are now calling “The New Road”. The state of the world economy and its impact on the wine industry can no longer be referred to as a “bump in the road.”
LAST 24 MONTHS: NEW REALITY
In December 2007 – when we published our update, A Perfect Storm Revisited, Part II, the industry’s largest players continued to grow through acquisition and global sourcing. Globalization was helping to mitigate production over-supply. More states were open to inter-state shipping. Regulators, driven by wholesaler trade associations looking to control market access, were at the same time making it more complex to market and ship wine direct and legally. This was inhibiting wineries and logistics providers from easily building profitable new direct shipping business models. (Click here to read more)
HOW TO PREPARE FOR NEW OPPORTUNITY
Rather than just “battening down the hatches”, well-positioned wine business leaders are supporting their crew with tools, training and other lifeline supports to ride out the storm. Strong and strategically-focused leadership is vital in steering wineries through these challenging times. Here are some important practices and strategies to consider. (Click here to read more)
STAY TUNED: for our next chapters!
NEXT 24 MONTHS: KEY PREDICTIONS, THE NEW ROAD (Weeks October 20, 26 and November 2)
About the authors
Deborah Steinthal (deborah@scionadvisors.com) is the founding partner of Scion Advisors, a Napa-based wine business advisory firm which enables clients to build more financially-viable businesses. She has been an executive across a variety of industries globally and helped companies transform from start-up through high growth, restructure due to poor performance and integrate new acquisitions.
Erica Valentine (erica@scionadvisors.com) is a senior associate of Scion Advisors. With over 15 years as a marketing executive at Constellation Wines and Seagram Chateau & Estates, and 10 years consulting with privately owned wineries, venture capital and web-based businesses, Valentine advises companies on how to differentiate and compete successfully in a complex marketplace, creating and implementing marketing and sales programs that work.
John Hinman's (jhinman@beveragelaw.com) experience spans the modern history of the wine industry and includes regulatory defense before state and federal government agencies, distribution litigation throughout the U.S., arbitration and mediation of relations between grape growers and wineries, and deep involvement in the direct shipping battles from the very beginning. He is founder of Hinman & Carmichael LLP.
[1] The Great Recession: Global economic meltdown started in Fall 2007 which saw the unraveling of financial institutions, collapse of the housing market and mortgage financing industry, a growing health care crisis and continued instability in war-torn countries.
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