"It's just not a level playing field," commented one winery owner during a coffee-break chat at the Ahead of the Curve seminar in early March hosted by Napa Valley Grapegrowers. When the panelists took a look at the success of low-priced wines coming into the US market from such countries as Chile, Argentina, Australia ... the hackles went up.
Just to stir the pot a little, yours truly asked the moderator a question about the desirability of trade barriers in light of the erosion of market share in the value-priced segment prompted by these international players vis-a-vis US producers. WOW. What a hot potato! The question was rapidly deferred, termed "political" (it's not -- it's an economics question too, by the way), and no further public discussion took place. But plenty of coffee-break discussion resulted!
It is a Catch-22. The good article posted March 2 on Decanter.com: "US wine exports break $1bn" was a great summary of the situation. "Nearly 55m cases of wine -- 90% of it from California -- were shipped last year, up 8% on 2007. By value, exports rose 6% to $1.01billion according to US Department of Commerce figures, " cited the article. That certainly represents a big boost to California winemakers. On the one hand.
On the other hand, what can be done to help U.S. winemakers who should compete head-on in the value-price segment? (And they should compete, given the high growth there...)
It is a God-helps-those-who-help-themselves situation. Clearly the marketing promotion for wines from Chile, Argentina, Australia et alia is superb: Traditional advertising (wine region based) in lifestyle magazines, travel sections, big newspapers. Wine tastings here, there, everywhere. Development of wine tourism. Reviews. Tweets. Facebook plugs. Blogposts. Price Promotions. Endcap displays. Paid trips for wine buyers to those countries, vineyards, wineries. Jeez, how can a US winery compete?
Here are some ideas: Traditional advertising (wine region based) in lifestyle magazines, travel sections, big newspapers. Wine tastings here, there, everywhere. Development of wine tourism. Reviews. Tweets. Facebook plugs. Blogposts. Price Promotions. Endcap displays. Paid trips for wine buyers to those countries, vineyards, wineries. Sound familiar? The approach is called "fighting fire with fire".
That's the best way to level the playing field. Get on it and fight hard! Use the power of your industry associations and AVAs to develop programs that will help. One caveat: fight fast. You must be nimble and speedy in marketing during a recession.
Oh by the way, you might do more with your internet sales. After all, you've got the shipping advantage here...
GUEST BLOGPOST: Wine Importers and Today’s Conundrum of Foreign Exchange Rates
Wine importers have always had to deal with a great deal of uncertainty and volatility. Consider that February 2009 Euro rates reached a low of 1.2513 in terms of US dollars, while Euro rates only a year ago reached a high of 1.5239 (February 2008). How is a wine importer to plan for pricing product scheduled for, say February 2010? Will the Euro be up or down? How about the Aussie dollar? The South African Rand? The New Zealand dollar?
The answer is: nobody knows.
When you deal in a product that forces you to make some financial predictions, it feels like thin ice every day. This was certainly my experience as a foreign exchange broker for a number of years.
But I do, however, know exactly how much I will be paying if I purchase a forward contract.
For our example, we’ll use Euros. The spot Euro (if I were to purchase today for today's delivery) is 1.2700 to the US dollar. I can lock in a Euro payment for March 2010 at a rate of 1.2725, almost the same as today's spot rate (thanks to the US Federal Reserve’s current policy of near 0% interest rates). Does this mean I might as well wait until next year, since rates will be the same?
No!
The forward rate is not a prediction of what rates will be in the future, but simply a mathematical formula (based on U.S. versus European interest rates) and the resultant supply/demand factors. The purchaser must put up at least 10% of the total as margin.
I know that many importers never use forwards, and I also know that every importer who has used forwards has been caught on the wrong side of a forward contract. If I locked in the Euro at 1.2725 for February 2010 delivery, and the spot rate was 1.1600 in 2010, I would be upset that I had "speculated" and lost. On the other hand, if the Euro appreciates and the Feb. 2010 spot rate was 1.400, I would be elated at my smart prediction.
The truth, however, is that by not using forwards, the importer is indeed speculating, as his cost will be determined by the market on the day of payment.
My advice to wine importers: if your cost models make sense based on the forward rates, then locking in those rates will prevent any surprises on payment day. You’ll sleep better when you can plan your pricing structures far in advance.
Matt Esslinger consults with food and wine import and distribution companies on financial and operational issues, bringing a Harvard MBA plus 20 years of experience managing small to medium sized businesses in various industries. He is based in San Francisco. Contact him at gesslinger@mba1986.hbs.edu and via http://www.linkedin.com/in/mattesslingersf
The answer is: nobody knows.
When you deal in a product that forces you to make some financial predictions, it feels like thin ice every day. This was certainly my experience as a foreign exchange broker for a number of years.
But I do, however, know exactly how much I will be paying if I purchase a forward contract.
For our example, we’ll use Euros. The spot Euro (if I were to purchase today for today's delivery) is 1.2700 to the US dollar. I can lock in a Euro payment for March 2010 at a rate of 1.2725, almost the same as today's spot rate (thanks to the US Federal Reserve’s current policy of near 0% interest rates). Does this mean I might as well wait until next year, since rates will be the same?
No!
The forward rate is not a prediction of what rates will be in the future, but simply a mathematical formula (based on U.S. versus European interest rates) and the resultant supply/demand factors. The purchaser must put up at least 10% of the total as margin.
I know that many importers never use forwards, and I also know that every importer who has used forwards has been caught on the wrong side of a forward contract. If I locked in the Euro at 1.2725 for February 2010 delivery, and the spot rate was 1.1600 in 2010, I would be upset that I had "speculated" and lost. On the other hand, if the Euro appreciates and the Feb. 2010 spot rate was 1.400, I would be elated at my smart prediction.
The truth, however, is that by not using forwards, the importer is indeed speculating, as his cost will be determined by the market on the day of payment.
My advice to wine importers: if your cost models make sense based on the forward rates, then locking in those rates will prevent any surprises on payment day. You’ll sleep better when you can plan your pricing structures far in advance.
Matt Esslinger consults with food and wine import and distribution companies on financial and operational issues, bringing a Harvard MBA plus 20 years of experience managing small to medium sized businesses in various industries. He is based in San Francisco. Contact him at gesslinger@mba1986.hbs.edu and via http://www.linkedin.com/in/mattesslingersf
Barrel Tastings in Sonoma, Book in Hand!
What could be better than to have the author of the new book, Back Lane Wineries of Sonoma, talk about under-the-radar small family-run wineries Just In Time for this second weekend of barrel tastings in Sonoma! Tilar Mazzeo's book is the one you want to have in hand for this weekend.
"Passionate amateurs are very much welcomed by winemakers at this special group of wineries," Tilar said during her talk at The Mechanics Institute in San Francisco March 10. "These wineries are run by the same people who grow the grapes and make the wines, and they offer a friendly, intimate atmosphere. This is where to go to get a unique product. Discerning oenophiles know this."
Thumbing through the book, plotting a course, it seems like I can make my way to at least four wineries on Saturday. I'll probably make a stop at Amista Vineyards, in Healdburg on Saturday, March 14th, from 12:00 - 2:00 pm; Tilar will be there with some books to sign. My friends all want one now!
In creating this book, Tilar relied on the generosity and sharing nature of these small artisanal winemakers. "Essentially, I asked each of them for their Top 6 Picks. Many people simply got on the phone and helped me set up the next round of appointments. For three solid months, I visited 4, 5, or 6 wineries a day, always for an hour at least ... and many for some long afternoons."
The openness of the back lane winery owners and winemakers will be well rewarded. This book is going to be an essential guide, and will provide that off-the-Highway-101 wine country experience that many wine lovers will cherish for years. If you want to study up in advance before the barrel tastings this weekend, you can get the book in a rush from Amazon, Tower Books, Barnes & Noble.com, Powells and others.
"Passionate amateurs are very much welcomed by winemakers at this special group of wineries," Tilar said during her talk at The Mechanics Institute in San Francisco March 10. "These wineries are run by the same people who grow the grapes and make the wines, and they offer a friendly, intimate atmosphere. This is where to go to get a unique product. Discerning oenophiles know this."
Thumbing through the book, plotting a course, it seems like I can make my way to at least four wineries on Saturday. I'll probably make a stop at Amista Vineyards, in Healdburg on Saturday, March 14th, from 12:00 - 2:00 pm; Tilar will be there with some books to sign. My friends all want one now!In creating this book, Tilar relied on the generosity and sharing nature of these small artisanal winemakers. "Essentially, I asked each of them for their Top 6 Picks. Many people simply got on the phone and helped me set up the next round of appointments. For three solid months, I visited 4, 5, or 6 wineries a day, always for an hour at least ... and many for some long afternoons."
The openness of the back lane winery owners and winemakers will be well rewarded. This book is going to be an essential guide, and will provide that off-the-Highway-101 wine country experience that many wine lovers will cherish for years. If you want to study up in advance before the barrel tastings this weekend, you can get the book in a rush from Amazon, Tower Books, Barnes & Noble.com, Powells and others.
INDIA'S GROWING WINE MARKET: Old Wines could scare off New Customers
When I went to India in the fall of 2008, I drank the wines that the locals drink. Bottles open, glasses clinking at fine restaurants at the Taj, the Oberei, and Indigo. I slunk into liquor stores near market areas to see what they offered, and sauntered into the wonderful wine selection at the Nature's Basket markets. A trip to the Nashik Valley meant tastings on winery premises of Sula, and Reveilo (aka Vintage Wines).
I came home very optimistic about the prospect of increasing wine sales, both imports and domestic wines, in India. A week later, the terrorists rampaged through Mumbai. It's looked for several months like the market might disappear. But ... no.
(photo at left, wineshop manager at Mumbai Nature's Basket market)
Eric Pope, who does a wonderful job of overseas market development for The Wine Institute, has kept a running dialogue open with me on this topic. It's impossible to go to India and not fall in love with this vibrant country and its open and friendly people. We are all cheering for this market to develop for the wine business!
The latest industry buzz could deter the weak-hearted. In a February 15 post on Sommelier India-the Wine Magazine, the article titled "Triple whammy for wine in India" cited three not-so-great market factors: "a slowdown in consumer spending due to the worldwide economic recession, the impact of the Mumbai terror attacks on travel and tourism, and the weakening Indian rupee."
One reader, Harshal Shah, in a follow-on comment, noted "I hazard that because of this triple whammy, many importers, especially the big players, would have struggled to have met their sales forecasts with their winery principals around the world. What wineries must insist upon, therefore, is an accurate inventory position to know exactly how much of their stock in sitting, unsold, in importers' warehouses. As far as wine in India goes, then, it may be that we will eventually see a lot of old, badly stored imported wine being released into the market."
The spectre of old imported wine being released to this market is not a good one.
As USA wine market developers look at the pros and cons of entering India, it might behoove someone to find out what amount of California wine, for example, IS sitting in warehouses. Anyone who has kicked around the wine industry in India (I have, by the way, so trust me on some of these things!) knows that refrigeration/climate control in importer warehouses is not uniform. Assessing this impact ahead of time would be useful to US wineries who have their eye on the Indian market.
And you should have your eye on the India market!
There are as many 25-35 year olds in India as there are people in the USA. And they are the up-and-coming wine drinkers, educated, have money. Maybe they don't have money for expensive California and other US wines -- adding on all the tariffs no doubt makes US wines expensive. But somehow there is a big offtake of wines from Australia, Chile, Argentina. And winemakers in those countries have the tariff thing to deal with too.... so.... do I hear the words "value" here?
I came home very optimistic about the prospect of increasing wine sales, both imports and domestic wines, in India. A week later, the terrorists rampaged through Mumbai. It's looked for several months like the market might disappear. But ... no.
(photo at left, wineshop manager at Mumbai Nature's Basket market)Eric Pope, who does a wonderful job of overseas market development for The Wine Institute, has kept a running dialogue open with me on this topic. It's impossible to go to India and not fall in love with this vibrant country and its open and friendly people. We are all cheering for this market to develop for the wine business!
The latest industry buzz could deter the weak-hearted. In a February 15 post on Sommelier India-the Wine Magazine, the article titled "Triple whammy for wine in India" cited three not-so-great market factors: "a slowdown in consumer spending due to the worldwide economic recession, the impact of the Mumbai terror attacks on travel and tourism, and the weakening Indian rupee."
One reader, Harshal Shah, in a follow-on comment, noted "I hazard that because of this triple whammy, many importers, especially the big players, would have struggled to have met their sales forecasts with their winery principals around the world. What wineries must insist upon, therefore, is an accurate inventory position to know exactly how much of their stock in sitting, unsold, in importers' warehouses. As far as wine in India goes, then, it may be that we will eventually see a lot of old, badly stored imported wine being released into the market."
The spectre of old imported wine being released to this market is not a good one.
As USA wine market developers look at the pros and cons of entering India, it might behoove someone to find out what amount of California wine, for example, IS sitting in warehouses. Anyone who has kicked around the wine industry in India (I have, by the way, so trust me on some of these things!) knows that refrigeration/climate control in importer warehouses is not uniform. Assessing this impact ahead of time would be useful to US wineries who have their eye on the Indian market.
And you should have your eye on the India market!
There are as many 25-35 year olds in India as there are people in the USA. And they are the up-and-coming wine drinkers, educated, have money. Maybe they don't have money for expensive California and other US wines -- adding on all the tariffs no doubt makes US wines expensive. But somehow there is a big offtake of wines from Australia, Chile, Argentina. And winemakers in those countries have the tariff thing to deal with too.... so.... do I hear the words "value" here?
Why Boxed Wines Rule Today
A dollar sales increase of almost 25% and a unit-volume sales increase of 4% for boxed wines in the 52-weeks/year ending February 22 is a real eyeopener -- or shall we say, wine-box-tap-opener. Driving this winning streak for wines sold in U.S. food and drug stores is clearly price.
Lewis Perdue, in his March 6 Wine Industry Insights newsletter, analyzed Information Resources Inc data and stated: "As expected, lower-price-point box wines scored the biggest gains with box wines costing less than $2 for a 750 ml equivalents posting a 41.5 percent gain."
For those manufacturers of bag-in-box packaging equipment, it's an "I told you so" moment. Christopher Rutter, founder of Rapak Inc. (Union City, CA) and currently Director of Product Development, said "It was only a matter of time and economics before US consumers discovered the great value and great wine product quality that's to be had in boxed wines."
Rutter hails from Australia originally, and for the almost-twenty years that I've known him, he has been a steady proponent of boxed beverages, from dairy to juice to beverage concentrates to wines. But it is the wine segment that is dearest to his heart.
"So many advancements have been made in barrier packaging and in taps for wine boxes that the problems of the 1980's with oxygen permeation are not a factor at all anymore." Rutter said. "This means that wines like Black Box, which use our packaging equipment, give consumers a great wine experience at a value price."
Lewis Perdue, in his March 6 Wine Industry Insights newsletter, analyzed Information Resources Inc data and stated: "As expected, lower-price-point box wines scored the biggest gains with box wines costing less than $2 for a 750 ml equivalents posting a 41.5 percent gain."
For those manufacturers of bag-in-box packaging equipment, it's an "I told you so" moment. Christopher Rutter, founder of Rapak Inc. (Union City, CA) and currently Director of Product Development, said "It was only a matter of time and economics before US consumers discovered the great value and great wine product quality that's to be had in boxed wines."
Rutter hails from Australia originally, and for the almost-twenty years that I've known him, he has been a steady proponent of boxed beverages, from dairy to juice to beverage concentrates to wines. But it is the wine segment that is dearest to his heart.
"So many advancements have been made in barrier packaging and in taps for wine boxes that the problems of the 1980's with oxygen permeation are not a factor at all anymore." Rutter said. "This means that wines like Black Box, which use our packaging equipment, give consumers a great wine experience at a value price."
Since so many wines are produced to be consumed quickly (and ARE consumed quickly!), shelf life is becoming less of a concern all across the retail wine spectrum. But some consumers have been concerned about the freshness of a wine they can't see. The boxed wine industry's success with high quality wines like Black Box has helped to overcome that apprehension.
Today, even small and medium sized wineries can enter this market. To produce boxed wine cost efficiently, Rapak offers its Model 330 bag-in-box wine filler at an equipment cost that’s significantly lower than other entry-level bag-in-box fillers. It can produce 10,000-150,000 3-Liter Boxes annually, and also be used to produce 18-liter bags for the foodservice/institutional market.
For more information on the newsletter, contact Lewis Purdue via his website: http://wineindustryinsight.com/ For more information on bag-in-box filling equipment, contact Rapak (http://www.rapak.com/) and ask for Chris Rutter.
For more information on the newsletter, contact Lewis Purdue via his website: http://wineindustryinsight.com/ For more information on bag-in-box filling equipment, contact Rapak (http://www.rapak.com/) and ask for Chris Rutter.
***
Disclosure: As part of my portfolio of writing and marketing communications skills, I also do press release writing for a few wineries and a few suppliers to the wine industry for pay. Parts of this blogpost originated as a press release for Rapak.
Disclosure: As part of my portfolio of writing and marketing communications skills, I also do press release writing for a few wineries and a few suppliers to the wine industry for pay. Parts of this blogpost originated as a press release for Rapak.
Indiana Gets Petitions Underway to Free The Grapes
Indiana attorney Lisa Hays Murray is not your run-of-the-vine lobbyist. She's genuinely interested in helping her clients in the state's wine industry get to the place that they can grow their businesses through internet sales and out-of-state shipping. To wit, her recent activities, best seen on the website http://www.hoosiersforwineshipping.com/
Although the site includes information about Indiana wineries and legislative initiatives, in my opinion the most important feature is a petition for consumers to sign and join the Free Trade cause.
Once they've done this -- and Lisa suggests an all-out effort by wineries including putting a link on their websites, and getting employees, family members, Wine Club members, and visitors to tasting rooms involved -- then those who sign the petition will get a prompt to e-mail their Hoosier legislators at key times in the legislative process. The website makes this easy through its "VoterVoice" component.
"With your help, this will be a very successful grass roots tool and further allow us to educate the Indiana legislators about why they should enact free trade legislation," she wrote to wineries.
Lisa works not only hard, but smart. "I copied this idea –with their permission—off of the retailers’ “Hoosiers for Beverage Choices” website. I used the same webmaster, etc. The retailers have been extremely successful in garnering over 15,000 folks to sign their website petition—10,000 signed up shortly after a media blitz last fall. And CVS collected 15,000 more! " Her goal is to get 10,000 signatures.
With that Hoosier determination in play (Go Pacers!)(Go Nappanee Bulldogs!), they will.
Although the site includes information about Indiana wineries and legislative initiatives, in my opinion the most important feature is a petition for consumers to sign and join the Free Trade cause.
Once they've done this -- and Lisa suggests an all-out effort by wineries including putting a link on their websites, and getting employees, family members, Wine Club members, and visitors to tasting rooms involved -- then those who sign the petition will get a prompt to e-mail their Hoosier legislators at key times in the legislative process. The website makes this easy through its "VoterVoice" component.
"With your help, this will be a very successful grass roots tool and further allow us to educate the Indiana legislators about why they should enact free trade legislation," she wrote to wineries.
Lisa works not only hard, but smart. "I copied this idea –with their permission—off of the retailers’ “Hoosiers for Beverage Choices” website. I used the same webmaster, etc. The retailers have been extremely successful in garnering over 15,000 folks to sign their website petition—10,000 signed up shortly after a media blitz last fall. And CVS collected 15,000 more! " Her goal is to get 10,000 signatures.
With that Hoosier determination in play (Go Pacers!)(Go Nappanee Bulldogs!), they will.
Freeing the Grapes in Indiana: Vinsense Provides an Additional Voice
In late February I met with Allen Dale (Ole) Olson, a retired federal civil servant, wine consultant and wine writer (see his blog HoosierWineCellars). Ole has become upset enough with the archiac beverage laws in Indiana to form a group named Vinsense. And he's recently jumped through the hoops to become a registered lobbyist so he can talk to Indiana legislators about why Indiana consumers (over 21 of course) cannot purchase wines freely.
Ole hosted the annual meeting of Vinsense at the Brown County Winery in Nashville, Indiana at the end of February. I am very impressed at the activities of this small but dedicated group, and think that their goal of revealing contributions to Indiana legislators by groups opposed to freeing the grapes is a good one. Vinsense itself operates on a small-but-growing budget that is augmented by tremendous passion and righteous indignation, and BRAVO! I'm rooting for them!
You can read more at the Vinsense website, CLICK HERE. But a quick summary provided by Ole, who is president of the group, is below:
"THE WHAT AND WHY OF VINSENSE: VinSense, Inc. is an Indiana-based wine consumer advocacy group of approximately 3,000 members formed in the early spring of 2007 to work toward the passage of legislation to allow Hoosiers to use modern communications media – internet, phone, fax, mail – to order wine directly from wineries.
VinSense draft legislation resulted from recognition that the existing three-tier system denies Indiana residents access to some 95% of all wines produced in the United States because Hoosiers are required by law to purchase wines only from licensed retail stores or from wineries they have personally visited and which are properly licensed for such shipping. Retail stores, in turn, can sell only wines made available to them by licensed wholesale distributors.
This means that Indiana consumers have had their wine choices pre-selected for them at two levels – wholesale and retail. With nearly 10,000 new wines entering the nation’s markets every year, it is impossible for wholesalers to procure, stock, and offer for sale a substantive percentage of them. Same for retailers.
Using data from a 2003 study by the Federal Trade Association, VinSense calls attention to the fact that the 35 states allowing direct shipping have reported no problems with either underage drinking or collection of appropriate taxes related to direct shipping. That study disproves the most common arguments used by opponents of direct shipping.
VinSense vigorously opposes underage drinking and just as vigorously supports the state’s right to collect appropriate taxes on direct sales. Both issues are addressed in the draft legislation submitted via Senator Brent Steele (R-Bedford) to the Legislative Services Agency. That legislation was tabled by the Senate Public Policy Committee when the President Pro Tem ruled that no alcohol-related bills would be heard during the 2009 session of the General Assembly.
The incoming Chair of the Legislative Study Committee on Alcoholic Beverage Legislation has promised to include VinSense in hearings planned for summer 2009."
Ole hosted the annual meeting of Vinsense at the Brown County Winery in Nashville, Indiana at the end of February. I am very impressed at the activities of this small but dedicated group, and think that their goal of revealing contributions to Indiana legislators by groups opposed to freeing the grapes is a good one. Vinsense itself operates on a small-but-growing budget that is augmented by tremendous passion and righteous indignation, and BRAVO! I'm rooting for them!
You can read more at the Vinsense website, CLICK HERE. But a quick summary provided by Ole, who is president of the group, is below:
"THE WHAT AND WHY OF VINSENSE: VinSense, Inc. is an Indiana-based wine consumer advocacy group of approximately 3,000 members formed in the early spring of 2007 to work toward the passage of legislation to allow Hoosiers to use modern communications media – internet, phone, fax, mail – to order wine directly from wineries.
VinSense draft legislation resulted from recognition that the existing three-tier system denies Indiana residents access to some 95% of all wines produced in the United States because Hoosiers are required by law to purchase wines only from licensed retail stores or from wineries they have personally visited and which are properly licensed for such shipping. Retail stores, in turn, can sell only wines made available to them by licensed wholesale distributors.
This means that Indiana consumers have had their wine choices pre-selected for them at two levels – wholesale and retail. With nearly 10,000 new wines entering the nation’s markets every year, it is impossible for wholesalers to procure, stock, and offer for sale a substantive percentage of them. Same for retailers.
Using data from a 2003 study by the Federal Trade Association, VinSense calls attention to the fact that the 35 states allowing direct shipping have reported no problems with either underage drinking or collection of appropriate taxes related to direct shipping. That study disproves the most common arguments used by opponents of direct shipping.
VinSense vigorously opposes underage drinking and just as vigorously supports the state’s right to collect appropriate taxes on direct sales. Both issues are addressed in the draft legislation submitted via Senator Brent Steele (R-Bedford) to the Legislative Services Agency. That legislation was tabled by the Senate Public Policy Committee when the President Pro Tem ruled that no alcohol-related bills would be heard during the 2009 session of the General Assembly.
The incoming Chair of the Legislative Study Committee on Alcoholic Beverage Legislation has promised to include VinSense in hearings planned for summer 2009."
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