Can i industry sign banking oregon presentation fast
good morning wine world welcome to Silicon Valley banks annual wine report live videocast I'm glad you joined us today you are part of a very wide audience I always like checking out who signed up we have today people from Australia Canada China Chile Israel Italy Mexico Netherlands New Zealand South Africa Spain Switzerland UK ARAG Y and of course the US so I think that's all pretty cool too I never can figure out why people actually want to listen to it we have say across the world but it's a it's a sign that people are interested in our country and and what we do here and of course we have the largest consuming country if you will in the entire world so I think that probably has something to do with it but before we get started I'm going to read a couple things because I can never remember any of this at the bottom of your audience console there's multiple applications widgets if you have a question you can click on the Q&A icon and submit your question ask a question at any time we'll try to get to them throughout the program I know we won't get to all of them but we'll get back to in a blog or some other forum but we'll get your questions answered it just may not be well it's not going to be right when you ask it for sure but you can also chat back and forth to the other folks that are in the in the chat room and I would encourage you right now go ahead and test that feature out pressing that chat button and announce your your name and what winery you work for or company work for and where you're from that might be fun too so go ahead and do that and if there's any technical difficulties then of course feel free to make sure you say something as well so before I start one of the things I wanted to do is talk about the report itself it's a little bit different from what some people might be used to there was something that happened in in the North Coast in October that kind of changed things for us we had a we had a fire that happened in Napa and Sonoma and Silicon Valley Bank we are everybody was fine nobody nobody lost their homes but many of our clients did lost homes we had some of our clients that had some damage as well our Sonoma office we couldn't get into for about a month and then I'm not sure if there's actually I'm I don't know if there's gas in there yet for heating we've been we've been putting in electrical for a long time but all through that time in October that's that's when we normally do our state of the industry survey and so this year we had to do the wine report without the survey and the editorial calendar got all messed up so things have been pushed out we're not actually releasing the report today but we have the conclusions and so we're going to go ahead and and and give those out the report is going to come out in February and I hope you'll look for that before I start I want to make sure that people understand the context that I'm speaking in so what I'm always looking for is what's on the horizon whether that's good or whether that's bad what's the change that's the thing I look for and today I'm going to talk about some things you're going to look at it you're going to say wow that's that's a really negative way to look at it but what I'm trying to do is draw you can draw conclusions and get to an end point about what what to do about that before I step further though I wanted to make sure that I introduced my panel otherwise I'll just talk the whole time that would be ideal but Gretchen go ahead and I don't a mag Gretchen Bock and I'm the CEO at wine by Joe and Dobbs Hanley estate an Oregon winery an operator that's right she's not better MJ Dale I'm marketing director at f-- inventions which is a global wine closures company and founder of customer vineyard dr. hey doctor I'm Paul may I sit here all year long until you do the report every year I'm I'm a digital guy as you know and that hopefully the digital futurist for the whole industry so I'm glad to be here again again thanks everybody for being so I'm gonna start off with just the recognition that you know business is actually good and I'm going to show you some slides to demonstrate that in a second but if you it doesn't really matter what side of the aisle you sit on you have to acknowledge that right now employment is good I mean it's we're at a pretty low unemployment rate wage inflation is starting to show up now which is the one of the things the feds been looking for to start this normalization and removing the QE that you know that's why we're starting to get interest rate increases the participation rate which has been something that they've been looking at for a while the participation rate which is you know the number of actual employees that are participating in the in the economy has been lagging but even even that's starting to pick up and then I think the thing that sealed it probably was the tax reform the fiscal stimulus that is that's ahead of us for 2018 should make 2018 look pretty good if you believe that especially the premium wine industry benefits from discretionary income distress discretionary spending you know certainly you know getting those few extra dollars in your paycheck or through tax relief probably helps us so overall I'd say it's it's pretty good but I'm gonna run through some of the things that that are a little bit of concern to me just to give you context from where I'm standing so if we could bring up slide four to start so what you have in front of you is the it's us wine consumption by volume and what I'd point you to is that that third arrow from the left which is 1994 1994 was the median boomer hitting 35 and as I like to say a lot I don't really care what your cohort is whether you're millennial genex or Gen Q it's 35 to 55 where you end up with your dominant spending patterns so if you look at that line the only time that we really flattened out in the last 20 plus years have been those other two arrows that are in the in those gray bars those are both recessionary periods first attack recession and the the Great Recession after that and then so I have that the end of that chart circled and you know what you can see there is a total change in the slope of that line we have volumes flattening out now if we want we can attribute that to premium ization and the fact that we're drinking better wine and less wine and that's that's a true statement but there I think there's more to it than that so if we can let's move to slide number six and take a look at the next slide as everybody knows I think at this point it's the nine dollars and below that have been pretty much struggling in terms of sales and I'm not going to show you that slide but this slide is one that I've been rolling with for a bit now last ninety days and so but it's a it's from Nielsen and what this shows is that the growth rate now this is positive growth to be above zero you have to have growth and I want to make that clear this isn't declining growth but the rate of growth is declining so when you look at when you look at that you know you see the the 15 to 19 the above 20 is is kind of doing ok but the you know the it's 8 to 15 let's call it that are are trailing down and as I've talked to as I've talked to people around the industry and I start to ask hey you know what is that I keep getting this answer that well Nielsen and and scan data whether it's iri RI or Nielsen doesn't really include everybody it doesn't include Costco it doesn't include total beverage total beverage is that right yeah and an Aldi and Lidl some others and so that's that's a true statement it doesn't include direct consumer either and so maybe if that were included then things would be better so let's go to slide 7 if we can for a second and this is warehouse shipment trends from Gomberg and BW 166 my good friend John Mar Marco and what this is showing is shipments from warehouses starting I believe it was in I can't read the date but I'm going to say 15 something like 2015 up to 2017 by month and what you can see is that there was a fairly substantial change in 2015 late and that changes really it's kind of what you see in that same data from that Nielsen slide it's right about that same time and if you if you look at that top line which is a trailing average you can see again that flattens out which looks a lot like that volume line right so now we have a few data points that start to make things interesting and so now I'm going to go to the last light for now and we'll bring up financial statements benchmarks so one of the things that we do as well is for Silicon Valley banks we provide benchmarks for our clients take all the financial statements that we get whether their prospects or clients stick them together in a database and then we present these benchmarks and benchmarking sessions to our clients but I'm also able to use these to track what's going on in the business as a whole so this is a pretty interesting slide when you look at it because to the bars by the way our gross margin and the blue line is sales growth and what you can see so you got 2008 on the far left and if you look at that sales growth line in 2009 we actually had negative I think it was three point two percent three point eight percent growth so that was the the Great Recession and then you can see since then we picked back up which is consistent with again all those other charts and then we get out to the far right side and what you see is through September of 2017 of this past year nine months the growth rate in sales was 0.3% now think about that for a second 0.3% that's that's kind of alarming especially when you look at all the other slides you start to see volume dropping you see shipments dropping you seen Neilson dropping and these are winery financial statements so well we talked about reasons why some of those slides might be wrong we can talk about reasons why you know the the financial data may be may be wrong actually I think all data are wrong its bias in some form or fashion but it does present a directional argument that we should look at and so when things start to line up like this I got to look a little harder and and so you know point 0.3% we haven't had 0.3% growth since the Great Recession if I had to go back I didn't look this far back but I I suspect the last time we had growth sales growth that was this low was probably 1993 we'd have to probably go back that far so something is changing something is changing underneath 2018 is going to be fine we're gonna we're gonna have I'm predicting somewhere between 4 to 8% sales growth because that that chart didn't include q4 which is you know October November December you pretty good pretty good quarter but something is changing and and that's that's the the point of what I really want to talk about today and Paul Ewan yeah we have a big question from Jackson Family Wines do you expect or know if powerful brands will benefit from the decline of the growth rate under over $9 and conversely will emerging brands face the challenges in the market where growth is declining so I'm curious what everybody actually MJ you have a point of view so I'm gonna let you start but I have a point of view too but I'm gonna weigh in a long question there we go thank you you know I think what's really interesting to me isn't any change we get economically in sales whether we're talking about retail sales or dtc sales they're all selling to the wine consumer and when we get these changes of course large brands will benefit with some of their SKUs that are in the the hot price point this time I think large wine companies do over-index in the lower price point so I imagine they'll they'll see some benefit from this but I also think small independent wineries are gonna are gonna benefit in a different way the the by local regional phenomenon continues strong so if you're asking about are they going to have more struggles even more struggles getting on the shelf in a retail situation sure are they gonna have some more successes potentially direct to the consumer yes so not not a real crisp answer but I think you know a multi-faceted one how about you rob yeah III think that one of the issues we are facing does have to do with channels and so Nielsen data do represent to a larger extent distribution it doesn't include that DTC component and so and we have consolidation as distribution you have the large wine companies continuing to roll up and take a smaller you know it's a it's a large part but they're but they're rolling up and they're leaving all these other smaller chains smaller restaurants and right now one of the one of the rest restaurant segments that are doing pretty well with these the local establishments the small you know the white white tablecloth places restaurants as a rule are struggling right now but it's those local independents that are that are doing pretty well now that that happens to align pretty well with the vast majority of wineries by size the reality is to me is if you're in distribution you're probably doing pretty good or pretty well however whatever you supposed to say that you know so there's there's many different paths to the to the endgame but but I would say yeah the large wine company should should benefit from the problem at the wine large one count you struggle with is that they're also stuck with legacy brands that are under nine bucks and they have to do something with those two that is someone else is the shift from national brands to small winery dtc and they reminded us that most of our wineries are under ten thousand cases and that leads right into what we're talking about today I think so I'm gonna pass it to you actually on this one so yeah well I would you know having a different perspective here in Oregon I would say that weird finally filling is same pressures wholesale has been really tough for the smaller wineries in Oregon especially and we're definitely shifting to DTC I think that we've well people just figured out that's that's where we can grow that's where we can focus that's where we can you know maintain the margin when we're you know so struggling for this little tiny piece of the pie and wholesale so you think there's a shift to dtc and in general is that we hear your your net messages there yes for sure I think them yeah and so yeah so from and by the way I'm happy to have Gretchen here this is our first Oregon representative on on as a matter of fact why don't we pull up slide 13 if we can I think that's a interesting slide to look at because consistent with what we just talked about if you look at the again on the left so this is Nielsen data again but on the Left chart you see the $9 and below that's not doing that great this is by dollars and then you can see the improvement in in growth rates as we we go up you know and then an interesting data point in $100 plus that's at the at the bottom you might talk about that Minot you know it's a segment that's that's of interest to me that we should probably address but on the right side you look at you know what are the regions that are doing well and the regions that are doing well it starts with Oregon which is god I think was I recall something like 17% growth rate and then you know beyond that the other the other regions if you will that are doing well France that ends up being a lot of rosy New Zealand is Sauvignon Blanc Italy is Pinot Grigio and so when I when I look at that actually since we're on it why don't we go to slide 11 if we can and since we're on this for now this is a chart of premium varietal growth so you have to again this is one of those slides where in order to even be on the slide you have to have a dollar growth in this varietal so across the board left to right you have Chardonnay Pinot Grigio etc when you went back last year and you looked at this this is from IRI and thank you IRI for being so kind in and letting me use this chart when you when you go back to last year and we looked at this chart interestingly red blends were the number two varietal we look at it this year in its Chardonnay yeah that's fascinating to me but you also see Pinot Noir in there it's Oregon South Blanc zealand's in there and Pinot Grigio that's that's Italy so what do we what are we seeing in here what's you know what's what's the thing th
t we're seeing and nobody really gets to see most people don't get to see you know Costco total beverages Aldi leave those those kind of companies and you know there's a there is a a common thread through all of those companies and by the way I'm told that they're they're killing it that's the terms that I've been given so what's the common thread through all of those those things and when you look at the the imports what's and Oregon what's the common thread well the common thread is its premium everything is premium we're still talking about premium ization but its value you know those those two terms may sound contradictory but people have followed me for a while I've talked about the frugal hedonist being the Millennial and and this is what we're this is what we're seeing and so we're at this point now where we have the Boomer that is the median boomer as I said at the bottom of that 1994 that first chart where we've talked about volume we saw that that growth take off median boomer at 35 in 1994 well the median boomer hits 65 now in four four more years so when a boomer is living on a fixed income they will change the way they spent as a matter of fact the outside edge of the boomer is now seventy and they're living on fixed incomes that changes that at dynamics especially when you consider that boomers have 50% of the net wealth and said about 75% of discretionary income by some adjustment discretionary income by the way isn't isn't quite defined but let's just let's just go with that for a minute let's just say that they have a lot of the discretionary income and so as we as we start to evolve as I talked about in the state of the industry last year it's the great rotation so it's the rotation out we have 10,000 boomers retiring living on fixed income every day and we're being replaced by the Millennial cohort that is financially disadvantaged in order to actually buy anything I don't care what it is you have to have both the willingness you have to want a product you know that in marketing and everything else goes into that and then you have to have the capacity you have to have both and so we're we're trading out now the boomers spending habits over a very long period of time into what they're going to be like living on a fixed income and by the way not drinking as much and at the very high end drinking through sellers that's another another component and then we have this upcoming new generation that is more frugal they don't have the capacity or stuck with student debt they have a late start to their to their lives and and so if we can bring up slide five for a second I will talk through this in a little bit with a picture I think it's probably is a good way to look at it so here's this is a an infographic of the Boomers on the right side and the debt strapped Millennials and so what we end up with fortunately we've had for the last I don't know 15 years anyways the Gen X has never talked about but they've been holding up spending in in many many ways they when they came out of school it was a you know really good financial time and they all got jobs quite easily it wasn't as big as a cohort so you had fewer fewer competitors they've built their wealth they've done you know very well for themselves you get these Millennials the younger generation now that comes out of college you know square-root of the teeth of recession they don't get jobs they they have to go back and be a barista or do something else that's not in their major and that you know that delays their entrance into the spending patterns that we've seen in the past they're getting married later they're not buying homes as much but part of that reason is because of this this delay if you want to call it it's it's an echo if you will of the Great Recession and so while the right side of that arrow is kind of pulling you know pulling up and we've seen that with recovery and asset prices post recession whether it's stock market or house values people that had those things have done well the the younger generation didn't have anything so we haven't seen that asset reflation and now you know we have to get that generation moving ahead as as as good consumers but today we're dealing with this thing about needs versus wants right and so at this point in your life when you're young and you don't have a lot of money needs versus once you're gonna spend more on what you need what you want is going to come around but you know they have very different buying patterns than than what we've seen in the past and interestingly I think we're actually working at a time where we shouldn't forget that boomers living on a fixed income are probably going to come a little bit down market and price from wherever they are at the same time where these younger consumers are coming up and they're going to meet in the middle in the next decade and how we get to them in the channels looking at where we are right now but how we get to them in the channels is really the secret to success because we're gonna have winners and winners and losers over the next ten years we can't really stay where we are anymore so MJ you have a thought well one thing I agree I thought you're going to say no no I don't have any well there is something if you if you dig deeper in the data about Millennials that does mask this there is a high preponderance for them to still be living at home or sharing housing costs with others and they do go out to restaurants they do spend they over they over index they over index based on what they have but as they growing up and moving out on their own I think we are seeing them pull back more focused on needs versus once and I think that's sort of clouded and has been contributing to why people have thought oh no Millennials are big spenders on wine I think they're very wine interested I think as they mature and have more money they will be the boomers of tomorrow but that said there was there was other dynamics going on that was leading to them spending and as I'm watching that cohort mature and invest you know they are starting to buy homes very little at the at the very beginning I think we'll see that change that you're talking about and that meeting in the middle I couldn't agree more I think that's why you were back on the other slide where we were talking about varietal growth well buried within there if you see it by price point it's a very different story by variety of wine and I think that hot price point in that 10 to 15 dollar range is still there for red blends even though red blends may be behind Chardonnay interesting trend there yeah yeah so the truth is really yes spread across many different pieces of information actually has Morgan questions she was the first time we've had so much Oregon love coming through the question so Oregon really a value is the question they have really jumped up in SRP over the last few years it's interesting because especially having what I consider a value priced Oregon brand and why by Joe we talked about it being a value price all the time and it relays it's actually quite expensive in the rules I have 12 dollars on up depending on the bridle up to 20 bucks and that's well anyway for again I feel like it's still a great value and I think it's really gonna be attractive to the Millennials because it's it's a great wine from a really hip area right that meets you know aligns with their with the things are important to them I put the price point and well I guess getting back to is it a value value anymore I mean I think so I think it over delivers in value compared to other wines in California so to follow up with that is what do you think the demographic is responsible for Oregon's growth that's a really interesting question to couple that like why are we so focused an Oregon of a demographic perspective yeah oh man that was and I have I have an answer when it comes to the demographics I don't think Oregon's really any different than and any other any other region Oregon happens to be more Portland focused to a large extent in terms of their wine club and sales they're there they need to by the way move away from that become more of a tourist and spread the model out a bit but no I think that the the the cohorts are about the same Portland's got more I think more of a youthful vibe to it but when you look at the wine clubs I don't see I don't see material difference but it does it does Drive to the one specific you know what are we going to do about this point that that I really wanted to make sure we lingered on a bit which is right now the the wine business has done a good job of figuring out that we're selling something more than just wine right we're selling experience right and and I've been talking about this for at least a decade you know that we're not just selling chemicals in a bottle we're selling experience so you know my messaging and the messaging of I'm sure many many others has has got us to the point where now we're saying okay we want to make sure that when people come into the tasting room they have a good experience and we defined experience is what happens at the winery and first I'd say no matter what we're doing experience goes beyond the winery walls but second of all I'd point to one other slide that is important to look at and that would be slide 16 if we can and so this is this this kind of sums up I think one of the things that we're starting to focus on so this is annual annual you know by year starting with 2013 up through 2017 it's the change in monthly visitor counts to wineries so this is you know people walking into the tasting room and when you look at this you can see Oregon's growth rate is reflected in visitation as well but when you look at the other the other areas Washington Napa Sonoma those main areas they're not doing as well Virginia New York doing better so the areas outside of Washington that are that are you know Virginia and New York and Oregon I would put them in a let's call them a better value category there's some regional I think love that's given to Virginia in New York in particular as well but you know this is this is a concern last year we presented this slide I think in the direct consumer survey and I and I really didn't have a you know a good answer for why we were seeing declines on tasting you know I think I attributed it to perhaps we were just getting better at counting because you know we've only recently I think really committed ourselves to metrics and and start to you know to dig in and actually you know measure that and you know what you're going to improve in is what you measure so that's what I that's what we said last year now this year I was I was faced with a bit of a quandary because we had in Napa and Sonoma in particular we and I'm sure it's the truth in Oregon and other places but we had increasing tourism so we have we have in Napa and some of both we have higher room higher room rates we have more rooms the occupancy rate is higher so I mean tourism is up and tasting room is down more competitors right is that what you think her so I think part of the part of that reason yeah part of that reason is is a lot of wineries now are taking type to license there's a big discussion about downtown tasting rooms now you know we have we have tasting room at the winery and another one downtown and you know whether that whether that makes sense or not that's a that's a whole another whole another subject look at my blog you can probably see yeah yeah but so we we do have now more tasting rooms opening than winery so I think that's I think that's a part of it but I think there's more to it tasting fees have gone up you know for a very long period of time now when you have you know a spender that is indexing downwards you know right now the way we raised tasting fees as we look at our neighbor and we say well what are they charge so well they're doing you know they're doing good well let's raise ours right I mean that that's the way we process it so you know we've we've got in the same way we had growth in the last 23 years or whatever we've had growth and tasting fees over that period from zero to two where it is now and you know now to use the extreme case if you're going to get a reserve tasting in Napa it's about 60 bucks for a reserve tasting let's say let's just say 50 because the math is easier I did not do any math today okay 60 wouldn't offer so you got you got you got you know the younger consumers are going to travel in force maybe the older ones do too but but you know I'm used to seeing packs before and when they when they walk into a tasting room that's got a fifty dollar tasting fee that's a 200 dollar bill for that those four people and they're not going to pay that they're just they're not going to pay that they're not going to visit the tasting room because that's their whole dinner and one thing I know about about the young consumers is they are brilliant about the way they find value they're really good at it so to the extent that we take the whole generation and say they're better digitally they certainly are better than my generation the Boomers I know I don't look like a boomer but so I don't connect you over here they can't steal anything anyway so the the younger generation is much better at you know finding those avenues into the deal and so this is one of the things that we've got to deal with is you know how the heck do we maintain our luxury pricing maintain our position with with our tasting fees and at the same time encourage these other consumers to you know to come in and and my solution on the one for that one little thing is you know we need to continue to leave our frontline pricing where it is because my generation we're not going to spend the time to go through and sort through different websites or apps to to find that but I think there are our digital means by which you know you can have pages that would be open to find if somebody wanted to find them and and in a different pricing matrix you know we I mean you get on an airline seats are different you know it's the way people buy and I think we can probably do the same thing so that when you have a young consumer that's you know that doesn't have the wealth yet but does have the interest you're building your brand you can't at this point just ignore that you've got to engage with them and they've got to get in the door and the way you're gonna chase my way with super high tasting fees and beyond that even if you don't have super height you still got to find a way to engage them and they're looking for deals and and they'll find deals my generation will still pay because we don't wanna waste the time please know I was gonna say I think you're painting the picture exactly why it's working in Oregon I think we've got a lot of those things going for us our tasting fees are still reasonable our region is certainly attracting those yammer younger demographics but at the same time we're really appealing to the boomers still because we make quality wines I feel like Oregon has recently been recognized to be open wine enthusiasts as having a 20% of the wines rated 90 plus when we only represent one point five percent of the United States wine production and that just shows that we're kind of over indexing in quality from what's come from Oregon so I think we're able to appeal to all these different cohorts of for age groups of people and I just think in I guess appealing to the younger folks still it's not just tasting fees that are affordable the wine prices are affordable the experience is awesome the culture in Oregon is really winding it's rending that's right it's funding it's the going farm it's working for us right now and we don't have north coast yet so I have a real quick question here how much is Mary Jane aka marijuana affecting especially in Oregon they asked again I'm not an expert in it by any means in that category no I just said I would just say that you know it's been legal in Oregon for about two years now I think maybe just over two years and we're was a lot of concern about it for a lot of years in fact the number one thing I heard from all the distributors was that was a big threat what's gonna happen especially you know and but I would say that our data is proving that it's not a b
t of concern so far our numbers are up sales things are trending strong so it's not something that I am concerned about and there have been issues you know farming issues and marijuana drift yeah there has been a lot of concerns events and lawsuits but I'm not currently concerned about impacting ourselves MJ you have the proper initials to answer this question well attention we had a great conversation about this last night because we in the Sonoma and Napa area are very concerned we see data coming out all the time Rob and I were emailing back and forth on a study that came out saying 13% drop in fine wine sales once marijuana becomes legal and I think again the data is is skewed when you when you look beneath that Oregon is trending and moving forward the economy is strong it hasn't been that big of an impact I think it's it's more of an impact on water use I think it's an impact definitely on labor and land use and no questions but you know you can go back and forth but at the end of the day it's a very different experience than fine wine and yes boomers will probably embrace it boomers embraced it decades ago in a big way legal legal or not so I you know I think it it will go Maine funny how you say that you like legal or knives like us there is this you know funny notion and the whole thing of legal legal marijuana that it went from zero to something and that's somehow gonna impact on because personally I don't see when it comes to a fine wine luxury wine premium wine I don't see that there's socially the same use it's it's so I don't see them as good substitutions if there's if there's a substitution it's probably for the the consumer that comes home on a Friday or something with the six-pack and wants to you know sit down and blow off steam and and from the studies that I've seen anyway some in Colorado that was that was one of the things that came out that yeah in fact you know beer was more impacted than wine I mean at least at this point although it's possible I just can't imagine us opening restaurants we're pairing cents million with Sammy too many asses to start with but let's let's move if we can to you know the finishing that one really important point which is you know where do we where do we go next right so so today we're we're the average winery is selling 60% direct consumer okay and the model is you come to my tasting room I put you on my wine club I keep you in my club for the number of months you know right now the number that we pull out of our day is 30 so then you have that lifetime value of a client and then you do it over right so we spend all of our time thinking about well how do we not lose clients or you know club members and and how do we get new ones right how do we keep them longer we so we talk a lot about that and I think that I think that there was there was a point where that was critically important and it's something we have to continue but that's not a point of growth anymore when you look at when you look at that that of the slide that I just had up that showed declining tasting room it's saying something now the averaged average check when you look at the you know the visitors per tasting room is actually going up part of that I think has to do with the fact that when consumers come to your tasting room they're probably more planned if they're going to pay a bunch of money in tasting fees they're probably going to think harder about where they're going and they're probably predisposed to buy and you probably in your in your winery have some sort of deal where the tasting fees get rolled back and so they're you know they're already predisposed to buy I think that has something to do with it but where we go where we going next I think really matters and so when you look at where average sales are we're where the sales channel is are right now 3% go through online that's that's an extremely small amount now I've heard people say you for a long time you know do you have on Lance's oh yes we have online sales well how you know how do they how do they get there well they go online you know they come to the they come to the winery and and then you know when they want wine again they you know they call us up even if they're not in the Michael that's probably some probably some truth to that that they actually go there but when you when you look at the online sales numbers right now it's it's like three percent the average winery is 60 percent direct but but three percent is is through the interwebs and and you know when we talk about about luxury goods you know we start to say well there's no way we can sell luxury goods online but the bane study here this last year came out and said that by by 2021 we'll have 25% of luxury sales online the Amazon effect is real and it's it's taking down brick and mortar it's not to say that we're getting rid of bit brick and mortar and I don't want to imply that we ought to stop working in the tasting room but we have to broaden our thoughts about who your customers are your customers aren't just your wine club your customers our wine consumers you know to the extent you have a you know a winery that's not in a tourist area you're depending all on that local and so you're basically eliminating the other 49 states so there's a lot of different ways that we can we can go about you know moving forward on digital but I'm talking about digital marketing now so something my friend Paul is but I've just you and I have customized for Clint does it work yeah exactly right what is it what are the action steps we need to take to move ahead on digital marketing Paul well I think we need no no no we got investments investments key I mean if you actually ask how many dedicated e-commerce experts there are out of 9,000 wineries it's less than 10 that's a pretty low percentile right you know if you ask how much of our budget is spent to customer acquisition or retention via digital most wineries will say I mean 99% so if you don't feed the racehorse it can't run that's the simplest expression I can make for that and I think you agree with that and yeah you know as we become more competitive you look at Napa Valley yes our tourism is up but we have more wineries we have more stuff going on Oregon's going to experience that every region is growing in their amount of wineries and we're experiencing competition from international and in a few years I promise you that we'll have deep competition from wine retailers they'll be able to the Grand home is showing the way that the the red herrings about underaged shipments regulation are not a problem and when that gets the Supreme Court retailers will have the same rights as we have and there's no real reason to buy directly from a winery except limited products or the love and passion of the experience you have there so we need to start thinking smart fast and and mobile mm-hmm to get there might be yeah yeah I think we have a period of time before we actually see any changes to the retail laws which would actually compete directly with that notion of internet sales direct from the winery so we have this this period of time but we need to make directional improvement in this in this one area because the other stuff that we focused on we're doing well sixty percent of your revenues of the average wineries revenue now and you know of course that drops based upon the size winery you are but even larger wineries are looking at more direct sales now but that you know that 60 percent thing is is good but that 3% can grow a lot and and the the amount of investment that you have to make can be modest but you have to start by understanding right and if I asked clients you know what what's your digital marketing strategy by the way I know all this from Paul I don't know any of this myself but you know you start talking about you know targeted Facebook ads you know retargeting Google Analytics Instagram evangelists you know we have to broaden the way we think about our clients and we actually have to take the experience instead of at the wine where we have to take a different experience not the same but it's still an experience out onto the road in some form or fashion there's ways to scale that you know some people are toying with the idea but we really have to change the way we think another element to that it means the the the change that we're also experienced is this whole subscription economy we were talking about this very much last night which is you're getting so many things in the mail now whether it is the trunk club you know plated blue apron Dollar Shave Club they're coming in the mail and ironically we were the first subscription economy really one of the first three and we need to really rethink how we're doing and the reason these companies are doing the subscription economy because the valuation of your company is worth more using a subscription economy you can actually predict it based upon customer acquisition churn and we need to start thinking about these new metrics you know annual reoccurring revenue monthly reoccurring revenue and for a banker this is great you get to you know you get to actually estimate but the way we're doing is really still rooted in what with the 80s when we started wine clubs would you say in that piece yeah I mean wine clubs started well I started as a roadside sure but yeah I mean today today its version as I say as you guys will read in the port report when it gets released it's version 4.0 and you know it's the direct consumer model isn't isn't the roadside tasting stand anymore it's not the wine club anymore it's not the you know the experience model with the the integrated tasting room it's an integrating our talking about an integrated marketing strategy I'm not telling but I'm not by the way I'm not even suggesting that we ought to be selling wine on social media that's agreed not really what I'm saying I'm talking about basic marketing using targeted social media at which you know if you go back 10 years ago everybody was talking about and all of the all of the things that we would go seminars about social media and the Millennials and you know and if you got involved then you're way ahead of the game and it was probably a waste of your time honestly but weird at this point now where I mean believe it or not for the very first time I have I have my own professional Facebook page which I which I've kind of ignored because I haven't not good enough to figure out how to get away with murder get away from my personal to my profile but actually have one now and and and I promise this is my personal thing is to actually be better about posting things in it so I posted this the seminar and I actually paid for a targeted Facebook ad I did it myself the very very first time thank you thank you I missed about I can figure it out as a banker you know everybody else can figure this stuff out and so and by the way I think we we have a resource Paul that you were well yeah it's my books a blog post with all the vendors in DTC and we'll put that out probably later today or early tomorrow that has all of them in an infographic that we can run from going forward so yeah really nice so uh you know Paul will put that out I'll eventually I'll get it onto my blog to at some point say it sounds great I mean I agreed what you're saying I agree that this is where we need to go but I think that we could use somehow and I'm not a different level I'm not deep in the tech like you are both of you your marketing expertise so Technic I would love to hear some fundamental how does the people can go with from here okay so I think picking up on something you said before Rob integrated marketing strategy all of these different avenues to connecting with a customer are super important and you want to step back and not think of tasting room over here and oh by the way the wine clubs over here and they sit in a different part of your winery and then oh you might have somebody doing EECOM and managing your 4% of online sales over there think about it together also think about it in terms of how it interplays with your retail strategy your wholesale strategy because at the end of the day it's the same consumer that's consuming the wine and I am in a wine club and I buy wine online and I go into restaurants and I love to go to the wineries there's many wine consumers like that we we don't think of it in this bifurcated strategy nor should the winery we need to step back create that plan know who our customers are so we can grow them and then take action not to get too deep in the weeds I'd rather like pull it back a little bit remember the wine club as well doing car Nelson I love the wine the wine club is you might get a discount for saying that yeah I know but they're actually not really good they're not they're gonna actually not like me if they're not really good and manage me as a ten year wine club member who spends a lot of money there right I mean they're they're the Rev Club I and they which is their most expensive club and they just don't understand who I am so backing up a minute like shop the experience of your DTC experience from you you're the CEO shop it shop and then map map the experience from a customer journey and I'm not just saying one journey because there's multiple journeys to go through and I'm really a big fan of this new customer journey mapping and it's who is someone that's local that comes to your winery how do they how's our journey how is their dream where they li go back home someone that's not look well that's a different journey so when it comes through the website what's their journey and how did you how did you map against them and what did you do and how do you map against a consumer this whole way what are your touch points and I can't emphasize this enough this is a very common software practice mappy customer journeys some wineries do it but they do it in this aggregated through I come to the tasting room methodology which is yeah we do a great job at hospitality you walk into taste we - you agree - we love you and that that's so 1990s but we really need to start thinking about how are we mapping these journeys when people come home and I actually extended beyond just DTC how is the journey of the retailer how they meet you that was the journey the wholesaler rep it's the same thing that we that we've been through in terms of an evolution you know we've evolved in the way we think about tasting rooms and the way we think about clubs the management that we've applied to it it was ten years ago you couldn't find somebody to actually manage your club in DTC you know we would just take the person that was you know in the in the taste room and promote that even if they didn't have any digital skills at all and so you know I think I think we're we're much better at that now and we're better at that we were better involved now at understanding hospitality and the consumer experience in the tasting room and now we have to do what we did before but we have to do that in the digital world we have to create a different experience we have to think about hospitality digitally because this is what all of the luxury brands are struggling with right now - and and they're going to break through it and you don't have to you don't have to reinvent the wheel if you want you can go cop but some of these some of these guys are doing on their luxury sites go look at what they're doing and then and then try to try to duplicate it's it's its little investment for big return and what I'd love to see is - I'd love to see us get to the point where 25% of our of our annual wine sales is from internet you know you are engaging and you are are bringing this one of the other one of the other I think important you know how do we do it is it's a project that MJ actually was her idea but I've been working on with with her and Sonoma State University and others - to come up with a Big Data solution and so you know how do you use Big Data well first of all we're all blind to what that looks like but in this well I'm gonna let you explain it MJ like I could but I want to hear you yeah okay so inventions a company I work for is thrilled to be part of this consortium with Silicon Valley Bank thank you and Sonoma State University's wine business Inst
tute and the basic premise is that we came together worked with a number of wine businesses 130 thousand customers half a million sales transactions and about 50 million data points and using some great economist help out of the University and our smarts and experience in the in just being with the wine industry a long time we are able to put together this consortium so customer vineyard basically leverages the power of big data to help wine businesses profitably market and sell wine and how do you do that you you look at information you already have about your customers you work with some smart people and outside data houses you append all that information and then come up with like three buckets of action because data part of the problem with big data is as expensive overwhelming where do you focus and so partly what this consortium worked so hard on is how do we take all that and give you some good insights both as our industry well we'll be sharing some stuff soon for the industry in general but the individual wine businesses get their own snapshot of how they're different where their opportunity is so with this you can get super smart because part of the problem is where do you focus what do you do when you start with data you can then take really targeted action and you can be focusing on things that are more profitable we've all come from the internet is data-driven decisions I mean the other day it's brought all data to us and we you know big data as well and how we choose to make those decisions using that data and it's good here there's another consortium coming on but there's so much data just even in our micro and so you're asking about your winery just investing in someone to slice and dice your data is saying and it's not expensive it's not hard basic the basic elementary stuff basic steps that we can all take away from say is hiring those people that have analytical abilities and know how to track data consistently have great EUCOM systems they're very different so the skill set when I talk about investment is very different than a hospitality person who is often very personable very wonderful warm giving understands wine a lot the person that's doing these new skill sets is very data-driven a beloved ice able to look at the math yeah much harder than and that that's fundamental for all of our success I mean as our local economist over there he looks at math every year this is what we're here for right so and he drives the industry forward based upon these predictions it's so easy to look at our own database and find some math and even if it's a small data set we can find some insights out of there I just went to one of the things I thought was pretty amazing when you think about big data just to go back and mj's but really low like Barry White is in terms of the application you know you could as an example you could take your entire list of people that have ever bought wine if you maintain that in your and so that's the please maintain the very the very first barrier to purchase is trial doesn't matter what the product is right I mean when you've tried something you have an opinion and so the opportunity is there to to retarget resale may use retarget because that's the you know the digital way to do it but with big data you could you know everybody I think is pretty good now about looking at their top 10 percent or their you know their their whales or top spenders and you know doing extra for them but you're probably ignoring a client number 1467 who hasn't purchased in two years and when you apply big data that you find oh my gosh this guy is actually he takes you know decanter he takes wine enthusiast you know wine business calm I just want to throw that in there maybe I'll get a free position you know lives in an expensive zip code you know has you know is you know it makes three hundred fifty thousand they make three hundred fifty thousand dollars a year you know okay and then and you go back to this innocent you actually you know I got a call this person but but you can expend that you can expand it beyond beyond the club and into one fun fact based on that so I wind up it ok we'll wind up hundred and thirty thousand customers across all the wine businesses that participated we found twenty thousand customers who were seemingly low value sitting in the data set that actually were the whales very very high potential high discretionary income love wine net worth Wow if you as a wine business knew exactly who those people were that you had flirted with within the past but not connected and now can put a game plan together you're willing to spend and invest on campaigns to reconnect with them because you know the potential is so high that you can't do it for everybody but like could you can spend a lot of time on those people that's right just one example but but despite having I'm sure a lot of questions but but I think that's that's a it's a good thing to to wrap up on because you know you think about what MJ just talked about in terms of you know of targeting and in recognizing opportu versus the current model of waiting passively for people to come through your tasting room right digital marketing actually you know expands your tasting room activity as well so you know it it is an integrated marketing strategy and if you don't have a digital marketing strategy that's the first part that's the first place to start because you gotta start with the vocabulary so when you look when you look back at all those slides that I presented that are showing we're growing I don't want anybody to misunderstand in 2018 is going to be a good year but this is a very long term or industry things take a lot of time to change it takes five years to get a fully mature yield when you plant something right so if we're gonna see change in year five to ten which is when we're going to have this big changeover between you know the median boomer retiring and all these young consumers hopefully they move through this indulgence gap as I'm calling it right now and they move into this place where you know they're they're in a better spot and hopefully they you know they love and appreciate why and hopefully you love and appreciate domestic wine because we hadn't even talked about imports that's that's a component this we haven't talked about but that's this is where we have to get as an industry in order to be successful and you're gonna do great next year but if you don't start investing in this other digital thing and expand that 3% the 15 or 20 and and recognize the impact that it has on dtc and for that matter if you're if you're in wholesale it impacts that as well in in brand recognition so this is the next frontier this is dtc 4.0 and this is where we have to go and with that I'm going to I'm going to end it but I want to thank Gretchen are our new newest fun person from from Oregon for MJ Dale and a dr. digital palm a break thank you for all your all your contribution oh I'm supposed to say something I think in the back here we're gonna have a replay of this videocast link I think you're going to be given that in an email here pretty quick if you are interested in this year we weren't able to get the the taste room sir pardon me the annual state of the industry survey done but we we maintain this list of people that want to participate these surveys when you participate in the surveys that we do and the direct consumer one you get back a big stack of metrics well both both the survey to get back big stack matrix we had 1,100 good responses we had far more than that in terms of responses but people that didn't really answer very well they just put their email address and thought we would send it to him we we don't do that so it doesn't take a big investment in time we give all this back free to the participants so if you if you would really want to participate with your minor E and and get these free branch benchmarks and please jump jump on the bandwagon there otherwise I think we've come to the end of our lines are all questions you every year in your blog yes oh yeah we we will get to depends how many there are but we'll we'll get to some of these questions and I we actually will do a follow-up to this broadcast probably in a few weeks to six weeks maybe where we'll we'll take on some other components of this discussion that we didn't get to and in the meantime I'm looking forward to seeing us looking forward to seeing people unified coming up and I'm also looking forward to I have a couple of speech opportunities up in the Willamette up and up in Washington and a bit to work and wine symposium coming up in February I'm looking forward to seeing everybody there please run up shake my hand tell me how you're doing tell me what you don't put don't agree with and be safe out there thanks a lot
