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[Music] hello wine world welcome to part two of silicon valley bank's 2021 svb state of the wine industry webinar this is our 20th year of producing this report uh i'm rob mcmillan i'm going to lead the discussion i hope you tune you turned into part one um this is a follow-on to that uh to that video cast during the second hour we're going to continue to address some of the findings that we weren't able to get to in the first hour um and uh respond to the questions we're not going to get to all of them there were over 300 questions so we really appreciate the engagement but we'll do what we can to get back to you if that's at all possible but before we get started i want to reintroduce our panel of wine industry experts including amy hoops who's president of wente family estates eric mclaughlin ceo of metis devon joshua who's managing director at maryville vineyards and in charge of direct-to-consumer sales at that wondering and then paul mabry who's ceo of pickswine formerly known as emma tree and who i fondly referred to as the doctor of digital so great having um all this panel together again and looking forward to seeing what comes out of this next hour that first hour went pretty quick um and we just didn't cover what we really needed and i have to say you know as a participant it's i i really prefer being on the on this the panel uh you know all next to each other it makes it a lot easier so this little brady bunch kind of boxes um makes it harder and by the way if you uh if you have a hard time with looking at zoom there's a little slider that's uh between the presentation deck and the pictures you can move that around and that'll kind of expand it a little bit you can see more of the panel with that let's let's get to some slides um one of the things that we didn't talk about and it's an important one is that the change in consumer heidi if we could bring up slide 29 please that'd be great cohort share of wine consumption so this is something that i've been talking about for a while um you know raised the alarm a few years ago and we weren't having any growth you can see millennials consumption right at 17 um and there's all sorts of data that comes out now that we used not to have any good information like this and all data has its bias by the way so our my data has its own bias you got to understand it but the data that are out there are pretty supportive of of consumption patterns right around this for wine um wine's got an issue with with young consumer and i think we're going to get into some of that um but this is this is a year in this slide where i i predicted this is one of the ones where even the blind squirrel finds the nut is in 2017 i predicted that the the gen x would overtake boomers as the dominant uh share of consumers in 2021 and so uh i may have to pay off some some people in this survey this next year to make sure actually when that uh win that bet but um you can see that the gen x is at 35 and boomers at 36 percent a share so that you know the gen x consumer which is a smaller cohort um is coming up to be um you know a larger and more important part of what we do but we really don't care about them anyways and they always feel they always feel paul and amy everybody always dissing us i mean one that you got right paul you know paul and i have been waiting for this rob you got it right let's take advantage and celebrate for just a moment that we're about to take the lead in 2021 paul you do your part i'll do my part call your friends i'll drink more i'll drink but i've been waiting for this time for five years since you start called this so you know let us enjoy and savor this one year please if we do our jobs right we'll get more young consumers in into into the category um and uh we'll end your gen x reign as being uh superior in short are you millennials you guys are millennials no no i'm a gen x okay solid oh yes okay savory i'm glad somebody's holding up the boomer generation that would be me um uh amy you wanted to talk about slide 31 i think i think you'd be a good person to start talking about that one yeah i think it's really interesting and in part one we talked a little bit about the impact of the pandemic and the fact that we saw a narrowing of the psychographics regardless of the cohort and age group because of the stay-at-home order and the way that people were interacting but i think it is even more important as we foresee the vaccines being more widely available and people starting to move around you will potentially get an initial spike as you talked about rob from people having kind of pent up celebratory activities that they want to engage in but as that kind of fades away we need to really look deeper into the consumers and their core values and what they care about and i think this does an excellent job as a slide of really putting the the differences in play for the boomers and the millennials again we've skipped over the gen x we know that that high point will only be for a brief number of years because it is a smaller cohort overall and we really need to see the energy of buying power interest and engagement and wine move from boomer to the millennials and this here really points out some of those key areas in which i think all suppliers and distributors and you know retailers and restaurant insurers need to understand the ways in which this new consumer as they continue to grow as we showed on the last slide i think it was 17 now up to 20 so they had a nice jump in 2020 but as they continue to grow how will you differentiate the way that we're engaging with them yeah and um and so looking at some of these specifically um when you look at just values so as a support group uh you know the older generate the boomer generation anyways uh you know family was your your support group and and the millennial uh consumer found that you know my generation went to 50 divorce rates uh in in in my time in the saddle and you know the younger consumers they figured out that you know family wasn't as dependable as they thought and they and they went to friends um and so friends are incredibly important and and so how does that relate to the wine business well you know evangelists here when your friend is in a club and uh and if you and you encourage uh lateral communication you know with between your members uh you know you build uh fail-safe walls because you're you're not gonna leave a club when you're socializat social socialization it's hard word to say um it includes your your best friend um and you know you end up you know pulling in more so it's that stickiness that ends up being really critical important to recognize um and and friends that are evangelists are really important choice choice of food i'm going to cover that one i think last business capitalism versus well diversity is a it's a big one um obviously recently civil rights movement drove change that's the way my generation thought about it and and today it's it's pretty clear that social ethnic diversity that that drives change um this generation that's coming up is is not like my my generation was predominantly white um and um european so uh today what we're i think we're pretty close to having um uh white europeans kind of fall into the uh below 50 category so a much greater much greater level of diversity and so when we talk about diversity what are the kind of things that you you can do well one of one of them is being you know transparent in your social values you've got to talk about it you can't hide from it if you don't somebody's going to out you so it's it's critical that you take a policy stand on diversity and that you you look like that too so it requires action and it requires action in the way you hire and it's not just for not just for looks if you really want to understand a diverse consumer and a consumer base you got to hire people that are in that base and and give them input let them let them talk to you about um you know what that what that's like um so transferring your and your social value and the way you you you go about putting people in place um you know you got to hire somebody for digital um you're going to have you know all sorts of hiring opportunities and so you know thinking through those things and making those kind of social changes i think are pretty important i think rob before we go off of that another another piece that i think is really important there is that the wine industry in the 24 years i've been involved in it has really tended to try to stay away from what they call politics anything political and i think the difference in the millennial group you know kind of the younger cohort of your gen x's through your millennials and then your gen z they don't feel that what's being discussed and happening now is political it's life it's reality and they have a strong opinion and a strong stance about where they are whether they feel it is just or unjust and it's about equity and justice and so i think it's interesting as we have you know wineries engaging in the digital landscape by completely ignoring what's happening around us as a as a world and as a country is is does not play well with this consumer they want to know where you stand and and that is part of that transparency that they're looking for and i think it dovetails into the diversity because you find that there are a lot of organizations that tend to say well we're not going to comment on that even internally at an organization because they don't want to be political and i think they need to understand that within the walls of their of their wineries their employees themselves as well as those that they're targeting to engage with online at their tasting rooms or just share their products with that they actually want to know where people stand so that transparency isn't just about the diversity on the website who's on our staff who's on our board but even deeper around how are you truly showing up and engaging in in the humanity of of the goings-on in the world yeah i i would say if if you're not addressing this fact um there's a threat to you being outed as i said and there's a there's business reasons and this isn't just about black lives matter this is about uh you know the the whole you know uh cohort that's out there now the the good part of this is uh we have a consumer that wants your product and um and if we don't have uh you know people that are in that community engaged you're not going to sell it's just it's just not going to work so we have we have a lot of work to do in that but uh but that's that's where the upside is i think devon you got you got a comment you know the only thing i'll say to that and i think you know there's a lot to talk about in that particular discussion uh but what it really comes down to is uh is respect and how people are treated in the moment uh not to say that all those other statements aren't true i think i can speak to napa valley which i've spent a lot of time in uh people of color want to know that when they come to a place uh they'll be treated like everybody else and that goes across all platforms really but of course it's most impactful in a person-to-person one-on-one uh experience which of course we don't have a lot of right this minute but when we reopen and people will be able to visit wine country again it uh you know saying as a corporation or as a company you're sort of expressing your beliefs is one thing but it's really about training uh sort of the first touch people uh the folks that are actually giving service on how to uh interact with you know a group of you know 20 something uh age black women that come into your tasting room um how are are they getting the same treatment you know it's a wine train story from what four or five years ago right um it's uh it's just civility 101 yeah it's not really that complicated yeah so we it is something we have to do something about it's uh you know it's one of the elephants in the room uh and it is political and it's and it's messy and it's hard to talk about but um you know we all have growth that that we have to get to if we want to be in business and we want to be successful that's something we got to con we got to conquer um well i think i think you know amy you're right that you know it's something that's historically been kind of uh a no-touch um issue in the wine industry but we are seeing some wineries really starting to wade in there um you know in terms of on social justice issues on political issues and being being overt and being vocal about what their positions are and you know i think i don't i don't know where that's all falling out we're just seeing kind of anecdotal reactions where they're driving both customer loyalty by it but they're also driving some people away um i mean i have some friends that are winery owners that have been extremely overt um on social justice and on political issues and they're finding you know one in particular that i'm thinking of is finding it's kind of a net gain but they're they're actively losing clients over it um but they're also driving more loyalty among some of their others so i don't know if some of the others have experience with this or it's a difficult tricks it's a difficult uh thing to to get through as like i said it's going to be messy but we've we've got to figure it out i i had a speech that i was doing earlier this week and and i think most people in the speech were probably more on the liberal side and uh and i said hey guess what half your customers are republicans and the other half democrats so uh and you know it's like well wait a second you know my values don't align with that uh well if half your customers are something else they better align with it so so we have uh we have this is something we've just got to figure out we you know diversity also means uh alignment coming together i think as a country devin said it well i mean it's about respect it's about treating others with humanity and respect yeah and it is and and and it doesn't matter you know what i think you should do or say at home or in your you know personal life and who's your partner or you know what what you think about pro-life or pro-choice at the end of the day it's about treating people with respect and meeting them where they are i mean we talked a little bit about that in the in the um summer session that we had that we had uh done via zoom and and it is devon you're absolutely right it's about respect it doesn't have to become political it's about humanity treating treating people with respect meeting them where they are and using that as the starting place of the conversation to engage and educate as we all continue forward critical it's a critical topic but i want to move on because we have so much to talk about um so let's let's move on you know back to this slide on uh i was going to talk about choice in food um uh just to just to segue to that the the boomers idea of choice and food is we would eat things if you know we'd say well twinkies they're not bad for you i mean they don't like arsenic in them it's not like they're bad for you so i'll take a tweak twinkie and a ho and a ding-dong and a hostess pie and you know and we found out that obesity levels were going way up and okay maybe there's some things about that aren't so good you know but we were kind of rudimentary in the way we thought about about health um you know the younger consumer they're going to put things in their body that are good for them so it's you know it's the opposite and by the way i do have some some more recent data that suggests that the the older consumer is just as much into health as the younger consumer now um but their spending doesn't necessarily reflect it so it's a it's a little bit of a difference of a difference if we can go though to slide uh 36 heidi is a uh this is a a nielsen slide that i think is is really super interesting and so when we talk about health and we talk about wine we have a new prohibitionist movement that most of us saw i think firsthand maybe a little bit more a little bit more apparently with the usda dietary guidelines the things that happened this last year there and you know the guy that was running that panel was uh an epi epidemiologist with a lifelong uh career that was into bing drinking you know uh underage drinking and regulatory that's you know that was his framework um and so you know we got out in the recommendations what you would expect you know that there's an appointment that had to happen before that you know how does that appointment happen who who was involved from the elk beverage side in influencing that choice uh we were all late to the party in that and there's there's something that has to be done you know the day that we used to have where we would think that moderate consumption uh you know my generation if you look at all of the data from um uh arthur klasky's work and um which is the j shaped curve and then the mediterranean diet and before that is french paradox and you know multitudes of studies over decades that showed that moderate consumption uh leaves leads to uh healthier life outcomes um uh apparently a better mortality rates and uh in some cases um better cardiac um outcomes um that has all been lost now we're not we're not talking about any of that and of course as um as permit holders you can't talk about it so you've got to have a national marketing organization uh that that is able to do that to to not only just talk about the messaging component of it but also to direct um uh and coordinate nationwide messaging to talk about you know here's here are the sound bites that we can use we and we've got to push back on this and so you can look at this slide and so the question is how much effort are you currently making to reduce your overall consumption of alcohol and these are current alcohol consumers right so they've already made that choice and uh you can see the young consumer um uh is you know uh making the most effort a moderate moderate effort and actually uh in the any effort 2019 to 2020 35 to 44 you can see the you know the the growth rate um how they're making you know increased effort and 45 to 54. my gen x fans um you know making an increasing effort to reduce alcohol consumption the dad bods that's what it is that's why it's a dead body yeah we're working against that so uh so you know this is a piece of the discussion that has to has to come in health is a part of it um let's see if we can go to the next slide uh i think it's slide uh yeah do you think we're getting healthier as a society in general i think that that's that's a fun sign yeah slide 27 heidi please um yeah i i i don't know that we're getting healthier i i think um i think right yeah yeah i mean it's hard in a pandemic year i'm not sure that that counts uh uh probably some of the worst outcomes health outcomes we've seen in i mean we've had more deaths uh since uh world war ii with all the wars combined the more deaths that have happened it's just un unbelievable and by the way at the end of the report you know and i mean i hope you guys read it but i'm making a pitch i want to have a national holiday another friday holiday uh to remember the folks that have passed and the first line workers um you know we have memorials for uh you know veterans day memorial day um you know et cetera and this is a time i think we probably could use another another occasion to remember this and we we have a lot of work to do i think but uh write your congressman on that but here's uh here is uh another one um what are the reason i've had this in my slide deck danny brager from nielsen's had it in his slide deck too one of the reasons you're consuming less wine compared to a couple years ago and again those that are saying that they're drinking less wine the top top one is you're opting for a healthier lifestyle um there's some spending things uh different types of alcohol you know i think spirits are doing an excellent job of the way they promote wine their pardon me promote their their product um but uh you know a lot of this comes comes down to health so it you know it mirrors that other slide and so now the question is is you know how do we do that how do we do that in the wine business we're still talking about long days and cool nights we're talking about special soils and and phs and we spend all this time writing these words on the back labels and how many of you guys even read a back label in the wine industry you know you read front labels um uh but the back label with all the stories about uh you know the harvest dates and uh i i don't so we need to get back to pictures we need to get back to sound bites and when you look at when you look at the way spirits spirits are having you know very good growth rates and they're taking market share away from wine and part of the reason is because they are using terms that reference help non-gmo gluten-free natural and by the way a big a big deal and i think we're starting to make some forward progress on it is calories most people can't tell you how many calories are in a glass of wine certainly not the glass that that you would have in front of you at a restaurant um and and calories are a material part of health um so because the consumers count them um so that's uh that's a critical critical aspect of that i think there are a lot of things that intersect in this uh in this particular part of the conversation uh you kind of started with neo prohibitionists and now we're the graph that we're looking at now is about folks of course that are uh alcohol consumers who are drinking less and why and i think first of all uh i think it's important for for us as an industry not to complete the two things you know i think not to say that they can't sometimes overlap but i think the the neo-prohibitionist movement who's sort of drawing a bright line about alcohol equals death which is something we have to fight is uh is a battle and i think looking at this graph here i think it's really interesting people who are actually consuming alcohol but consuming less and why goes right to your point about a healthier lifestyle you would ask paul you know to chime in about whether or not people are living healthier now than they were you know before and as all things today i think it's you know yes and no right it's we see more and more uh sort of stratification in the society in regards to folks that are consuming alcohol uh wanting to be healthier and then there's another subset that's actually drinking more and and perhaps even more unhealthily so not looking at the science as well so i i think i think you're you're right and that we have to do a better job of talking about the health benefits wine and you know drawing in calorie content and all that information um but i think it's really uh important for us to just be clear about the fact that you know it's a lifestyle product and it can be enjoyed in moderation and that's really the the tech we want to take going forward you know another thing that's interesting about the the chart that we have up right now you have to go all the way down to the second to the last bar where it says can't afford to drink as much as a reason for people drinking less and i think that dovetails and something we might talk about a little later which is the continued pre uh premium premium premium i was going to put a tea in there premiumization of wine um so which of course bodes well for you know the napas and the sonomas of the world and uh everybody trying to take price increases so something to consider people i think are drinking less but also drinking better i think that's sort of a broad stroke statement i think you're different you're probably looking at slide 11 i think devin yeah well yeah the one that's oh yeah before we get off that topic i mean let's also not forget that we have the answers the antithesis of that which is people proclaiming that wine is good for you or has reduced hangovers of the clean wine movement and that that leads itself into breaking the social contract and amy and i talk about this a lot the social contract is very important that we are telling people the right things and when you see this whole clean wine movement or even accidentally the natural wine movement pretending that it's better for you there's less hangovers it metastasizes or you you can process it differently in your liver that's the wrong way that we want to go as well calories yes healthy benefits of wine is um uh you know as part of the practices cleaner or it's processed differently is incorrect way to go in my opinion right there's been questions about whether from a regulatory standpoint uh there's going to be additional scrutiny on that by the way but if we look back at what was you know what was the single most positively disruptive event in the wine industry for consumption and it was the 60 minutes um you know story on the french paradox and the mediterranean diet and wine for a period of time really kind of owned the health benefit of it but we weren't drawing lines between wine producers and saying i'm clean you're not i'm healthy you're not um but it was wine shifted in people's minds and consumers minds in the country as being a healthier choice than the alternatives and i think it is eric i mean as one of my friends said we sit on the side of angels here i mean compared to beer and spirits wine is better wine is better for you i agree but we haven't we've lost ground in the perception article and the perception of the consumer so we had this huge leap forward that corresponded with a huge increase in consumption overnight it was remarkable and then we've just simply lost ground to other products you know so you see corresponding with the with the french paradox article you know uh broadcast we saw wine taking share from beer and spirits right because it was a it was considered healthier and now we're we've slowly been losing that ground back to spirits and then we have all these new entrants of these specialty products and seltzers and whatever that are that are claiming health benefits rightly or wrongly or or not necessarily health benefits but are are gaining consumers from wine because they're perceived as being a healthier choice it's a fine line though it's a it's a slippery slope i have to be honest with you amy knows better than anyone yeah part of it is just the fact of the matter those other products like seltzers have actual information and are transparent this is 100 calories so people then know what to do with it now those of us in the wine industry i think you even wrote it in the report rob like how many people know what's the number of average calories in a five ounce pour of chardonnay right not enough and so because people don't know it and because consumers don't have to dig for information the um you know availability now to put on that calorie count will enable them the consumer to determine right i think also some of the growth that we're seeing in some of the specialty drinks the rtds the seltzers out there really have to do with the fact that they allow people to with good conscious extend their drinking day now that they're working from home i do think that's a reality and that's a little bit of a junk position to what the slide we're looking at here as to why people are consuming less i think people overall we haven't seen a large growth or a dip it's kind of static right in overall consumption and i think what what we're seeing is while some people are completely opting out and saying okay dry january or i'm taking the year off from my own health other people are filling that gap because they're opening up you know at noon two or three a seltzer or you know an rtd low calorie whatever low alk item because they're stressed out already because the household now is their workplace their life place and their only place so i think there's a lot of blurring happening and we're just going to have to continue to be prepared for it as you know as we come out of of shelter in place and are able to move more freely and really just have a finger on the pulse of what's happening from a lifestyle standpoint and devin you said it really well you know there's the neo prohibitionists out there there's the sober curious which doesn't mean they're not drinking they're just trying to figure out a balance of what that looks like and how they can maybe um you know augment their uh lifestyle engagements sometimes with alcohol and other times feel included but without the alcohol impact so you know i think these are all important trends to be aware of as as the industry moves forward well i support what uh go ahead deb oh i was just gonna jump on what amy sort of started out with uh which was transparency and uh being you know i always say in the absence of facts people will make up their own and uh people are consumers are used to transparency right i mean you're used to knowing at this point as a consumer everything there is to know about something it's sort of out there and i have this conversation with my wife all the time about what should be on the back of a wine label and um you know kind of to your point rob about having a a nationwide marketing organization that helps to sort of sing our song i think wineries today can actually help themselves by being more transparent i think you know rather than wait for some uh association to come and help us all i think if you believe that wine is healthy and you believe that there's nothing to hide the more that we can do as as individual brands and some already do it uh again without talking about you know we're clean and they're dirty but just uh at a brand level explaining how the wine gets in the bottle and what's actually in it i think that'll go a long way you can actually speak to those people that have those questions and honestly be among the first movers to market uh making that kind of a value proposition and sharing that information yeah devon when we do do it i think we have to be very smart about it because if you look at the anti-science movement how it relates to what's in a regular loaf of bread and how they call it ingredients that are actually normal healthy ingredients because they have scientific names associated with them we have to be very smart and very clever about it because the anti-science movement will especially the prohibition movement which really is looking to say well they have uh you know this ingredient or the sulfites using that as a small example this is why it's bad for you when we know this is a natural occurring thing in nature you know raisins have more sulfites oranges have more sulfites than wine but yet they can elevate that as a as a negative 100 right i think a little knowledge is a dangerous thing you're actually doing my side of the argument with my wife my wife right now about what so it is a bit of a a needle threading uh predicament yeah we have to be very smart about we should do it but we have to be super smart and be proactive in the education because otherwise it will be uh weaponized against our industry in a way that we are not prepared for and we're seeing weaponized against industries that don't have an antagonist like neo prohibitionism so we need to be super smart great time check we're about halfway through this hour and yeah already um uh i think i i do want to bring up this slide that devon wanted to talk about um and i forget what slide that was now yeah yeah you're talking about uh premiumization i think yeah yeah you can see that nice green sweet spot you know between 20 and 100 bucks a bottle uh and i again i think that really intersects with a lot of the different uh things that we're seeing out there in the marketplace right now people drinking drinking less people being healthier um we haven't talked about it on this particular segment here but uh e-commerce taking charge people actually giving their wine through through uh through the mail through shipping uh doesn't make a whole lot of sense to ship a six dollar bottle of wine uh 20 30 40 it makes a makes a whole lot more sense so uh i think we're going to see that continue especially as we see e-commerce continue to grow and strengthen i agree 100 20 sweet spot let's uh heidi let's move to since we're talking about finances we got to talk about the economy a little bit because that that matters in in the year ahead um and just an important distinction on slide 13 if we can start there um so just just as a starting i want to draw a distinction between the last recession in this rece sion um and so this is this is what happened in the great recession we had that was an asset bubble and things that were tied to interest rates um like houses and uh and stock market investments and those things lost value right and uh and you know people lost their homes but it was it was people that actually had homes and they had assets if you didn't have assets your you know your ability to recover from that was actually uh probably enhanced because uh you didn't lose anything but we had just everybody knows the story we had you know hundreds of thousands of people losing their homes um and and you know trying to work those through the banking system and uh you know the foreclosures and the we used to call it jingle mail and you know people would um um you know put the the keys in a in an envelope and you know drop it off at the bank um it didn't happen to silicon valley bank by the way we didn't have that kind of it wasn't our fault i promise but i was i used to say that during during the great recession but this is this is a very different recession you know um you know in the last recession you could go get your hair cut right barbers didn't lose their job and most recessions they do and this is a service economy by the way but what changed let's go to the next slide heidi what what changed in in this recession is uh that the thing that drives it is your proximity and able to service your your customer so the service sector got hammered um and so when you but when you look at core retail sales um you know this is what happened you look at stock market or i haven't checked today but we're trying you know been trending at all-time high is and people are having a hard time understanding you know why is this look at civilian unemployment or a civilian employment i should say uh you know it kind of looks the same a little flattening here lately we're just really late on fiscal stimulus um and i wish that we'd put a restaurant bill together um and do something about that but um you know that's it's not my role um but it's needed so flat flattening out i don't want to run but you can see how quickly compared to that last slide you know we've gone through recovery but you know the the ones that have really lost this ones are the ones that could afford at least it's you know it's tasting your own people it's uh it's hotel operators uh that are in uh you know cleaning rooms and bartenders and and uh middle managers in uh in retail uh i mean it's just it's it's it's disastrous and the unemployment rate is still very high and yet we have this this disconnect some people call it a k-shaped recovery where you have the the people that afford at least you know going down and in california we have a tremendous problem with the unemployment uh getting checks to people because of fraud it's just a i mean it's just a disaster um and you know in in the middle of that um we're having all this you know stuff happen and and um if we go to the next slide and i mean when i say stuff i mean positive stuff you know our sales are down like seven percent on average for the for the premium wine industry it's it's not that much compared to what we thought this is a i'm grateful to euro monitor they gave me um uh their data on uh on luxury brands and in europe and the u.s and uh here's an example so you can see what happened with wine in the great recession here on the left side 2009. um you know i have a similar slide that i don't think i'll put up right now but it's you know financial statement benchmarks that we have and it and uh at that point we had um uh sales growth that turned negative for the first time ever but it flipped around very quickly and we ended up at that at that great recession point we had trading down that was the whole mantra every you know it's trading down well as as devin was saying people are you know we've got a kind of a breath of fresh air into premiumizing now people are out buying uh more expensive the better growth rates are in the more expensive wines as you start to move up from ten dollars and then you know you get up to the coveted period where we are today and uh and it drops you know the drops been fairly minimal as i mentioned earlier in the last show we had uh i think we're going to probably come in right around zero percent growth i didn't mention this but in still wine about zero percent still wine and the report i think it says i think it's one point two three percent is the chart that i have in there that was in the november december was not good um you know the occasions just weren't good the forecast the forecast looks you know rather rather positive i mean we can we can get there uh you know the economics play out if if um you know the young consumer starts to to get on board if the economy stabilizes you know if if if we can get through the this period there there is upside but the recovery is much quicker than what we experienced last time if we can get fiscal stimulus and if we can get you know to the other side of the hill and uh on herd immunity amy you wanted to say something yeah i was just going to say i think it's interesting though as we look at this against luxury wine and i think we talked about the um you know the the potential not v shape a k shape because there's such a differential based upon the higher socioeconomic groups in the lower socioeconomic groups and who is impacted and looking here just at u.s luxury wine sales we are not seeing the underlying cost of those higher end wineries to continue to sell this is just the accumulation of that and i think when we look at maybe slide 47 here that talks about your winery's financial strength as self-reported and then maybe roll in and get some information from eric on interest in acquisitions and what he thinks we're going to see out there because it is interesting to to take a look right again self-reported data here but we're able to see people saying everything from you know this has been a rock solid year two this has been one of you know this has been a really tough year for us and and i think the the clouding of the luxury wine growth is coming out of the fact of what we often argue from nielsen data which is while you can see growth in over 20 it doesn't show you that bottles that used to sell for 80 are now selling for 40 right and so the individual impact that that's having on the wineries themselves not it's being um covered up by the by the data just showing by price gathering so i do think you're experiencing as individuals in their own personal lives are experiencing very different impacts of the current pandemic and our way out of it i think wineries are also um very much um a 180 from each other depending on what their stability was going in and and how they've been able to adjust during this pandemic times eric you wanted to talk about um i think this slide 47 as amy mentioned well i i think it's important to understand that slide47 here is is self-reported data so and and it's in its um perception right so there's not a definition of what is rock solid what is good what is strong etc um but i think that there's um it's really interesting it's a slide because from a self-reporting standpoint if you combine everything from good to rock solid we've got 79 percent of wineries saying that their their financial strength is good to rock solid that to me doesn't entirely jive with what my perception is i mean i don't have 79 of the people who walk through my door feeling good to rock solid um it might be maybe more 50 so i don't know if this is just a little bit of projection or people wanting to perceive themselves this way it's a yeah it's a it's a good point about self-reporting by the way there is that there is a bigger definition on the uh in the uh question when we ask it but uh but it is self-reporting so there's a range of error for sure it's you know it's uh it's like natural what is natural wine right yeah it means a bunch of different things to do but another way to look at this slide though is um you can see in rock solid how we've gone from 18 down to 11 very strong 21 to 14. so you know it's a deterioration in the very strong if you want to think about it that way you know the strong ends up being more flattish and then an increase in in those that are just good uh uh or very weak and and by the way eric i uh uh have to point out that northern oregon is the only that self-reported they were dead yeah i think i've gotten a call from that winery so [Laughter] maybe some of it as being self-reported to your point i mean rob makes it that yes the trend is is a downward trend saying things aren't as good as they used to be is what they're admitting here self-reportedly at what levels or with what transparency not really clear but if we go over to slide 42 interest in selling as self-reported and then the following slide we can wait a second but flip to it next around interest and acquisition from your perspective you know some of this could be bolstering people saying we're not as good as we were but we're really strong still and fyi i'm also reporting on this slide maybe yes and i'm interested in selling right so like how is how are you seeing that in the industry right now it's a really good question you know i often get uh comments from people who say oh well i bet this is really good for your business you know now everybody wants to sell because there's distress in the market um what we what we're actually seeing from winery owners is maybe more more sobering understanding of where they really stand and more realism i think that there was a lot of you know a lot of people have this kind of their retirement plan is that somebody rich and dumb is going to show up and give them a check um and my professional experience is that the existence of of those people is significantly overestimated um and so you know when deals get done from both the buy side and the sell side it really just has to make sense so every once in a while sure you get somebody who does something wild but generally the deals have to make sense and people are paying more attention to their business and are frankly more realistic about um about their likelihood of exit so we're not seeing a huge how easy is it how easy is it to sell a dead winery um what at the appropriate price the assets of a former business can be sold but there's virtually no interest in buying a dead a dead business yeah now sometimes there are dead businesses that have attractive assets and when those assets are priced appropriately and can be repurposed into somebody else's business or a new business those assets can be sold and i can say that we certainly in our business uh are seeing a a higher a shift towards more asset sales um happening in the marketplace where you know when a winery comes to me and says hey how much is our winery worth you know we kind of do a a base analysis of saying okay well here's how much your assets are worth and here is how much your business is worth and hopefully the value of the business outpaces the value of the underlying assets and we can talk about you know how much goodwill is there how much how much real brand value is there but increasingly we're seeing wineries where the value of their business based upon those valuation metrics isn't outpacing the value of the underlying assets yeah so my point my point in asking that question it was leading question is you got to know when to hold and when to fold them and uh and you don't want to wait till you're dead uh that's uh that's not a not a good solution for success uh and i get this question by the way it's important for me to say this because um you know there were over 100 people in the press that signed up for this um the press at times is looking for uh you know stories that you know like you say if it bleeds it leads and so i keep getting this question are you going to see wineries go bankrupt and my answer is always no it's not the way it works there's always somebody else that wants to buy a winery this isn't like a restaurant so my favorite restaurant in napa a little place called el posto used to be a paint store and a lot of locals go there you know really good food but it was a paint store paint store closed restaurant moved in restaurants fail and they go dark for a while they may turn into paint stores but not wineries wineries they when they sell they sell something so we're not going to see you know fewer wineries in fact i still think we'll probably see a continuation of more wineries that's just not going to happen but uh but you know with that is context eric offer your point of view toward uh the m a market for this next year well i'd agree with what you said about raw there rob is that we don't we're not going to see fewer wineries wineries are really asset based businesses whereas restaurants are cash flow-based businesses and so there's just too much durable value and the underlying balance sheets there so they'll get repurposed in some way but what we are seeing um and we've been consulting for a lot of wineries that come to us that we don't believe there are buyers for but there's there's value in their underlying assets and we've been advising people really your most profitable exit is a wind down and people just not refuse to do them you know whether it's emotionally or or or how they want to be perceived people just flat refuse to do wine downs we are starting to see wine downs happen now people that has been a big crossover but it's not going to be something big in public it's not going to be a big public blow up of oh your favorite wineries closing they're slowly going to fade away in a quiet way that you're not even going to hardly notice i'm sorry do you think that that phenomenon conflicts with what rob was saying about the fact that he doesn't feel that they that there won't be fewer wineries if if you're seeing wind downs which has never really been anything you've seen before yeah no because i think most of those assets will you know if it's a you know those wineries and those vineyards will be repurposed into other businesses and there will be new entrants into the market that are going to pick that up um i think we do need fewer wineries but i don't think that that's going to happen um i think so but the m a market uh remains pretty active and i think the if anything it's more active than ever it's but it's a game of musical chairs there are more chairs and there are more people going around the circle um we're not necessarily seeing a bunch more people grabbing shares i mean we did four transactions last year uh which for us is about an average year um and i know uh but we're expecting we have a bigger pipeline going in 2021 than we've ever had so we think 2021 we're gonna see a lot of transactions um but there's um you know buyer buyers feel like the distress in the market should cause uh a half-price sale or a bogo or something you know they think that but not all of the assets are going to be discounted um equally right so the buyers want a deal because they want to be active in a distressed market and but they want to deal on the on the businesses that aren't in distress and as we've talked about already there's a lot of businesses that are doing really well and those businesses their value is not decreasing if anything their value is increasing because they're showing that they're able to perform in a market where um where other people aren't so we're seeing more bifurcation of performance of businesses so some people are doing fine a lot of people are doing better and a lot of people are doing worse so it's back to that kind of case shape thing but rit up to the winery level that we're seeing more divergence of performance and the high performing wineries are are still what people are interested in so the two types of transactions that i think are going to be happening in the for in the future here are going to be discount asset sales people getting a garage sale on good assets on broken businesses or and then repurposing them or people paying good and fair valuation on strong businesses in the marketplace what's going to be difficult to deal make happen is going to be the businesses that are in the middle and the one of the things that supports it back to that economic uh hort economic discussion is there's a lot of cash in the market place right now that's driving the stock market higher and when you have low interest rates and a lot of liquidity as we do right now you know that that begs people looking for asset purchases so it i know right now in in california there are a lot of transactions that are happening quietly with with big funds funds funds uh on the vineyard side yeah we're seeing the same thing up here there's so much dry powder in the market i i was really jaded on institutional investment in the wine industry because i spent so much time with people not with institutional investors educating them on the wine industry to at the end of you know many many hours of education have them go why would anybody do this this is dumb i'm yeah those investors they're they're reaching deeper into the market to find places to deploy the dry capital and so the wine industry uh a lot of institutional funds and a lot of private equity funds that uh that have capital that has to get deployed they just weren't getting down to the wine market they couldn't make sense of it they're starting to make sense of it um not because the wine industry's financial performance is improving but because there's just too much money looking for places to invest let's um let's switch we have uh about 15 minutes left so let's switch to um three-tier we've had a lot of questions that have come in online um in the first video cast and and uh in the sign ups that talk about um you know they want to know what's going on with with three tier what's what is our expectation and uh i know paul i think you talked earlier about some thoughts you might had on it well i i think that candidly there's a whole new category in three tier that uh you know most wineries are leaning into pretty hard they're calling it e-commerce i think that's falsely labeled but it's um uh essentially uh digital management of wine.com wink wine still sold out uh drizzly instacart huge departments and they're deploying those dollars and their energy against those categories and having huge success maybe probably can speak even more to that she's um you know actually had teams have done that but um it's a big transformation um in the industry and there's probably about you know 10 experts at this point maybe five that are really driving that but you can see um using this new methodology of combining digital and three-tier to drive increase in sales is pretty magical especially with on-premise blooming so much during the pandemic i i have an interesting well at least i think it's interesting point of view i hope you do about three tier and um i look at the beer industry as an example the beer industry consolidated to drive efficiencies over a very long period of time and eventually they got down to three beer companies kind of and um they produced cheap beer but it wasn't very good and the the consumer uh you know kind of opted out i think it was a craft beer act of i think that's what was called an 86 that got passed that allowed people to make beer at home and uh in small quantities and and you know ever since then craft started to take up because the consumer was looking for better the wine industry was in a good spot we we would are we had already started to premium eyes because that's what the consumer wanted and uh and so you know the west coast u.s started to started to take off spirits were probably you know next in line and and uh you know beer was a little bit behind i think i think the curve but if you look at what's happened in the wine side um you know we've had this wholesale consolidation now for a long time um you know so i think we're kind of down to was it about two representing half um half of the the market something along those lines and um it's interesting to see what's happening in the background with uh one of them has made it an investment in lib dib um another just announced uh not too long ago that they had made an investment in a digital marketing group it's you know and i think it was not inconsequential the digital marketing group they've always had people that would help internally to do that but this this uh it's a really a fully integrated strategy to enhance the engagement of digital and the self-service model for the retailers and the restaurant yours to be able to in my opinion to be able to put less feed on the street and get more efficient economically in the way that they're presenting wines and then trade the responsibility for promotion of your wines back to the supplier via asking for dollars to promote on their internal digital platforms that now act as the salesperson to those accounts that's right yeah it's good you know from a strategy and a way to decrease um you know personnel cost and increase efficiency um but it does switch the onus and then the the um changes the margin structure of what it costs to do business in that in in that sector well and also i was going to say paul the large uh uh wholesaler you know it's got a problem because you know as we talked there's still premiumization people are still going for better and fewer and yet just like the old beer setup it's the wholesale is made for efficiencies it's made for moving volumes and uh and you know the great equalizers the interwebs again it's it's digital so uh i i look at this and i say well you know wholesale they're smart business people that this is a hedge they they see what's happening they see what's happening with uh uh you know the love moth case uh just got uh uh it wasn't granted um was it called settery satori anyways i'm not a legal man but it's it wasn't granted um a hearing at the supreme court so that was a going to be an opportunity to maybe enhance re uh retail shipments uh direct to consumer and so the you know there there are cracks that are that are continuing to build and uh and at some point you know the the the wholesale i think wholesalers have to either create a solution uh or or they they threaten not their existence because i think people overplay that the wholesalers have a very good product that they deliver and uh but they they need to to be able to service that part of the market the smaller part of the market and it doesn't work when you continue to consolidate and consolidate and consolidate that's not necessarily it's solution for big box stores not solution for independence and in a lot of the markets so there are changes that are happening and and they should accelerate i mean that's just the way things work rob this is already happened outside of wine i mean like u.s foods went 40 i think it's almost 40 percent um you know digital through an e-commerce platform i think the big question amy probably shares this concern maybe devin as well which is how do you rationalize those margins that wholesalers are taking that are justified by feed on the street when you shift it to digital um and it doesn't have the same cost infrastructure that's going to be the real pressure cooker that they're going to have to face going forward and i think amy can probably talk much more about that i think that would take us another hour at least and we don't have time for that today well absolutely something that will continue to be discussed as that you know margin compression and where things are uh good segue thank you for for catching that uh amy um because we are at the end of part two um so um as a reminder for for everybody that's tuned in uh you can access the 2021 state of the wine industry report on our website svb.com and then on demand replays of the videocast will be available on our website and shared out to all the attendees and registrants so you should be able to see that as well as the replay of this and with that i'd like to thank you for tuning in to these this two-part series and videocast of the release of the 20th anniversary year of the silicon valley bank state of the wine industry report we wish you success in the year ahead helped in the year ahead and uh and we're looking forward to seeing you at silicon valley bank when we can be in a point of social nearness uh have a great year and look forward to seeing you