Post-Pandemic Reality Takes Shape
With restrictions on socializing largely lifted, last year’s surge in direct-to-consumer (DtC) shipments, as a result of COVID-19, is coming into sharper focus. Shipment value in the latest 12 months through September rose 13% versus the previous year to nearly $4 billion while shipment volume rose 10% to 8,522,546 cases. Should current trends continue, annual DtC shipment value for this year could total $4.2 billion.
While channel growth has continued, gains this year reflected pre-pandemic patterns. The rise in activity that accompanied lockdowns last year was absent as growth moderated over the summer in line with historical patterns. Shipment value remained comfortably above the previous years, however, buoyed by an influx of club members that signed on last year to support smaller wineries, as well as broader usage of the channel. Many people had fewer reasons to utilize the channel, but those who did were receiving more expensive bottles than a year ago. But with the return of cooler fall weather and persistent concerns regarding variants and the efficacy of vaccinations, volume growth has picked up and boosted monthly shipment value to its highest levels of the year. Average bottle price has also begun to rise.
DtC Draws Investment
Wineries have responded with fresh investments in the channel to refocus operations with new technology or in some cases by purchasing businesses that will help improve their DtC offerings.
Most recently, Vintage Wine Estates Inc. bought e-commerce platform Vinesse LLC for upwards of $16.5 million (the initial purchase price of $14 million could be sweetened with $2.5 million over three years by achieving certain revenue and profitability targets). “We believe we can create significant cost synergies by bringing winemaking and distribution in-house and marketing VWE’s brand portfolio through their channels,” Vintage CEO Pat Roney said in a statement that announced the deal. “We also see significant potential opportunities for revenue expansion as we blend the talent of Vinesse’s traditional marketing skills with our digital capabilities, particularly through cross-selling into Vinesse’s channel and upselling our luxury brands to their club members.”
The deal follows what had already been a strong year for Vintage, which reported DtC revenues of $348 million in its fiscal year ended June 30, a 27% increase from a year earlier. The segment was also profitable, with DtC net revenue increasing 18% during the latest quarter.
Vintage has promised “several” further acquisitions in its next fiscal year designed to support growth, a commitment the Duckhorn Portfolio Inc. has also made.
Duckhorn, like Vintage, recently went public, and the growth reflects the capital behind both. According to the company’s most recent annual report, Duckhorn is aiming for “continued expansion into the DtC channel,” which currently accounts for 17.8% of its sales. The report also noted: “This robust channel provides an important means for us to engage with consumers, create brand evangelists and drive adoption across our portfolio. This channel also favorably impacts margins, as wines sold through our DTC programs are often more exclusive, higher-priced wines.”
The purchase of Kosta Browne in 2018 supported this strategy, adding acclaimed wines with loyal followings to its audience while expanding Duckhorn’s DtC capabilities.
The purchases parallel a similar move last year by Constellation Brands, which has been focusing on high-end, higher-value products. While awaiting federal approval of its bid to sell approximately 30 lower-priced brands to E. & J. Gallo Winery, Constellation took an equity stake in DtC-oriented Booker Vineyard, which focuses on $25-plus wines, and in June 2020 acquired Empathy Wines, a venture native to the digital environment aimed at positioning it for online sales growth. “We are investing to meet the evolving needs of consumers, including offering DtC and e-commerce platforms,” Constellation stated in its most recent quarterly report. “We have seen customers shift more of their total shopping spend to online channels since the COVID-19 outbreak, which has led to increased e-commerce, including DtC sales for our business.”
Of the additional $46.2 million in gross profit it reported in the financial report for the period ending Aug. 31 Constellation attributed $5.8 million, or nearly 13%, to a “favorable DtC mix.”
Headwinds Linger Post-Pandemic
But this doesn’t mean the channel isn’t facing headwinds. Tasting room visitation fell 48% in 2020 in the face of public health restrictions, according to the annual Wine Business Monthly tasting room survey. Tasting rooms have traditionally been the single largest source of new wine club members. However, DtC also includes tasting room sales as well as shipments, so the decline in visitations limited not only club sign-ups (which nevertheless grew) but in-person transactions that accounted for 42% of DtC revenues last year.
Gains from DtC activity, even in the latest period, have not made up for lost on-premise sales, higher transportation costs and other expenses as Constellation has discovered. In another example, total revenues increased at Ste. Michelle Wine Estates in the first six months of 2021, rising 14.4% to $317 million; but as parent company Altria Group’s latest financial report acknowledged, “Ste. Michelle’s operations continued to be adversely impacted by disruptions arising from the COVID-19 pandemic.” Even so, significant investments in technology at Ste. Michelle give it the tools needed to take advantage of the new environment, something private equity firm Sycamore Partners is counting on after paying $1.2 billion for the Washington vintner on Oct. 1.
In Oregon, publicly traded Willamette Valley Vineyards Inc. reported that DtC accounted for 35.2% of its net sales in the three months ended June 30, compared to 39.6% a year earlier and 38.2% in all of 2019. Similarly, Duckhorn, despite its ambitions, has reported that DtC, as a proportion of its overall sales, has fallen five percentage points, down from 22.8% two years ago. It attributed the shift to strong off-premise sales during the pandemic, underscored by comparatively strong growth in lower-priced wines and anticipation among wholesalers that retail sales would remain strong. “We expect that our channel mix will begin to normalize in future periods as consumer purchasing and consumption patterns return to normal following the COVID-19 pandemic,” Duckhorn’s annual report noted.
Stage Set for Innovation
But the new sales landscape ushered in by the pandemic isn’t about to disappear as restrictions ebb. It was common, when lockdowns and other restrictions first took hold, to say it takes about eight weeks for people to form new habits. Now, more than 80 weeks later, those habits are firmly entrenched and have developed a life of their own. Online meetings are commonplace, if not preferred, and e-commerce is seen as a reliable way to order a wide range of consumer products. Consumer comfort with ordering groceries online is now 51.5%, according to market research firm eMarketer, up from 33.8% in 2019.
Many wineries are now taking a digitally-oriented approach to reaching visitors and customers, who are either unwilling or unable to visit their premises. “With the pandemic, people are online more,” observed Anahita Pouget, sales and marketing director at Phantom Creek Estates in Oliver, B.C., which opened to the public as the first wave of restrictions lifted in June 2020.
The significant investment in the winery, located on the region’s noted Black Sage Road, had won it attention early on, but with its grand opening approaching, it was critical to connect with potential visitors. An initial teaser video was produced, but with the pandemic, an entire series was developed that took the experience to guests who might not be able to reach the winery. Wine club members are the best ambassadors that we have,” she said. “Customization … leads to a complete buy-in feeling.”
And this is what happened with strong visitation and conversion to club membership. “We were booked out pretty much June to October,” Pouget continued. “We attained the highest visitation in the Southern Okanagan.” Wine club membership increased in turn; its Grand Cru club sold out within a month, and a waiting list developed while its “Estate” tier also saw strong membership. The average order at the winery was 21% above what was anticipated; online orders tracked closely with public health protocols. Orders increased during periods of greater restrictions and moderated this year as restrictions eased.
Recognizing that a greater volume of activity was taking place online, Phantom Creek developed a business club. The idea was one Pouget had been formulating for several years, but last year made the idea a natural move. Several business owners had joined its regular wine club; many expressed interest in sharing the experience with others. “It’s a no-brainer that as a business we should only facilitate that,” Pouget said. “If they are taking it upon themselves to share our business, why don’t we make it simpler for them?”
Since traditional club membership is non-transferrable, Phantom Creek launched what’s effectively the equivalent of an enterprise license available in three tiers that extends membership status to several individuals associated with a company. Companies purchase a tier according to the number of bottles included in twice-yearly shipments; membership also includes a number of complimentary experiences on an annual basis, including estate tours and a variety of tasting offerings. Club benefits are tracked digitally, with dispensing electronically-delivered codes for each allocation. “We launch it, and they can just forward it off to employees. They don’t have to sit and ship; they don’t have to hire an admin person to manage what’s used, what’s not used,” Pouget explained, noting that club memberships are billed at the beginning of the year to keep accounting simple. Given current expressions of interest, she expects 40 to 50 businesses to sign on by the end of the year.
Digital Experiences Drive Connection
The experiential aspect is also key. “We took the wine club, and we tried to make it enticing for businesses that could align with some of the values,” Pouget added. “It’s a very unique offering to give an employee. Most people get the hat, the jacket, all the swag, but you collect and where does it go? Now we are giving employers the ability to give people moments to cherish, which you can’t put a value on.”
The emphasis on in-person connection is something other wineries have been working to enhance. Duckhorn speaks about the importance of its “high-touch customer service teams,” in its annual report, and the importance of its “highly trained wine specialists” that connect guests with its unique character. “The tasting room experience is designed to turn each guest into a brand evangelist and encourage future connections and purchases throughout our portfolio and channels.”
At Stoller Wine Group in Dayton, Ore., a 10,000-square-foot tasting room opened last year that enables guests to explore the property. It’s a combination of traditional tasting room and amped-up technology to take customers beyond the room’s walls. Table-top displays allow guests to engage with the property as they taste wines while augmented and virtual reality options
Conversely, wineries, like Clos du Val, Matthiassen, Chateau Ste. Michelle and Phantom Creek, have conducted national and international tastings that use technology to meet enthusiasts where they’re at – from America to Asia. “If you want your DtC to be straight and not go with the wave … then find another place in the world,” Pouget said. “If your wines are exported, it’s actually working well to feed the same demand in those areas.”
The initiatives point to the firm hold an omni-channel marketing approach has found in the wine sector. This is not going to go away. While a surge in corporate orders occurred in the run-up to the 2020 holidays, activity this year is showing a move away from shipments to more in-person tastings. This promises to deliver accretive growth moving into 2021, growing the sector as a whole. “COVID’s been around so long I think it’s changed the landscape permanently,” said Megan Gess, a partner in the law firm of Haynes and Boone LLP based in Irvine, Calif.
Prospects Rise for Small Brands
Gess has noticed growing interest from large wineries that want to make more strategic DtC investments. Two years ago, owners of fast-growing DtC brands had few pathways to liquidity. While delivering good cash flow, most were small and challenging for buyers to scale up. That changed last year as DtC and retail growth helped offset on-premise losses. “It’s made those smaller wineries — brands, really — that have been successful at DtC look more interesting to acquirers because they have a handle on something that bigger folks don’t really have,” observed Gess, who represents wineries looking to sell. “They may have used to wanted 80% retail channels/20% DtC, and I think we’re going to see that change.”
While the recent deal for Vinesse and Constellation’s investments in DtC opportunities last year focused on the acquisition of specific platforms, Gess said most DtC transactions are now about the brands. “The technology gives the consumer access to these brands and then what draws the consumer in after they have the access is really the story behind the brand, the reviews, the other perks they might get for being involved,” she explained. “A story is still very important to consumers, especially as we’ve gotten more disconnected and we’re all sitting in a house looking at our computers all day.”
Smaller brands are often good at telling their story, but making use of technology to hone their connection with consumers is where larger, better capitalized players are helpful. “They’re not, for the most part, using all that technology because it just doesn’t make sense from a cost perspective for them to make those types of investments,” Gess said. “But I think you see it from the buyers’ perspective because they have access to that technology and they can leverage it when they acquire these small brands. … They have access to things that can really drive the profits.”
But in a surprising move that parallels the clicks-and-mortar trend in other retail sectors, some DtC brands are starting to attract interest from traditional retailers. “As brands that people didn’t traditionally know about became more popular and increased volume on the DtC side, now, as retail’s opening up more, I’m hearing that they’re getting more interest on the retail side than they ever had pre-COVID,” Gess observed. “So it’s leading to an increase on the retail channel.” This sets the stage for a further evolution – and confusion – in the DtC channel, which shares many characteristics with the growing e-commerce sector. But as omni-channel marketing becomes more common among wineries, DtC has proven it can not only stand on its own but lift up other channels, too.
— Peter Mitham
COVID Accelerator Drives E-Commerce
The dramatic increase in the e-commerce sales of wine, beer and spirits has been one of the main narratives of the past two years alongside the increase in winery DtC shipments.
As consumers took their shopping online, the increase in the value and volume of beverage alcohol sales has been stunning, yet behind that increase in spending has been an equally impressive but much less visible amount of change in the systems to facilitate those sales.
The total U.S. beverage alcohol e-commerce market was pegged at around $2.6 billion in 2020, according to Rabobank, and has no doubt enjoyed strong growth through much of this year. Concurrent with retailers — and producers — growing more savvy in marketing in the digital space is the potential that one or two key court decisions could pave the way for increased retailer DtC shipments and even more transformative change.
New Jersey-based Gary’s Wine & Marketplace is one of the largest fine wine retailers in the New York metro area but moved west in a major expansion in 2019 when it opened a location in St. Helena, Calif. in the former Dean & DeLuca building.
Mike Fisch, the company’s director of innovation, said in an email that sales from the retailer’s wine clubs have grown close to 150% while the Gary’s Wine mobile app has enjoyed more than 35,000 downloads. “We allocate a significant budget toward paid, digital marketing efforts,” Fisch explained. “This channel is an excellent source of new customer acquisition provided that the cost of acquisition remains below the average lifetime value of the customer.”
But in addition to the digital outreach, Gary’s worked with the New York firm City Hive to deploy technology in its marketing efforts for seamless, efficient e-commerce. “City Hive allows suppliers to compliantly deploy marketing dollars toward driving sales to retailers,” he stated.
The biggest changes are app sales and local delivery. On the East Coast, Fisch said the company coordinates with Onfleet for delivery routing and logistics while also operating a fleet of delivery vehicles to support a pace of around 1,000 deliveries a week. Local delivery from the St. Helena location is provided by FedEx.
Founded in 2016, City Hive started out working with a small group of independent retailers in New York before settling in to what has been a lucrative groove in beverage alcohol sales. Within one month, founder and CEO Roi Kliper said the company was working with more than two dozen wine and liquor stores. The company’s SaaS platform links wholesale and inventory management with sales, as well as sales analytics and consumer recommendations.
What started as a way for small, independent stores to compete in the e-commerce space then exploded through 2020 and into this year, Kliper noted, as leading distributors, major retail chains and thousands of independents have started to work with the company.
Speaking to the Wine Analytics Report in June, Kliper said total revenue in 2021 was 12 times what it was the previous year. The company is working in 38 states with more than 2,000 retailers and processed nearly $500 million in transactions in 2020.
The company is working with a few wineries, but the focus so far is on retailers. City Hive is supporting a few national and global brands, with the primary focus on local delivery. The technology is also expanding sales opportunities.
In July, the Prosecco DOC consortium ran a National Prosecco Week campaign supported by more than 500 retail stores in the United States. Working with City Hive and Wine.com, SevenFifty, VinePair, 3X3 and others, the campaign included the usual slate of consumer and media tasting events as well as a special online shop where consumers could purchase Prosecco and then have it delivered via a local retailer.
In less than two years, the majority of U.S. beverage alcohol consumers have gone from being limited to just in-store retail shopping to having the ability to purchase a variety of wine, beer or liquor online and get those products delivered within the same day or even the same hour. A niche market mainly in just the major metro areas has gone national, and all of the data from purchases within the past two years are providing a foundation for further analysis to build upon an explosive start.
As retailers, big and small, have invested to support e-commerce so too have distributors. The various chains that link the beverage alcohol sales system have become shorter, and the different players are more closely linked than ever before.
Rabobank Food and Agribusiness beverage analyst Bourcard Nesin said the rapid “Shopify-cation” of beverage alcohol is further integrating distribution and inventory with point of sale and CRM, and that integration will ultimately provide a bonanza of actionable data through a network effect. “There’s a stacking up and sophistication of an entire industry now,” Nesin observed. “There had always been the promise of digitalization and a big gap between that and the reality.”
With the pandemic showing consumers they can get what they want delivered from a place they know (and which is likely providing customized recommendations based on previous purchases), the sophistication of those offers and wider digital marketing will only get better.
Fisch, with Gary’s retail chain, said the company relies on its wholesale partners not just to provide the product but increasingly the sales materials to help sell it. “It’s more important than ever for wholesalers to maintain the quality of their product information online,” he urged. “If a product does not have an image or tasting notes on our website or mobile app, customers are less likely to purchase it online.”
Data Insights from Distribution to Sales
All of the major wine wholesalers, as reported in the September edition of the Wine Analytics Report, have made major investments in streamlining this end of the market and continue to improve using what they’ve learned over the past two years. “Digital is having a wide impact on how our industry operates,” noted Darrell Riekena chief information officer and executive vice president for Republic National Distributing Company. “We see it in how our customers are using new technology to manage and run their businesses, to how consumers are leveraging digital capabilities to place orders online for alcohol.”
Riekena said the wholesale business has shifted from “an inventory-driven model” to one that is less reactive and more proactive based on the wealth of new insights available through data analytics, predictive modeling and other inputs.
On Oct. 12, the U.S. Supreme Court declined to take up a lawsuit that challenged Missouri’s law barring out-of-state retailers from shipping to residents there. That case is one of several that have the potential to either open the United States to retailer DtC or further restrict it.
In a webinar hosted by Wine Industry Network in September, Tom Wark, executive director of the National Association of Wine Retailers and a long-time advocate for liberalized retailer shipping, said the coming year has the potential to further remake the beverage alcohol market.
Wark noted that cases similar to the one recently declined in Arizona, Indiana, Ohio, North Carolina, Rhode Island and New Jersey may also lead to a decision by the highest court. “I think 2022 will be a fascinating year for beverage alcohol regulation and compliance,” he commented. “We’re going to see a lot of decisions come down on a lot of these lawsuits, and I’m looking forward to that.”
— Andrew Adams
Industry Metrics: DtC Value up 15%
Value of domestic wine sales for 12 months ended September 2021
- 10% U.S. wine sales including bulk imports, bw166
- -8% off-premise sales value, NielsenIQ channels
- -15% on-premise sales (52 weeks ended Aug. 14, 2021), CGA Strategy
- +15% DtC shipment value, Wines Vines Analytics/Sovos ShipCompliant
- +129% Winery Job Index, Winejobs.com
Consumer spending on domestic wine, including bulk imports, increased 10% versus last year to $51.8 billion in the 12 months ended September, market research firm bw166 reported. Spending on table wines increased nearly 11%, while sparkling wines gained 13%. Bulk imports increased 10%. Spending on other traditional wines – a relatively small component of total spending that increased significantly during the pandemic – fell 14%, signaling the receding influence of the pandemic on purchases. Total volume for all domestic wines increased 1% during the period to nearly 312 million 9L cases.
Concern regarding variants of COVID-19 seemed to ebb in September as the value of the total wine market in the U.S. during the latest 12 months rose 14% to $77.1 billion. While packaged imports posted stronger growth than domestic wines, rising 23%, both categories helped drive the total market higher. Spending on domestic wines accounted for an extra $4.9 billion while packaged imports added $4.7 billion in sales to total $25.3 billion. Among packaged imports, other traditional wines such as vermouth saw continued strong growth with spending up 48%, but sparkling wines were making headway with 36% growth. Spending on imported table wines increased 14% to make the largest contribution in dollar terms to the rise of packaged imports.
Sales of domestic table and sparkling wines through NielsenIQ off-premise outlets approached $878 million in the four weeks ended Sept. 11, down 8% versus a year ago. Volume fell 12% to 8.8 million cases. The declines were consistent with previous months, suggesting that consumption patterns have stabilized versus a year ago while remaining comfortably above 2019 totals. Declines occurred in sales of both table wines (down more than 8%) and sparkling wines (down 6%).
Steady performance was also seen in the latest 52 weeks, as sales of domestic table and sparkling wine remained unchanged at $12.9 billion. A decline of 1% in table wine sales to $12 billion was offset by a 9% increase in sparkling wine sales to $865 million. However, both wine types saw growth decelerate versus the previous year. The overall stability of domestic wine sales through NielsenIQ outlets is notable, given that on-premise spending roared back through the summer.
Domestic wines have emerged from the pandemic in a strong position. The combined effect last year of tariffs on certain European wines, most notably French table wines, as well as lockdowns that spurred increases in DtC shipments and e-commerce, appears to be feeding renewed success of domestic wines through NielsenIQ off-premise outlets. NielsenIQ outlets account for 31% of the value but 49% of the volume of wine sold in the U.S., and last year domestic wines dipped to just under 77% of what those outlets were selling. But this year, domestic wine sales have inched up to nearly 78% of channel value, firmly on par with 2019 but at a higher volume. This suggests that a less restricted consumer is building on last year’s experiences to support domestic producers many of which have also reoriented themselves to retail options as on-premise sales dropped.
Domestic wines have also benefitted from premiumization as part of the shift, with the average bottle sold through NielsenIQ outlets rising 6% in the latest 52 weeks to $8.28. Table wines drove the increase, with pricing rising 6% to $8.16 a bottle, while sparkling wines commanded the highest average value at $10.34, up 4% versus a year ago. Domestic wines continue to be more affordable than imported wines, however, which averaged $9.87 a bottle during the period.
CGA Strategy reported that on-premise wine sales in the 52 weeks ended Aug. 14 were just 15% off where they were a year ago, totaling $10.8 billion. The top performer was the sparkling wine category, down just 10% versus a 16% decline in still wine sales. The rebound in domestic wines, which account for 63% of channel value, has also been slightly weaker than imports. This may point to the stronger performance of sparkling wines, as imports include some of the most popular and fastest-growing sparkling wine brands.
DtC shipment value rose 15% versus a year ago in September to more than $359 million, Wines Vines Analytics/Sovos ShipCompliant reported. Volume increased 5% over last year to 710,036 cases. The strong increase in value relative to case growth lifted the average bottle price of shipments 10% versus last year to $42.14. With average bottle price increasing each month since June, the trend seems set to continue through the traditionally strong period of October-November-December (OND).
In terms of what was shipped, three varietals held 59% of the channel by value: Cabernet Sauvignon led, with shipments worth nearly $1.1 billion, followed by red blends at $644 million and Pinot Noir at $639 million. With respect to growth versus a year ago, the numbers point to the resurgence of sparkling wines as the pandemic ebbs as well as the enduring popularity of red blends. Sparkling wine shipments rose 38% by value to $126.5 million in the latest 12 months while red blends were the second fastest-growing wine type with 16% growth.
But if red blends logged the greatest growth in overall dollars, Cabernet Sauvignon logged the greatest increase in terms of case volumes. The sheer amount of Cabernet shipped meant that its 9% increase translated into an additional 105,261 cases shipped, firmly above gains made by sparkling wines (up 32% by volume, or 82,595 cases), Pinot Noir (up 8% or 92,227 cases) and red blends (up 7% by volume, or 80,161 cases).
The shifts over the past year did little to alter overall market share for the top varietals. However, the most active wines did see notable shifts in average value. Growth in the volume and value of sparkling shipments supported a 5% increase in average bottle price to $30.41. Among the top three table wines, red blends saw the strongest price growth at 8% in the latest 12 months to $45.34. This made red blends the second-most expensive wine type ahead of Pinot Noir, which claimed third place with a 1% increase to $45.19. Cabernet Sauvignon remains the undisputed leader, at $67.15, a 3% increase from last year.
DtC activities have become increasingly important to U.S. wineries. Those producing 1,000 to 4,999 cases a year embraced the channel with gusto over the past five years. According to Wine Analytics Database numbers, 57% now operate a tasting room or wine club compared to 51% in 2016. The country’s largest wineries have also become increasingly active in the channel, with 64% participation (up from 61% in 2016), while participation by those making less than 1,000 cases a year held steady at 15%.
Winejobs.com’s Winery Job Index stood at 392 in September, up 129% versus a year ago. Strong demand for DtC roles, including tasting room and retail staff, as well as general administrative staff underpinned the index while vineyard labor saw the strongest overall growth in demand at 300% off a low base. Demand trends pointed to the need for workers to bring in this year’s harvest in short order as well as ongoing efforts to find tasting room and retail staff as visitations continue to recover as public health concerns ebb. The winery hiring market is experiencing a return to normal even as the labor supply remains tight and winter job demand faces uncertainties.
The mismatch is seen in demand for DtC positions, which forms the largest component of the index with a subindex reading of 746, up 137% versus a year ago. Demand for general administrative staff, usually a small component of the overall index, has increased steadily in recent months to become the second-largest component in September with a subindex reading of 630, up 174% from a year ago. Demand for sales and marketing roles increased 122% to 217 in September. Winemaking and production roles – the third-largest component of the overall index with a subindex reading of 300 in September – saw demand up 112% versus a year ago. All subcategories except finance saw demand at least double versus last year, pointing to the opportunities in a broad range of roles.
While some expected the termination of pandemic-related unemployment benefits at the beginning of September to encourage more people to return to the workforce, the winery jobs index indicates that demand for workers has not yet been satisfied.
According to data based on millions of searches through wine-searcher.com, red wines accounted for 73% of all U.S. search activity followed by 15% for sparkling, which enjoyed an 8% increase in searches compared to September 2020. The ten most searched for wine varieties saw varying levels of interest with Pinot Noir searches jumping by 19%, Chardonnay up 14% and Champagne blends enjoying a 11% increase in searches while red blends were down 17%, and Cabernet Sauvignon declined 7%.
Californian wines account for 30% of all U.S. searches and fell 7% compared to last year while Bordeaux was up 10%, Burgundy searches spiked 44% and Champagne rose by 18%.
Brand Strategy Amid Historic Change
Carmen Castaldi has been in the wine industry for nearly 40 years and joined Rodney Strong Wine Estates in 2005 as vice president of sales and marketing. Castaldi was promoted to the post of president in 2016. Rodney Strong produces 860,000 cases a year, putting it at No. 26 on Wine Business Monthly’s 2021 Top 50 list of the largest U.S. wineries. In addition to Rodney Strong, the company also owns Davis Bynum, Upshot and Knotty Wines, which debuted in 2020. Supplying these national brands are 14 estate vineyards that encompass more than 1,200 acres.
Castaldi began working in wine in 1980 for a distributor in North Carolina and eventually would represent more than 300 wineries for on-premise accounts before joining Beringer Blass Wine Estates as the Chicago area manager in 1986. He would later join Beringer’s corporate team in Napa, Calif. in 2001 after helping to facilitate Fosters’ acquisition of Beringer in 2000.
Speaking to the Wine Analytics Report in late September, Castaldi discussed DtC shipments, the radical changes in the wine industry and how digital marketing is helping established brands find new consumers in a dynamic market.
Q: How much more do DtC and e-commerce account for your sales strategy in the coming year and beyond?
Carmen Castaldi: We grew about 400% last year on e-commerce, but that e-commerce had really been such a small part of our business. It’s somewhat of an offshoot of hospitality or visitation here at the winery. But I think, before COVID hit, all of us were wondering how do we really jump into e-commerce in a more meaningful way than we’ve been doing? We’d hired a couple managers that were really helping us bring that into more of a focus and investing a lot more in social marketing and digital marketing that would also support offers. We had already started all that, and then COVID hit. So everything sort of took off.
Q: Are your e-commerce sales efforts tied to your three-tier sales?
Castaldi: Not necessarily, really, because there’s a whole different digital platform through our three tier that we’ve been working with and especially in our partnership with Southern Glazer’s Wine & Spirits and their Proof system, which is their B2B platform, and we’re certainly much more active in that with them than we have ever been obviously, but it’s fairly new. Going back to hiring the people to put together the campaigns that are going to go DtC, using our digital marketing, our digital social influencers, customer acquisition and then trying to convert them into direct sales is what we’ve been focusing on pretty significantly.
Q: What is driving your strategy in digital and new consumer acquisition?
Castaldi: About two or three years ago we finished a project with an agency out of New York, and that was a deep dive into consumer attributes relative to Rodney Strong, which is a very traditional brand. What we knew is that our core customers were potentially starting to age out of purchases, just like any other mature brand. We looked at current Rodney Strong core consumers, and in addition, we looked at Gen X and Millennial wine purchasers. We had these great panels in about five cities, and from that we identified very common traits that crossed over between those generations yet were aspirational and an opportunity to appeal to younger consumers, and that group is what we call our “conscious connectors.”
All of our social, digital marketing and outreach, whether it’s through influencers or through actual ads or SEO searches, are really focused on those attributes and about 190 million customers. It’s a little bit of a long road toward what we see as the end game, but there’s a pool of people, and there are ways that you can geo-target to promote your brand and create awareness, and that led to the rejuvenation of the packaging. It also led to our brand proposition, which is that Rodney Strong has been committed to the community since 1959.
Q: And all of that was done prior to the pandemic?
Castaldi: Yes, I mean, I think the pandemic is a little bit like a portal we went through, and everything changed exponentially. Everything’s changed when it comes to how consumers interact with any product but especially wine. Consumers have really become very comfortable and at ease and like getting fine wine delivered to their home, and we were able to really extend that nationally.
Q: Based on your experience in the wine industry, how would you characterize the change we’ve all experienced?
Castaldi: I think it’s going to be like, honestly, what happened with the advent of the industrial age, particularly in beverage alcohol, which historically has stayed sort of stodgy, old world and I’m talking more specifically about wine. Just speaking to three-tier sales, distributors will have less salespeople on the street, and instead of collecting bills and taking orders, they’re going to be working on consultative sales, and I think you’ll see a lot of reductions of what we did in the past that are just not going to happen in the future. That’s where this digital B2B platform has been explosive because of the sheer efficiency of it.
The pandemic hit the world, and it just stopped everything. It stopped transportation, stopped pollution and stopped a lot of commerce. There are so many people that are trying to get back: they want to go back to when it was normal, back like it was, but quite frankly, we had a lot of bad luggage that we had with us. I think the opportunity that I see in beverage alcohol is that we can choose to bring that old, dusty, ugly luggage that we carried around with us for generations or go through the portal, put a backpack on and fight for the future.
Q: How does wine fight for that future?
Castaldi: I’m not convinced quite frankly that it’s putting Rodney Strong in a can with some fruit essences and some spirits and saying, “Here, this is cool, try this.” We’re trying to adapt to that seltzer consumer, that younger consumer. I don’t think that’s the case. I think it goes back to a little bit of tried and true but what’s the communal experience of wine as it’s related to food? I do think we have to be more inclusive and absolutely not snobby about those products. I do see a place on the table for a spritzer type of pre-dinner cocktail but how are we making wine fun again? We launched a brand called Knotty Vines, which is absolutely focused on fun and irreverence.
Q: Didn’t that hit the market right after the start of the pandemic?
Castaldi: Yes, it did, and that actually brings up a great example of what you did in the past and won’t be doing in the future, which is sampling in stores. We had a large budget that was dedicated to sampling and trials within stores, and that didn’t happen. I have disagreements with my sales and marketing team about this, but I think food safety is going to be a big barrier to that. We’ll end up doing 50,000 cases this year, which is great post-pandemic. We had to invest in significant digital advertising campaigns. We have an agency that works with us, that’s focused on Spotify, Hulu and targeting specific cities around the country for that brand, so that’s what we’re doing.
Q: Can you speak to the success of Sonoma County in general in DtC, and more specific to your business, how has the role of the tasting room changed or become even more important?
Castaldi: I hate using the words “great value” because it sort of connotes lower-end wines or products. But I think that Sonoma County has always had a high level of integrity balanced with some humility, as well as outstanding vineyards. We’ve always been able to produce every varietal at really high levels of quality while keeping that humble agricultural base. But what we’ve also heard from national restaurant groups is that these (Sonoma County) brands did really well, and now in the future, when you’re going to have smaller wine lists, they say we’re going to have more brands that people know and respect and feel comfortable with. Isn’t everyone looking for some sort of security, right?
We decided to renovate our indoor tasting room, and we started that project on March 8, 2020, about a week before the shutdowns. We thought, well, this is an interesting time but nobody can come here, so we can just go through our renovation and then we’ll be ready to open with a whole new look and feel six months from now. So, 14 months after that people were able to come to the new tasting room at the end of June this year, so there’s good and bad with all that. I think for everybody in the industry, as we’ve gone with all these new protocols, appointment-only has been fantastic for us. It’s enabled us to staff appropriately, and it’s also enabled us to engage with the customer in a more meaningful way. Our average sales are up almost 35%, and we’re selling more higher-end wines, and we’re just finding that the people who are coming here are ready to purchase: they’re ready to take some wines home with them. Because the people who are coming, they want to have this experience: they’re ready for it, and they’re very receptive to it.
— Andrew Adams
Nov. 9: Winejobs.com HR Summit
A conference for HR managers to connect with their peers to discuss current human resources topics and learn from industry experts. Click here for more information.
Nov. 9-10: Wine Industry Financial Symposium
The wine industry’s premiere event covering key financial, business and strategic issues, including separate tracks for technology and vineyard sessions. Click here for more information.
Jan. 19-20, 2022: DTC Wine Symposium
15th Annual DTC Wine Symposium to support Free the Grapes to be held online and in-person in Concord, Calif. dtcwinesymposium.com
Jan. 25-27, 2022: Unified Wine & Grape Symposium
North America’s largest wine industry conference and trade show at the Safe Credit Union Convention Center in Sacramento, Calif. unifiedsymposium.org
March 22-24, 2022: Eastern Winery Exposition
The Eastern Winery Exposition is the largest conference and trade show focused on the wine industry in the eastern United States. easternwineryexposition.com
March 27-29, 2022: ProWein
International wine and spirits trade fair in Düsseldorf, Germany. prowein.com
March 30, 2022: WiVi
Held in Paso Robles, Calif., WiVi features a trade show as well as panel sessions, educational seminars and networking opportunities for winemakers, grape growers, winery owners and managers. wbmevents.com