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[Music] okay let's let's get going hello wine world uh welcome to silicon valley bank's 2021 video cast presentation of the 20th the 20th annual state of the wine industry report i'm rob mcmellon and i'll lead today's discussion i'd like to welcome our viewers this is something i like to i'm always amazed at how many people from all over the world show up um since this is a report really for the wine industry here but we have a lot of people that tune in from all over the world and we have attendees today from argentina australia belgium bulgaria canada chile denmark france germany ireland israel italy japan lebanon mexico the netherlands new zealand poland portugal republic of georgia romania singapore south africa sweden the uk uruguay and the us and a partridge in a pear tree it's a there's a lot of people tuning in from all over the world because they're interested in the us wine business um and and that's a good thing um for sure just as a note this is a two-part presentation so part one is presented today but we'll have a follow-up presentation next week where we'll continue the discussion and respond to questions tomorrow we'll be sending out email registration information for part two along with the links uh for a replay of today's presentation and also links to charts from the annual wine conditions survey most of which won't be used today there will be some of them that we will use but but you know definitely look at those charts when you when you get them along those lines we appreciate everybody's effort in in helping with that survey i know surveys are are really kind of a pain we're over surveyed as a as an industry but i i beg you guys to please uh do the surveys when they come we only do two a year um and it's critical for these reports uh for understanding the industry we give it away free it's a but it's a partnership if we can't get enough responses we can't do this work so when those come out please do something and you know pass it around promote it etc before we get started a few housekeeping notes all lines been placed on mute to prevent any background noise please feel free to submit your questions at any time in the q a panel we'll send a link to the recordings after the webinar as i mentioned and with that i'd like to introduce our panel of experts today that includes amy hoop amy hoops who's the president of wenti family estates eric mclaughlin ceo of metis it's a m a firm the pacific northwest uh devin joshua is the managing director and he's head of direct sales at maryvale vineyards and last paul mabre who is ceo of pix they just uh used to be emmetry they just changed their name a couple weeks ago but you all know him as i call him dr digital so with that why don't we uh dig into the report and um i think heidi if you can yeah let's just start with this slide so um this slide is um i think a good place to begin because what it what it shows is what's happened in this last uh in this last year so this is a long term slide it's the nielsen slide off-premise sales and this is a this is one that i started to talk about in 2017 and you can see what happened to case sales they started kind of dropping through the floor and i i raised the alarm that there's an issue here and we've talked about and some of those issues those the two major ones still exist um you know which is uh converting the the young consumers the rotation of older consumers um and uh neo-prohibitionist uh impact on on wine sales um but if you look at this this chart obviously when the shelter and place orders went through that's not what happened overall sales this was great to use uh before uh before the shelter in place orders because as long as channels didn't shift all of us analysts could actually use this kind of as a proxy and a check for how the industry would actually perform and this last year all of the analysts are kind of stuck trying to figure out um exactly exactly what happened obviously this isn't what happened to the industry but there was a lot of press coverage about um you know using this as a proxy and you can't uh that's just part of the story so let's go to the next slide heidi if we can there we go so this is uh 2020 off premise so by by month and so the last was a long term view this is the short term view and you can see on the on the left side of the chart those bars are volume and the the colored section is value and so when you look at this what you notice is the beginning of the year when we were oversupplied in height and acute oversupply when we were selling through grocery there was there was discounting that was going on because we had a lot of wine to sell and a lot of wine to move and you can see that the growth rates weren't really that good uh remembering last year we we were somewhere around flat growth is where we ended ended the year so that's a continuation of that pattern and then the shelter in place orders came came through um and uh and then you can see over time what happened with reopening and the notice those bars how they drop down below the top of the uh of that area that shows you what happened in in the uh grocery sales is that you know the discounting stopped if you know it flipped on its head so it's it's not an economic thing it's it's actually just a channel thing it's access to the consumer um the consumer by the way in this shelter in place period this this is a joke for a parlor game now it's you know what does toilet paper and wine have in common in in 2020 um and the answer is there it was panic buying um you know it says that wine is actually recession proof and maybe somewhat pandemic resistant as well because people do want their wine and um and and this was part of that but by the way nobody should mistake that that meant that people were drinking all of that wine they were they were storing it up just like they were storing up toilet paper they didn't start using more toilet paper it was it was to store it up so they had it next slide please so now here's here's on-premise this is the other side of that right to the extent we saw that that gigantic growth that spike in um in the off-premise sales um we also had in 2020 the opposite we had the the closing of restaurants and closings of tasting rooms um and i'm sure everybody was just as shocked as me when that happened by the way i i thought pandemics were only you know kind of something you'd see in a sci-fi movie b sci-fi movie for that matter um so that you know if to the extent that i'm i'm predictive of anything you know i look at that and go oh you know i didn't see that coming there's a lot of things i didn't see coming actually this last year but look at the uh the on-premise for alcohol as a whole um this doesn't reflect demand this just reflects the reality of of of closures and um you can see this is again a nielsen cga slide and this is a four week slide versus 52 week and you can see that we got down you know pretty much the total closure and started to come back and this only goes up to september but it's it's gone back down again with with additional closures um and um uh you know we we have had a pretty bad december um from everything that i can see pretty the end of november and the first part of december was actually um not so not so good so um with that that's that's an entry point anyways to the discussion that gives you some context i can go back and i can talk about you know the fires i can talk about all the things that we all went through together emotionally but i really want to be predictive and talk a little bit about you know where we're headed as well because i think we know where we were and i think it's also fair to say that what we have experienced is temporary um and we can't build business models on temporary if you if you were on the right side of the equation in this channel shifting you're feeling pretty good if you're on the wrong side uh you're feeling pretty bad but i've been amazed at the the kind of resilience um that this industry has demonstrated um and and the shifts that have been made to try to you know refine those consumers and recover uh with that as a starting point um paul i think you wanted to talk about maybe slide nine was that a good start yeah i think that um wow what a year we've been through entirely i mean if you combine a pandemic fires in in most wine regions um a very um polarizing election um just political environment and then all kinds of reckonings it's been quite a challenging year i think that the one thing that we can say is the genies out of the bottle as it relates to e-commerce um if you can see our online growth from 2 to 10 percent it's just the beginning um we're catching up with ourselves entirely you know we had a lot of digital debt meaning we had infrastructure people and processes that we've started investing to capitalize and the only way we could sell to customers and that that train has left the station and the people that are investing that are going to keep doing more business online and it i think we're entering the golden age of wine online to be really honest with you um i don't know if amy and devin agree but it feels like it's the start of something great uh that's been kind of pent up for a long time just beginning yeah and uh uh devin i think yeah you you uh wanted to talk actually about the next slide slide 10. yeah okay some observations jump on paul's hotels talking about the golden age of wine e-commerce and one of the things that i think is really important to keep top of mind which i know we all do are the margin aspect of that margin aspects of that i think it's really interesting i think this this slide really points out dramatically how efficient you have to be when you're shifting your sales to e-commerce the two channels that were really hurt the most in dtc the tasting room and wine club to a lesser degree you can see that the average order value is actually up in those channels even though uh the revenue and you know volume growth is down and of course we saw the huge increase in e-commerce but of course with on shrinking margins and lower average order value at a minimum so given that so many new wine consumers new online wine consumers have showed up in the last few months people who haven't actually done this before i think it makes it even more important for all of us to make sure we communicate how it works uh so we make sure we're shipping efficiently and trying to keep those margins as as tight as possible so i think this this does present a big opportunity but it definitely uh puts us in the position to have to raise our game in regards to efficiencies and logistics and how we get things done uh regards to e-commerce yeah let's go back to that slide uh that that uh slide nine heidi yeah because i think that's one to linger on paul i think you had some other thoughts on that yeah i want to tell you to devin i think that one of the things that we haven't had a lot of uh subject matter expertise around is not every single dollar that comes digital goes into our pocket books you know we have customer acquisition costs we have customer retention costs we have shipping um you know an operational overhead that we need to account for that's um not fully baked into the model yet and we're still all kind of learning together and you've been very outspoken about the cost of e-commerce versus taste room for a very long time and i think that that really kind of leans into devin's point there um you know retention has been the new acquisition for 2020. i think that that's we can agree with that and i think it's a good healthy exercise for us if you look at some of the the continued sales that we maintained during the pandemic is extracting value from customers that we had in our database and learning how to keep them happy and sell more wine to people we already had so wine club stayed stable a lot of the taste room stability you see is actually from telemarketing sales um i think it's a little um underrepresented in this chart because um we don't account for that channel appropriately we put all of your own sales into the taste room bucket um but yeah it's really interesting that we what looks like sustainability was because we did a better job selling to people that we already had this should be a trend that we continue going into 2021 and beyond in my opinion yeah yeah and i will talk a little bit more about that i'm sure about switching e-commerce but this one of the things that uh people will probably remember i i've been saying for a very long time um that the tasting room model was kind of broken uh we were seeing decline in tasting room visitation and there were you know several reasons around that but the whole notion that we had to have people come to the tasting room in order to sell to them in order to get them onto the wine club list in order to sell to them on the wine club you know it's a choke point that that just doesn't make a lot of sense as i've said we don't if we're going to buy a car nobody expects us to go to detroit to buy it you know that's not the cash register doesn't have to be especially in the digital world right and and this really underscored that that problem in a way that i hadn't anticipated or anybody had anticipated obviously but it is one of the issues that that we face for us to go forward as an industry direct sales are uh you know the rest of the world is in retail is coming on saying yeah this is this is the way whether subscription models or or whatever and and we're just gonna have to get better at it we did a great job i think uh as an industry in coming at this um this last year um but it's you know there's more growth i think required amy you um you come at this i think from a a pretty unique position because wendy actually has uh many different sides you have grape growing you have a restaurant you have um online you have ecom so you probably have some points of view for uh this last year and what you guys experienced yeah absolutely rob i think it's important um to recognize as you said the acceleration of some of the trends that we've been talking about for the last couple of years the fact that we knew digital needed to be something to be invested in because that's where the consumer that hadn't quite yet taken over as the lead are gen xers followed by our millennials are really living in that landscape and that wine's been behind there and i think actually if we pull up slide 26 and we take a look here this is just a long-term ecommerce trends and wine and you can see the the great impact that the you know shelter in place and this pandemic has had a huge growth but now flip to slide 27 and what you'll recognize is that the penetration that we've had since the pandemic is placed we've seen 10 years growth in the past in a three month period with the pandemic and this to me is just that opportunity to say hey you know when you get a bunch of lemons you got to make lemonade and what we're seeing from some of the data and we had discussed earlier rob or yesterday i guess was that about 60 percent of these online wine buyers are potentially new to buying wine online now what that means is everybody was sheltered in place they were forced to do it we know the behavior is is already very much accustomed in so many other parts of their life and wine is a natural piece of it and when you were stuck at home and you still wanted your beverage you went online and purchased it now the onus is back on the wineries because the question what we're seeing in the data i guess is that the consumer is ready their behavior is already innate they're they're accustomed to it across so many categories are we ready are we ready to do what it takes in order to engage appropriately and paul i see you shaking your head no and and i would agree i think very few are ready um you can even go to the next slide 28 and you can see here even in the answers from those that responded to this survey are saying almost half of them still don't have a data analytics person that's reviewing consumer data the consumers have shifted their behaviors have changed we've seen a massive acceleration of what we knew was to come and this can and should be the golden age of digital for wine as both devin and paul have said but it won't be if we can't get our houses in order and appropriately engage with those consumers and and let's be clearing me i think that you're exactly right let kudos to you and wendy i mean you guys did a great job with digital out of the gate really clean and you had an infrastructure ready and supporting that you've been investing for a couple of years before just happened hit with the pandemic but it's hard don't make any mistakes about it digital transformation is really really hard i worked a pro bono with four wineries and it was a struggle um so um it's that we're paying down debt we don't know a lot of these act we don't have processes or people or systems and this is a great example that a data analytics person will pay dividends in better targeting and return on roi the roi of their efforts and paul we we've had this conversation as i've been putting this report together and you know we're talking about you know one of the i got this question from somebody that said just you know via email is okay we get the online thing but where do we start you know what do we what do we do you know we want to do something but but how how do i change to being better digitally do i promote my taster manager what i mean what do i what do i do look it's people programs and processes it's the three p's and and it's a cultural change again this has to start at the top we have to invest in people i mean looking at amy and she had at the time justin nolan who was a digital investment i i called out last year at the dtc flywheel that you have me do every year that'll come out tomorrow which is she went outside the wine industry to bring in talent um that was a big deal that was unusual and amy can speak more to that um but you know that that's key to that we have to bring in professionals you wouldn't make the um uh taste room manager your wine maker unless you have my marker skills right or you wouldn't make your wine maker your ceo unless they had business skills you know it's a promotion that has to do with the skill sets you wouldn't make your banker anything i would just screw it up um i'm going to jump in just for a sec here and point out as well i think there there have been some some really great innovations in the last few years that have allowed us to uh if you put in the right people and you do the right things and you have a good digital program um actually the uh the ability to allow people to taste your wines and to do say you know virtual tastings i think has really been supported by you know great innovations like coravin which you know it it wasn't like six seven eight years ago you know it didn't exist so um i think we're fortunate there's a lot of of great clouds around this past year but i think one of the silver linings is that we've recently had a lot of innovations that have allowed folks to actually take advantage of a real solid digital marketing program and bring wine country to their door in a way that actually makes sense and is somewhat cost efficient i mean i think that the corvin mantra is a buck a bottle it costs you to uh to pour it uh if you're using their system so we also have systems like commerce seven and you know they've invested huge time in this year if you look at their innovations and the the bloom team bringing shopify to the wine industry those are innovations in their own mind to allow commoditization of e-commerce and digital in a way that's magical and i actually wanted to bring up a point about uh tasting apartment wine clubs and collecting of uh names in a you know when people don't come through your tasting room and how do we do that but before we do that i really wanted to get eric involved because eric you've been quietly sitting at the bottom of eric's uh an m a professional mostly handle stuff in the pacific northwest occasionally in california but eric what what do you want to talk about what's going on the pacific northwest relative to all this what do you think well i think relative to the topic that we're on right now is that we've seen um a lot of people forced to shift their direct to consumer strategy i think the northwest had certainly there were some folks that had more sophisticated direct-to-consumer programs than others but generally had been lagging in best practices versus california and we've been advising a lot of people in terms of not only better harvesting and management of their consumer data but also in terms of creating you know the elevated experience or the the seated tasting the appointment only tasting and and the northwest has been a little bit more resistant to making those changes oregon i think has been more out in front on that than washington but both regions still really lagging california and with the lockdown you know everybody was kind of forced into that model and those that had really good uh consumer data were the ones that were most successful at leveraging their existing consumer relations and when people were forced into you know seated tableside tasting enviro only environments uh appointment only environments um everybody was shocked at how effective it was so you know the kind of the the mantra we kept hearing back from people is you know our sales are flat but our cons but our traffic is in half so you know if you were to reduce it down to kind of a thimble it's you know 50 of traffic but double the average transaction so the conversion rate is so much higher and so we saw kind of mass experimentation and mass adoption of new dtc practices um and that's been a real validation of of of those practices and i don't think that people are going to revert back to you know slap 10 bucks on the tasting bar and walk up to the bar and taste through five wines i i really hope they don't because the the other really important part about that by appointment is you actually get names addresses fun whatever you're going to ask for when you're setting up those appointments you're going to get it now and and hopefully you are asking for phone numbers cell phone numbers um but you know it's it's hard when when you have the the non-buy appointment model with the walk-in model and you if people join your club you obviously get their information but we waste our overhead on people that come in and taste and leave now just because they didn't buy in the tasting room doesn't mean that they didn't like your wine it just means maybe they have enough uh maybe they were just up for a day and and enjoying themselves and didn't plan on buying you don't never know why they don't plan why they don't buy why they don't join but they do have an opinion now about your wine and and if you collect that data you have a chance to retarget them in a real way um if you don't collect it then you can't and so the buy employment thing to me is a critical step i know in talking to folks in new york uh you know they they with the lockdown that they went through you know they switched to uh to the buy appointment model and uh in many cases had some of the the best uh years revenue wise that they've ever had um eric go ahead go ahead amy sorry i was just going to say i think it's super important too to recognize as you said that the while you get great consumer data if you do buy appointment it's also more efficient from an overall business perspective and as devin noted and paul um glommed onto e-commerce and digital has um unaccounted for costs that people aren't putting into the network and and people love to say well i want to do everything direct because i know i can get my highest margin but the investment that needs to be made made to set up the infrastructure does have some both upfront costs as well as ongoing costs but they're well worth it if you know how to mine the data and again uh with this slide that's still up here you know we can see we don't even have people investing in those getting to understand the data i know at many of the mid-size and large wineries you've got entire teams that are great at mining nielsen and iri data and figuring out what your retailer on-premise group needs but who's really looking at the final and consumer and when you have that sit down by appointment only tasting opportunity i think it does two things one it not only enables you to get their data it enables you to run a more efficient staffing model on both the front end and the back end and finally it actually plays into the consumers the the growing consumers desire for customization and personalization of interaction right and so you can really have a threefer if you continue with that model it doesn't mean you can't have any days that you let a free flow in but if you start to migrate your overall model to something that allows you to customize to gain information and to have a solid start to what can be a long-term relationship whether that's on site online or at their home it really i think enables a much stronger and more sustainable future for the business it also allows you for better uh customer acquisition modeling as you can look like audience or think about how you're targeting as a cohort versus imagining it they're actually telling you who they are i think the data has a lot of return investment and in fact that's why nike's went uh so strong into dtc i mean what are they 40 dtc now amy they're pretty it's a big company billion dollar company it's an awesome point because you've got to get the depth of information in order to get your look-alike modeling uh perfected so that you can get higher um and better acquisition at more efficient rates as well as um be more proficient with retention yeah i think that that i'm glad you guys brought up acquisition i'm i'm watching the the the comments come and questions come in which there's no way we're gonna get to all these it's amazing all the questions but you know one about one from christian that was kind of directed to you paul which is about your statement about retention is the new acquisition um and i think what we've seen is a lot of wineries kind of got through 2020 through through decent retention and better conversion on their existing customer base um but i think the real challenge coming into 2021 is how are we going to refill that bucket how are we going to you know how are we going to bring more new consumers in because the salute we didn't get through 2020 through new consumers we got through 2020 from based upon the loyalty that our consumers had and and a lot of them increasing their direct spend with wineries that they really cared about really wanted to make sure were kept around but but we were reliant on that fly paper and we didn't have the flypaper effect in 2020. so how are we going to address that going forward but eric let's slow down for a second i mean to be really honest with you we need a better mousetrap to to retain those customers and extract the maximum value we need a better retention modeling uh because you know we're very fortunate in eno tourism that it fills up every weekend um us honing that thing so that we go spend money on new customer acquisition we're getting the maximum value i think we need to clean up the retention model first because then we can go get new and i agree we have to get a better fly trap and get stickiness and that's going to come over time but if we can really hone our skills and to change the lifetime value of a customer from 18 months to 20 months you know in the core we've changed the dimension of our profitability of our winery by exponential numbers right and right now our over dependency on customers within the same state or within a 90-mile radius is pretty significant if you look at the math it's it's we're over dependent on locality uh for enough tourism more than we actually realize well it hadn't it hadn't occurred to me before but as you said that it's interesting that the issue of retention and incremental engagement to increase lifetime value is actually the same issue that has been talked about for decades in the tasting room that often people love to go to taste rooms and have a wonderful experience but to your point rob they aren't actually purchasing as much as we know they could because the sales associates don't sell they actually love being hospitality leaders and sharing their story but they often don't ask for the sale so there's an entire industry built on you know um trainers that will come and secret shop your tasting room and then ultimately they they often are saying well your sales associate know your story they love your wines but they don't ask for the sale right and i think that's the same that's inaugura that's the analogy to what's happening in digital paul that we need to know who they are and we need to be able to deepen that relationship so that we can increase lifetime value which is getting comfortable with both the tools and the opportunities for asking for the sale on a more consistent basis with those that you already engage with so i'm going to do a time check we're about halfway through believe it or not wow it always goes fast um and so i'm going to pivot out by the way i hate the term pivot it's been overused this last year so i'm sorry for saying it um but let's just let's move to something else and uh eric i'm going to just start with you uh i want to talk about uh what happened during uh the harvest this last year and that backends into smoke and everything else but talk about what happened up in uh in oregon washington this last harvest uh well obviously really different um effects between oregon and washington oregon was um significantly fire and smoke affected um and that was kind of a that's not a new impact for southern oregon um southern oregon that's been you know that's kind of been baked into the cake for a while um but it was the impact of smoke and fires in the willamette valley was pretty dramatic um uh like we've never seen before and uh and so many of the effects that our friends in california experienced uh our our friends in the willamette valley experienced for the first time in any significant way and so and that was on top of already what was um a light crop to begin with and so there was just a significant reduction in the amount of wine that was harvested um so one of the smallest harvests ever um and obviously some some concerns about quality particularly around red wine and pinot noir in particular um wide-ranging opinions about the impact of smoke so we we want to be really careful to not paint everything with the same brush because different wine makers have very different points of view about the level of impact that that had on the wines in their particular sellers and and there's really localization to how much the impact was so so we don't want to paint the the valley with the whole with the same brush um but it was significant but oregon was in mild oversupply going into the harvest and we were anticipating with the with the light crop prior to the fires that um it would come closer to balance um and now with the fires it has just completely flipped i mean folks that um that in in july and august were having a hard time contracting their fruit already have their fruit contracted for 2021 and often beyond uh so it has accelerated us to the opposite end of the grape supply cycle in oregon so now fruit is um significantly over demanded just based upon the short crop um that that was 20 20. washington uh let's let's bring up slide 18 if we can heidi please go ahead eric yeah washington um you know this is slide 18 is kind of interesting because slide 18 is i mean this is kind of self-reported data right um and so you know we just got um the numbers started coming out within the last 24 hours in terms of what the real harvest numbers were within the state of washington in particular the numbers here for oregon are not unsurprising in terms of uh the the uh concerns about both quality about well the next slide is about quality but in terms of quantity about it being extremely low 52 saying it's the lowest ever or one of the lowest ever uh washington is only eight percent um saying that but 54 saying weaker than average um but you know we just we just got the numbers in washington we have the smallest crop that we've had in the last 10 years so part of that was just natural small crop set part of that was oversupply in the market and wi eries not choosing to to bring in as much fruit and fruit being left out in the field there were some localized smoke effects that's always an issue in washington but never it's rarely a significant widespread issue but there were some localized smoke effects on some vineyards but not enough to really move the number in a meaningful way um but you know we had i think the the the we were at 175 000 um tons this last year where off of the record of about three years ago of 270 000 tons so it's really a dramatic shift um uh in the supply there the so the the the bad news is is that i mean man i can't imagine a worse year to be a grower in oregon or washington or california for that matter but the system was already so dramatically oversupplied in washington and california and mildly oversupplied in oregon that these effects are going to bring us either back into balance or to maybe under supplied in oregon and or more mildly oversupplied in washington yeah and that's uh that is actually a good segue if i can find the slide that i'm looking for and yield which kind of does a nice outline uh rob of of where we were in that gap but then you can roll into kind of 22 and 23. you go you go ahead amy go ahead shoot yeah that's a great slide those 22 20. that's what i was looking for thank you yeah no problem yeah yeah so um so this is by the way uh this is where we were coming into the year uh so january january 2020 and uh thank you ciati by the way um volkswagen we were in acute xs um and the re this is one of the places where i i always talk about the front of the report where i was right and wrong and you know i expected we'd have several years of of you know recovery that we needed to go and go with and uh jeff better of allied grape growers talked about pulling out 50 000 i believe it's 50 000 acres of um of uh you know producing vines just just to me supply uh the demand component so this is this is where we were if we can go to the next slide uh please heidi and so this is this is what happened this year this is a month by month basis um in california and you know super interesting because as the large producers especially the ones that were getting central valley fruit uh figured out that they didn't have enough stuff and you know to actually ship out to the grocery stores they started buying down the bulk that was available for their price points uh they bought down you know all the stuff that was in you know pretty much lodi and the fresno and and they went to the central coast and they started buying down the stuff that was in that was probably one of the more impacted areas at that point and buying at california prices so you know you know the joke came back from the 1990s those were around we had such a high demand at that point we didn't have enough supply and um we used to say well we're going to age the bottles on the truck um and it's it's kind of what we ended up with but so we ended up with with kind of a balanced position um you know in the central valley uh in in particular uh early on probably by by june junish and um and then sadly we ended up with a balance because of fire um in the north coast um we don't really have great data on what the you know the final harvest numbers are going to be um i i have to say we're i'm grateful that we were in acute oversupply because if if you have to be one of those wineries that decided not to produce a vintage it's better to be oversupplied right because you can't you can't make up for what you don't have and you can't get right if you're if you're an estate producer you just can't send off to asia to go make more um it doesn't just doesn't work that way right so it's a blessing in disguise that we're in balance now all that said um i'm not convinced that um we're in a place where we can say that we're in a stable point of balance i think we still have too many acres um and with demand for stillmine in particular effectively being zero you know we really can't take a large a large harvest in this next this next year you know if we do we're going to be right back in over supply and it's going to impact prices prices have come up a little bit talking to turntown seatty guys but you know we're not where we were five years prior where we saw increasing prices that were kind of kind of getting a little bit toward the exorbitant side and i i just don't see that those are going to come back down until we work on the demand side i think that's the next there's also been some work on the structural supply side there are vineyards that are coming out not really in oregon but california and washington and and yeah and part of it is we were structurally in oversupply it wasn't just market market fluctuations we were just planting at a faster rate than consumption was was increasing and so you know we were we've been advising some institutional investors that have been looking at you know really long-term trends on grape demand because you know the the estate model is one thing right you you want to grow what what what you need for your business but the institutional investors really need to be able to forecast longer and prior you know in the summer we were telling everybody well man absolutely you know absent some sort of you know unforeseen catastrophe or major disruptive event we're gonna be where we're at for a long time um and then of course we had unforeseen catastrophe um and that accelerated it but because we were at that state of such structural oversupply there were a lot of growers up again primarily california and washington not so much oregon who decided we're done we're gonna we're gonna swap over to other crops we're gonna start pulling pollen grape vines out and and that needed to happen so that is you know some cold comfort um about our future potential balance of grape supply future is the word that i think we should we should move to um and like i said it's impossible to cover this whole report in in an hour which is why we have part two uh that will be presented next week i encourage you guys to watch it but let's pivot i hate that word let's let's pivot anyway to the uh to the future um we got to talk about this consumer um and you know what are the changes that we've that we've seen now there are some that are gonna unwind so um let's look at for instance um uh you know the off-premise you know are are we gonna have 67 i think it was i think that was the nielsen slide at 67 growth in march of 2021 you know off of that because that's what it was last year we're going to have that kind of growth uh no there's no there's no way um it would be nice if we actually had reopening in the vaccines in place by march where you know we'd see an improvement in business i don't don't think we're going to get there yet um but we're still not going to have that kind of growth and for for off premise to actually you know do what it did last year it would it would be you know it would be amazing if it could and i just i just don't think that's going to happen so that's a change that unwinds and then the same in the same token once we get a vaccine we're you know we're all vaccine kind of limited right we're just gated by that item we've got it we've got to get the hurt immunity you know i i don't know when the forecasts are i know that in napa county i'm not scheduled to get an injection until uh may i think at this point um so everybody everybody's got their own approach but hopefully um you know it'll it'll be before there johnson johnson's got a vaccine that they're supposed to come out with i think in uh next month which that might help you know just adding more but in any case it's that that's what we're getting by when when we do open what's going to happen well we'll we'll unwind some of this we'll unwind the stuff that went to grocery and it'll go back through some of the other channels when restaurants open obviously it's going to go back to restaurants but restaurants are going to change aren't they that's that's a a reality national restaurant association came out yesterday and they said that so far in this well not so far but last year uh there are 110 000 restaurants that are permanently closed and a lot of those if not the majority of them are you know the white tablecloth independents that you know many of uh the viewers here like to sell their wine in and recognize too those those restaurants in some cases they had to sell their sellers down just to generate cash to get through and you know they still need some fiscal stimulus to get them through by the way we're not done with this but but you know looking through what's a wine list likely to look like in that place well they're not going to go and start by investing in a giant seller um that's yeah there'll be some but that's not the way it's going to be and and those that have been out trying to go to restaurants in in restricted environments restricted restaurants um you know the fine dining the wine lists have gotten dramatically smaller go ahead paul yeah let's not forget that those restaurants going out of business are going to be reselling that inventory into the market too i mean there's a constipation of that inventory that's going to continue well and we're not going to be able to we're not going to be able to sell to a closed restaurant right so we're not going to see that kind of growth in in restaurant sales uh we we have some slides on it but uh but we'll skip them for now just for for brevity's sake um and so that's that's one fact um you know the the the what's what's happening with the consumer right now what about some of the permanent changes for the consumer well uh right now we have work from home um i'm working from home right now everybody in this call i think is probably working from home uh you know in the panel and um you know that's that's pretty unique that sets up a lot of different uh things uh work from homes that means shop from home that's the you know the growth in online has been explosive there's a lot of charts in the report about that some of which we've gone over um the other thing that that the work from home is allowing is it's allowing people to go where they want they don't have to uh you know i'm in the bay area they don't have to for instance work in san francisco if their headquarters in san francisco you don't have to go into that office and and now if you're like that um you say to yourself well you know if you're with a partner in your home and you're in a flat in an expensive city like that you go well i need a big i need more space we're both working from home and we both can work from home and so you start going somewhere else and so we are seeing that that change in the consumer the consumers relocating that also impacts by the way grocery stores so again just using berry as an example if people used to commute and they don't have to commute anymore then they're not going to be shopping uh for groceries in those grocery stores in big cities if they're moving out of the big city that's fewer shoppers than those grocery stores as well so that's another impact on the off-premise side right the the all that explosive growth we saw the consumer may not be shopping in those in in those that's the macro side but the the consumer may not be shopping in those same grocery stores that they had before and then there's then there's the online component of grocery shopping you know i for the first time have bought groceries from costco online i wouldn't have done it except for the pandemic and now i have an instacart account when the when this ends when the pandemic ends am i going to close my instacart account no you know now this is permanently embedded into into the way i think so you know we will see that kind of continuing growth that's not necessarily positive uh you know the instacart component of it is probably not necessarily positive for wine sales it's probably still yet to uh fully penetrate how we can buy wine or will buy wine i don't think i don't think that's that's great and nor by the way are the the the uh restaurant deliveries uh great for wine even though right now you can deliver in in many places i know in california ways you can deliver uh cocktails example premixed and that kind of stuff but inevitably that's probably not the best way to get wine through a new new channel so this is part of the the change that we're going to have to adopt to your consumer is in different areas they're shopping in different ways um and you know online i think i think actually if you if you want to go to slide 42 heidi uh is probably a good slide so this is from the survey we talk of talked to um about 700 wineries that responded to the survey this year and you know what are you going to invest in um you know what's the thing that's going to continue for you and and this this is the answer so the first the first channel is internet sales that's you know what we've been talking about that's that's the thing that that most of the wineries recognize is the salvation as as paul says it's the opportunity for the golden age number two zoom we haven't talked a lot about that but boy zoom started off really really weak uh when when the when the the shutdowns took place we you know it was just uh winemaker sitting in taste in um in a barrel room saying hi this is very difficult and you know by the end and this gets back to one of the things i wanted to talk about earlier many people were doing zooms and figuring out how to actually get new club members using zoom you know that's that's probably a best practice right if they're not going to come in the front door your whiner you got to go find new ways to do it and commerce 7's data showed that last year 27 of new club members came through digital means so rob we can do it yeah please but can we can we talk about zoom as an overall arc i know that everyone's zoom is the buzzword of the day i think this is a more macro trend that we should really look at which is and we've seen it before the years before is how do we talk to the customer in their home and you've been pushing this agenda for a long time but it zoom is just the tool that we're doing that with but what we're trying to understand is how we can reach a customer outside of the taste room and that's what should this yeah we should really categorize as this i know zoom is the tool of the du jour um but you know there's lots of other tools to do this there's lots of other ways to experience this it's how do we get to them and engage with them when they're home is really the the big shift and paul recognized that permanent change one of the permanent changes is work from home means eat at home and probably for the first time since the 60s and 70s we're having family meals you know your your children aren't going off to soccer practice or whatever i mean you know in a sheltering environment that's that's where they are and you know obviously that not all of that's going to going to stick but um but i believe a part of it a part of it will especially since if you have two parents that are working at home now and not one of them commuting you know far away as an example um and you can have dinners at five o'clock now or six o'clock then i think those family meals some of them are to stick and so that is the question paul is is how do we get to the the family at the dinner table absolutely absolutely was that a no it's a hero i i hurry up i'll give you we're aging ourselves right there with that one devon you got some thoughts well that is a big question of the day right i mean uh circling back to what we're talking about you know 40 minutes ago about uh having people come to the taste room by appointment and now we're talking about how do we actually connect with people in their homes at the dinner table it's really come full circle i think we're all trying to figure figure that part out one of the big things that i'm proponented on is referrals which you know you need now more than ever with with tasting rooms closed you've got to connect the dots you've got to find the folks that that already love your brand that are already out there hopefully in your database if you've been doing a good job collecting uh customer info you've got to connect those people uh keep them connected with your brand but also ring their friends into the party as well and i think that's going to be the real tool for growth in the next quarter or two or three and beyond as we get through this last hopefully last few months of the pandemic in its current state and when we talk about growth you know the wine industry has been buoyed for you know for 30 some years now on this compounding uh growth of increase in pricing and you know premiumization whatever we want to call it as well as increase in consumption and now that we're seeing kind of a leveling of consumption we're also starting to see a leveling in terms of how much we can push price i think going to slide 45 is a pretty interesting slide for us um you know we where we're seeing even pre-covered um a change in attitude amongst wineries about how much we can push price starting in 2019 that was really affected by supply of course um but um it's to me it's a pretty dramatic shift if we look at the at the bar graph on the left to see where wineries were you know pretty bullish in terms of of price in their ability to increase price um and you know pretty mild uh feelings about what folks that they felt like pricing had to be stable then all of a sudden in 2019 and 2020 you know we've got more than half of wineries feeling that they can't increase price if you look at the the pie graph over on the right-hand side and you combine the wineries that feel like they need to keep pricing stable wineries that they can only manage a very small increase or wineries that feel like they need to have a pretty small decrease i mean that's 89 of the wineries in the united states feeling that pricing really has to be stable right now um which is a pretty impactful thing given that you know we're removing the two things that have compounded the growth of the industry for the last 30 years yeah and i'm gonna i am going to uh uh move away from that for just a second because i i actually think that this next year we're going to have some some interesting price movements um the the pr release that came out the you know the headline was that silicon valley bank predicts that wine will see a spike in demand when consumers celebrate postponed life events and so we we have to recognize one again we got this unwinding thing that's going to happen and uh don't i i have the chart in my in my data and i i couldn't get it for today but uh in 1945 you you guys that know history that was the end of world war ii and the spike in wine consumption uh i i i did see the chart i just didn't have the numbers to to uh to figure it out but it was somewhere between 30 and 50 percent just in that single year people were we're celebrating and and in this case you know there's there's a big guess about how how much people are going to celebrate um i i personally don't believe that i've seen any data that support that there's been a huge increase in consumption uh this past year i i don't see anything i see some survey data but the survey you know it starts with how much did you drink last week and that's too much range of error in that um but i i think going forward we have that history that is is a piece of that projection but but think about what's happened this past year how many people that you guys have known that had a wedding planned that got postponed um and they're all gonna i mean call up call up wedding sites where people are you know gonna have weddings and you'll find their books solid um you know talk talk to caters uh that are still around um and and you'll find that that you know all these deferred delayed events they're gonna they're gonna come out this year and on top of the people who are going to get married this this period anyways now it's it's a rolling change right it's not going to be like world war ii where we had a you know an end of of things and a spike in celebration that was nationwide or in some cases you know and at least they're only the allied powers it was you know across that that world um uh this is a worldwide event but the the celebrations are going to be rolling it's going to be very hard to figure out because it's vaccine based really but i think 2020 is going to be a good year a year where our wine supply should be in better balance where we're going to come back into a better state of growth just for you know a short period of time but we'll take it um and and i think it's going to be a better year i think i can i can firmly say that and you know let's hang our hat on that let's look forward to the year ahead of us um with that though i think we're out of time and let me see if i can find the uh yeah here's my the closing information if i can get to it is um over here sorry for being a little kludgy um so uh as a reminder you can access the 2021 state of the wine industry report on our website at svb.com slash wine hyphen report i hope you all wrote that down uh but you can go to svb.com replay the video cast to be available and shared uh out to all attendees and registrants tomorrow uh along with the registration for part two of the event so we're gonna talk for another hour after this and we'll release it next week um and you guys can we'll talk about some of the things that we haven't fully covered in in this uh first hour uh as well as many of the questions that have come up um through this event uh so that'll be shared out uh tomorrow with registration for part two please register if you're interested by the way in participating in the state of the industry surveys um uh or the dtc survey that's coming up in in march please submit your contact information in that in that email by filling out the survey there's a survey pardon me at the end of this videocast and you have an opportunity to to please help us do the work that we do for the industry by joining that so that's all i have for today i'm grateful for all of your participation looking forward to seeing you hopefully next week on part two of the videocast for the 20th anniversary of the silicon valley bank state of the u.s wine industry report thanks a lot you guys will see you soon