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hello wine world welcome back to session two of Silicon Valley banks 2020 state of the wine industry videocast we appreciate you coming last week you heard a lot of ideas about things that we might be able to do and places that were kind of holes and potholes in the industry things we need to fix and we're gonna pick up pretty much right where we left off but I have to read this stuff again I always forget these housekeeping notes one of these days I'll remember them but at the bottom of your audience console or multiple application widgets that you can use if you have any questions during the webcast you can click on the Q&A icon and the Q&A icon is for the panel itself you'll be able to address questions to the panel at that point the chat panel on the other hand is for cross communication between you and and the other participants so feel free at any time to to use either of those if you have a problem with anything technically then you can again use that Q&A session or Q&A button and somebody will will pick that up for you it's a good time though on the group chat if you you're logged in please put your name in there and winery or place you're from you're going to talk about the location you're from that's fine as well and I think that's that's it for and oh I got to introduce my my panel here I got Amy hoops who's the CEO of wente winery Julianna Colangelo so part one of the partners in Colangelo part Colangelo partners I probably just promoted her but her dad will be okay with it and then I have and then I had the doctor of Digital Paul Mabry is CEO of Emma tree or demigod I don't know maybe give everybody a promotion wow that's a cruel profession yeah so we're gonna start right right up by talking about slide 2 so we interest industry sentiment this was an interesting slide to me it comes from the survey and again as I said last week I appreciate everybody and their participation on the survey we can't get this data without your help so people are always asking you know what is it that people in the industry think how are they feeling and so this is a good explanation of that we break it into a few different segments and it's a little bit like the Michigan Consumer Sentiment Index it's the way it's calculated the one on the far right of your screen is the overall sentiment and it turn decidedly pessimistic this year last year it was 1% pessimistic this year 46.3% pessimistic so that's that's a pretty big change the economy ends up being one of the larger changes from being viewed actually increasingly positive through 2019 until we got part of me 2018 Toby got to 2019 now that shows up as negative the but that says is that the consumer feels the economy is actually having more of a negative impact that a positive impact on the wine business despite everything else that you hear out there on Wall Street you know the Dow at record levels you know good GDP this is the way the the wine industry is feeling labor is obviously a big issue and foreign competitions surprisingly is becoming less of a problem we this was before by the way the fires in Northern California and Sonoma and this was before the tariffs so that's that's not the issue but when you look at substitute substitutes are an issue and so the industry is aware that substitutes are a problem and so that's the the biggest negative trending piece of this index so the industry is pessimistic and you know my my own sense of things is that until we recognize the problems we can't find solutions we talked about many of these same things last year I don't know that the industry is ready to receive the information that I was handing out I was labeled a doom and gloom area by a lot of people and sadly the the predictions that I made where I was wrong is I was I was too optimistic on negative predictions that actually were even more negative than I had believed you know one example would be the amount of acreage that wasn't picked last year we we ended up with in every single every single County every single region we ended up probably the exception of Willamette Valley we ended up with vines grapes that were unpicked it's a little bit different than we're used to pull up slide three if we can and this is a self-reported thing on on financial help and so year-to-year you can see on the left side of the screen you can see that there is an increasing level people that are reporting weaker condition and on the right side of the screen generally there is a decreasing number of people that are reporting the good condition so there's still good conditions but you know it's not it's not quite where we want to be when we moved to the next slide which is how was your year we end up with I think an interesting view so this is this is isn't about financial cut it's just a general statement how was your year the left side is one of the most difficult right side is the best year in history and so it's interesting to me when I look at this you know I see 24% with the best year in history record years against the backdrop of all this negative negative ISM and the other slide on the optimism of the industry so a chunk of the industry is doing quite well I dug into the numbers a little bit in our peer group analysis so this is our customers and prospects Silicon Valley Bank has roughly 450 wineries that we that we bank and we kept prospects that we that we look at from time to time as well of course and and we take those financial statements were able to to analyze them and in general ways get a feel for what's happening in the market so when I separate sales growth rate of family wineries in this database just into quartiles lower an upper lower being in this case quartile 1 upper being quartile 4 what I discover is roughly 25 percent of the industry has a sales growth rate of minus seven point eight percent and when you go to the other side we have sales growth that's you know about 22 percent so that sounds pretty good you know 22 percent growth sounds sounds really good and in fact so we got about 25 percent into the industry not doing very well and 75 percent that's doing okay which is why it's difficult to look at average as all the time you look at averages and and you know you just look at the optimistic pessimistic side you might think that the the sky is falling and I would say it's cloudy and it may be it's sprinkling but we can still find an umbrella and that's the that's the point of the discussion a lot of questions that we've received about land values and and what's happening with vineyards we don't have any any land experts this time but we do have as it turns out an intrepid reporter in the field and why don't we go to that intrepid reporter and see what he has to say about land values welcome to Napa Valley it's Silicon Valley banks offices here I have with me Tony Correa who's the world's foremost vineyard appraiser at least that's what he tells me so so I thought it'd be a good time to have Tony come in and talk about what's happening with with land prices under the the current dynamics of the market Tony what what is happening with price well that's a very good question because we're not seeing a lot of sales activity this last year has been fairly slow on the vineyard markets and so it's hard to tell us where the markets are if we don't see the the benchmark transactions that can guide us along that path is is price going up price for the very best top quality vineyards is still strong and will go up if they're competitive bids and what about B and C B and C not so much beat properties will sell at the right price C properties there's not a lot of folks interested in a C property today with the great market the way it is yeah and another model what about the the small house with a small vineyard with the small brand lots of those well there's there's more than that or large houses with small vineyards and small brands and and those are most of those are all purely lifestyle deals and so that's a function of a general market for it for lifestyle homes they've been very popular for the last several years both some Napa and Sonoma but those those are not driven by the economics of wine production because typically those are very small you know a couple thousand cases of wine and most of that has sold to family and friends etc direct consumer but not really significant wine production and today we're we're seeing volume declines in depends on who you ask but but most will say we're in the middle of some volume declines and we've never really seen this in the fine wine section especially in then up in the north coast maybe going back to 80 the 80s perhaps you might get there but what do you see in terms of vineyard removals in the state of California right now well we're seeing I think quite a lot of vineyard removals throughout the state certainly in the Central Valley and that some of those are old tired vineyards and some of them just aren't viable with the great pricing the way it is up and down the coast we're seeing the same thing there's a quite a lot of vineyard removals either happening or a plan for this next year and the big question becomes are those going to be replanted to vineyards or they gonna go to an alternative crop but I think the bottom line is if if wine sales are declining then we'll we'll have to decrease our production to come into line so we can achieve balance again but those those removals are happening the moves are absolutely happening you can see them if you drive up and down the coast all the way from the north all the way through the south do you have an idea about how long it would take for us to find a natural point where buyers and sellers are on equal footing I think it will start to happen I I think this next year is going to be a challenge but there's a lot of buyers out there who are waiting for the right opportunities and I think we'll start to see some activity and you know later in the spring and then I think in 2022 you'll see a return to more of a balanced market and last question what about funds do you see funds out there that are starting to look at trying to pull money to maybe come in and and pick up assets there's an abundance of funds and we call them institutional type investment funds and there's an abundance of those that are very large ones that are chasing agricultural land in general and of course if you're going to be an Ag land and the wine grapes are the sexiest market in the wine in the AG land business and there's an abundance of those out there they're buying when it makes sense to them economically and so when this market turns around to that point where they can they're confident they'll be able to sell the grapes they'll be buyers so there's activity and the market is changing it's in flux right now and we've still got to find that point of equilibrium we'll get there this straight from the horse's mouth 20 Korea that's what's happening with prices in land right now back to the studio thanks Tony for that cheery message you know we're in a cycle and this is a little bit of a different cycle than we're used to because unlike previous cycles that were driven by speculation from vineyards that were chasing growth and demand now this one's the opposite it's we're having a shrinking demand by volume and you know now it's it's like we were planted to the right amount and now with especially the 2018 we're stuck with too much we got to work through this 2018 crop you know it's it's not that the industry is is falling apart look at a couple slides real quick let's look at slide 10 predicted year and sales growth and you know as our surveys run in October and what you can see by change in dollar sales our change in case sales you know 10 10 percent change in dollar sales eight percent change in case sales now the reality is everybody is always about 2% high when you look at the final numbers it's been pretty consistent that the industry is a little overly optimistic you know this is the the chart that a lot of people like to see it's this is an agglomeration of financial statements over a pretty long period of time and with this slide what you're actually seeing is increasing gross margins over a very long period of time which is reflective of more direct consumer sales over time so gross margins improve but if you can look down toward the bottom there you know a pre-tax profit is that's kind of been cut in half over over the last year so pre-tax profit isn't as good so the next question that comes up all the time is you know what about M&A we covered covered it in the in the in the report just a bit have a listing of a bunch of different sales over the year and M&A on the on the winery side is it's off about 45 percent year-over-year we we expected that it was going to be off and in talking to the folks in the middle of M&A it should probably kind of hover in this in this area through 2020 I would I would expect there are some deals I'm looking at some deals right now for acquisitions it's not like they're going away entirely but in many cases the acquisitions are more is just saying not I'm not in a majority but in many cases there are people that are holding on to assets that maybe they held on a little too long and now they want out and it's not the right time to sell the other side of its is is a vineyard side Tony talked a lot about pieces of that and you know as it relates to vineyards talk about price you might not be able to get the price that you wanted and unless you're in a premier site you'll keep that price for sure B properties C properties not not as much so it's just again as part of the cycle we've got to take some stuff out of the ground first whether that's following whether that's replanting early it's going to be depend upon the region you find yourself you look at the Paso area and there's been a fair amount of removals already some are actually understanding being replanted to pistachios already I didn't think that they have stashes in the region but got a plant to something some are just being taken out and followed I worry a little more about Sonoma County especially the smaller growers if you are trying to fallow as a small grower it's rather difficult to be a bank debt because the banks not going to want to let you take your your veneer to out really it's that's the source of cash flow to repay that loan so even though it might make financial sense it's it's that's a difficult one so you know we might have some harder conversations and the in the in the bank business with some of those growers over the next year or two depending upon what the strategy is not terrible but we have we have work to do and we've got to get through this sadly in in the north coast we don't really have up whether it's Sonoma napa lake or Mendocino we don't have options for other crops you know you don't plant pistachios in the hills it's just the way it is and and we've already been through prunes and chickens and turkeys and cattle and pears and you know over the over the 40 years that I've been in the business opened the north coast we've been through all those and they've gone off to less expensive area so it's a little bit more difficult of a decision in my opinion but we'll we'll work together and find a way Julianna I bet you have some thoughts yeah so you mentioned a little back about DTC and there's continual growth there even at a slower rate so last week we talked a little more generally about marketing to new generations marketing wine online best ways to sell wine online so I know we had a lot of questions about well how do I do it so Paul I'm curious to hear your thoughts about best practices smartest ways to use digital tools and data for wineries to sell their products online how did they target how do they find the right consumers and what are some ways they can start implementing best practices in that way yeah that's a great question actually I think that there's a couple pieces that I think that we are so focused on the new customer acquisition we don't spend enough time on servicing and retaining the customers that come in through the front doors nurturing those that are already with it's it's less expensive it's higher ROI and I think are fortunate benefit of the you know tourism that we get in every single Valley whether it's in Livermore or Napa Sonoma has us looking to the new customer as opposed to the retention because we just get more and more new ones I think that from a best practices standpoint obviously it goes back to like I said culture hiring getting the right tools but it's also means starting small everyone's looking for the optimal solution to swing for the fences yeah bring it down to small bite size pieces and build success on top of those bite size pieces and I think we're trying to do just do a little bit every day and Amy had this great thing last night she says if you'd make one percent improvement every week it was every week by the end of the year you've made a lot of improvement seems a lot easier to do it little by little than to say you know it's the whole you talk about weight right everyone's got something it's new year everyone's trying to get healthy again and everyone says I want to get trim I won't lose 10 pounds lose 10 pounds sounds daunting if it's if you say I want to lose an average of it 1 pound every month by the end of the year you'll get to your goal and it's much more you know possible by saying ok I'm just not gonna have that venti caramel macchiato with the extra sauce and I'm just gonna drink a black coffee right right there you do that consistently every day yeah you're you're at your goal by the end of the year it is small bites small bites over to me we also also recommend all the time experiment and try something new and measure and try it once measure if it wasn't effective you don't have to do it again you're not locked into it I think that your point about trying it once you're in sure and once it's done you have to try it to figure out what's broken about it because often times in my story we'll try it once it will throw it away like that fulfillment house didn't work that e-commerce strategy social media isn't where Twitter didn't get the campaign I want these are when you do one swing and you don't I try to email I did I went back to snail mail right you you had some questions about dated though I mean you know data sounds like a very big thing I think we need to really get to the small part of data and just slicing and dicing and I say that in every kind way is like putting our customers into different buckets and treating them differently and they'll be there's huge ROI in dividing them up but the best customers get treated like this the ones that hardly buy get treated like this communication strategies all of that stuff and that doesn't cost a lot of money and I'll go you to like a very basic example if you picked up the phone and called the top 25 customers once a year was a winery owner on the phone you would have an increase in success you'll have to sell them to say thank you and then also call the people that came new into that 25 talk to them different or the ones that fell out of that top 25 so maybe a call of what 50 people total right yeah you're right because those people that feel appreciated engaged and recognized are more likely to come back and re-engage with you so it doesn't have to be a call to say hey I have a deal for you it's not about trying to lower price points and fire sale things but instead it's about that relationship building and meeting them where they are you can do it on social media - it's not just about an email these days post there they posted a picture of your wines share it to your page it's free content and they'll love being featured on your bridge we focus on social media so much about push marketing and just and polluting the airwaves really it should be about the engagement customers are calling talking to a conversation we talked about I think a couple years ago one of the d2c surveys that we had done it's about having the being open to understand it's not just a you know like you said push of information out there that cause people to say you know oh let me just get all I can but really it's about listening and learning to one another across categories looking and figuring out where trends are so that we can trial some of the things that are working in other areas you know yeah the Thank You economy the you know air of gratitude is very relevant across every generation today and putting that to work in your business and it makes a difference it's a customer centric approach honest absolutely I mean have you ever seen the celebrities read mean tweets yeah and the Jimmy Kimmel show right okay I would love to see wineries read their Twitter Instagram feed and see how ridiculous it sounds for them and or just answer the phone like they're reading their Twitter feed and see how absurd it is as opposed to like thanking talking and having a common language especially if you're trying to reach it I think a new generation and a younger consumer be conversational share information teach them and show them the attributes you want to about your brand and engage them as well I think that's key again I'm gonna bump against this trope about younger consumers age it's all consumers Rob uses social media as well I mean and I was saying that your your boomer and you know use email yeah it's Rob's great at Twitter Rob does a good job engaging on that piece I think we all use these platforms and and that's really the core that we're missing is that digital is part of our culture and we ignored our own peril whether it's younger generations whether it's Gen X or whether it's boomers or even and maybe maybe we can frame it up in a way that seems more relatable across everybody across our industry of wine wine inherently is a product that brings people together connectivity it's a it's a beverage that is not a solo activity but with food and as part of conversation engagement and digital gives you the opportunity to then be that same engaging hospitable warm and caring brand in the place where the consumer is whether that's at their home at a party or you know picking up the phone and and giving them some appreciation we have one of the few consumer good products to your point that is a marriage of consumable luxury products but hospitality layered over the top of it in a way that's almost uniquely wine it's not the same in spirits or beer and we we exude that so well when you get to us yeah but we don't do a good job zooming it in in communication cycles in our customer service when they go away you don't have to just wait till they come to visit at the winery to do it but you can outreach through these many channels Omni channels are coming into the market and engaging with them I think one thing you can do also is create other mouthpieces for your brand it doesn't always have to be yourself that's the trade that songs or beverage directors engage with them invite them to your winery for a weekend treat them as well like your customers as well as exactly yeah you don't leave them out of the equation I can use that data and social and digital to amplify their message around the lane as well and that third-party endorsement actually has higher readability the the how a consumer then consumes it to say it's important to me not because the brand said it about themselves but because someone I trust said it about the brand our media is always better absolutely last year I was asked to sit in and judge senior projects former Notre Dame University they happened to pick the wine industry I was there with you that's right you were there together I was invisible that's right and one of the takeaways that I had from that was the the lateral communicator as these guys were you know trying to figure out whatever their strategy was one idea that I thought was actually a good one that I hadn't focused on you might have a tactical solution to it but it's this notion of clubs and and creating a way so that you can lateral communication amongst club members and I recognize as the students are going through these presentations the the strength of that kind of an opportunity we're all looking for you know recommendations from non-wide writers as an example from your friends we all recognize the strength of that and and I don't think it's a chat room but I do recognize that as an example if I have friends if you know let's just presume Amy as my friend promoted it you know if Amy and I like going to just this is just a placeholder for a larger discussion but if we if we like going to an event at a winery and she knows I like that we both like that that event it's gonna be really hard for me to to break away from that Club because it's something that we enjoy together right and and all of that starts to flow out of this lateral communication so finding ways in in clubs to enhance that lateral communication you got a so what they saw actually which was really obvious test if we say it is that they saw that the the wine clubs are communities and they were trying to apply natural community management cuz they're younger and they're digital so you know community management is part of you know Facebook group or something like that they're trying to enable that cross community communication because right now wine clubs are in isolation they they don't we're not enabling them to be a community or a club early well with runners they were they not only had the macro community of oh I like to run and I'm on this platform because I own my Nikes and I'm tracking my fitness however they then were able to you know geo locate people and put those people in touch with one another so you not only we're doing it on the digital space but you could also then meet up with others that have the same interest to your point that then make you more committed to that activity because the more points of interaction the more let me speak really really important it goes back to your data question is finding those communities are just about tying geographies together or behavioral people that do it and we have a problem actually in wine we have a few problems one of them is our California addiction I mean if you actually look at the DTC data from almost every Napa Sonoma past every winery in California we're feeding almost solely off our California population as opposed to going to New York analyzed and we do get some of those in there especially in Napa but we have a problem with that we need to start looking how we take wine and get the person in Boston to buy it or the person in Austin or the person in Chicago or New Orlean its back to the taking the you know the shown the road and I and and it's also applying metrics to that and give you an example one one of one of my customers one day said to me he was going on a trip and he was going to check in with I don't remember how many Y houses and have and have tasting and he said well no I I was going to do 13 it's gonna be 12 and I'm always asking questions well why is it 12 and he said well because we went from 40 to 39 attendees at that house and it seems like a lot of people to me and his answer to me was well you know not not really he said the the real issue here is if I have 38 people if I choose the easier math forty people there's only 20 couples if there's only 20 couples then we end up with a certain amount that are already in the club I'm only going to be able to get a certain amount and if I get if once I drop below 40 then I you know I'm done so I just cancel it and I and I I kind of went hallelujah honestly because here's somebody that was you know and very successful by the way but doing the outreach hitting the streets taking the experience on the road in this case it was just a you know tasting at a house there's lots of other ideas but then they were applying metrics to success on the events this trend of wine on the road I mean it's every wineries leaning into it right now and don't get me wrong it's it's a it's one of the right approaches for sure where you look where there's other clusters of customers or the the void of where you want to grow customers in a region harder it's harder but it well there's great examples of ways to do that but I think that we also need to look beyond than other ways reach out to customers that we can actually target them whether it's through social media it's anywhere's it's an integrated market it's not just about I say it's a placeholder for and that's why the same because like everyone keeps hearing this wine on the road and what I see actually over the last year is the amount of Road shows that are being built for wineries or DTC is exploding and then they don't good and good but that can't be that can't be the engine right and in the same way that that decade ago or more I started to talk about experience that why we're not selling chemicals in a bottle we're selling experience and I think the industry whether it's me or other people that were leading people including I think the industry I kind of misinterpreted to say oh it's about the experience in the tasting room and I never meant that know there's there's but there is an experience there is everything that you do at a winery creates some experience and it's gonna be a different experience if you're at the winery versus somewhere else right but you've got to create that I've never the Rose a mansion sorry no I have yeah I was you probably went to you I never actually never went to it but those things are extremely costly I was going to add that taking your experience on the road and we plan events all the time it's extremely expensive most wineries couldn't do one event in a year for the budget at those kinds of things costs so there are more cost-effective ways to tap into communities Vivino is a great example there's wine lovers on Vivino that are scanning wine labels every day they're rating their wines they're commenting on the wines they're drinking tap into those digital platforms it's gonna cost you a lot less money than picking up your team going on the road getting a venue getting staff all of that is extremely costly so I think there's other ways to look for those communities digitally as well I agree and I would say that the important part of what you were talking about Rob is that we actually need to number one know what matters in any of these experience so that we can measure what matters and I think your point if you're gonna put a big budget together and you're going to do some elaborate right you know Roadshow and activity the question you should be asking yourself before you commit to those dollars is what actions and our interactions do I need that will show that this is repeatable and scalable so that it will impact the brand in on going away and not just be a break-even you have to integrate different pieces so you go and take that consumer event on the road I've skipped reach tailors in the area to carry the wine and have a card at the event where you can buy this wine in the area integrate different pieces that will help improve the effectiveness of that activation spend the money on it I think that's Paul how do we know what what data matters and how do I really start to understand those consumer journeys at each different point of segmentation so to your point from earlier we know that it's very hard to get a new person into the category of wine but when somebody's already engaged in wine in general or already engaged with your brands in order to build their loyalty and their interaction with you and purchase and lifetime value yeah that's where the real unlocking comes to the individual profitability within the winery let's let's go let's go for a second to switch up or if I might just something you said Amy slide 15 if we can pull that up please Teresa 15 yeah we really did we really didn't talk about this law with the cloth in the yeah this is you know hard salts or spikes alters whatever you want to call them the growth rate and you know people ask about it you know is this a substitute is it is it a gateway you know is this wine coolers from years past and and generally most people will look at this and say no this is a take away and in fact the date of the early data that we're seeing right now from multiple sources suggests that a lot of these consumers of this beverage are actually coming from the wine category ice you know a little bit surprised but but that's the that's the early read on it as I've been as I've been thinking through spik s ulcers you know I've thought about other booms over the years for instance you know wine coolers that drove into the the young consumers at that time the boomers drove category and then after that Moscato and then as I said they kind of went to spirits and then after that we end up with red blends and I thought gala did a commendable job and has done a no job with their their entry its Apothic red thank you and so you know that was you know another kind of a boom but we haven't seen that same response in growth rate in in the wine business and we brought up this slide but if we can go to slide 12 again I think it's an important one to resurface with with mine today the competition isn't just foreign wine it's not your neighbor although it is it's it's really beer and spirits and largely it's spirits instead of beer that's that's the competition today and so when we're thinking about where the entry points are for new consumers I'm not sure I'm that disappointed with white claw thank you sure I'm not disappointed with with spikes else's because if if people are trading as all the data indicate if they're trading out between beer and spirits and wine or you know amongst those those categories any kind of a move if it's bringing in people into the out Bev category will benefit everybody so as some of the questions that came up and I thought that's that's an important one to to go over and I started to mention this in in the last one as well but you know I don't think that we're going to see a product actually be the gateway and rescue us and and so if we're waiting for that young consumer just like the boomers you know to go through wine coolers and then step into wine and you know and resurrect the thing this is I hear this consistently the you know the young consumers too young they're just they don't have the money they're not going to be able to do this and and my response is it it's it really doesn't matter if we're just gonna wait it that's our strategy hopes not a strategy not a good one as I'm still can be hopeful but in fact you know we've we've got to do something besides that what do you think about products like bourbon barrel-aged wine that was a big trend you know few years ago things that cross different categories I saw a brand recently it's very Millennial driven and its packaging its marketing low ABV and it's a vermouth so products like that that's somewhat crossed these boundaries themselves as entry points for for anyone you know regardless of demographic I think we do have to pay attention to the health and wellness and you know it's it's intricate kettle one there's a really good example the botanicals yeah yeah so you know kettle one was doing okay but once they reinvigorated their brand by calling it botanicals just kind of went through the roof because of you know this notion of health and plant-based again you know and again that's looking at as we talked about last week that's really about looking at the greater trends that are out there and what consumers are looking for in order to feel a sense of belonging connectivity and though that we have insight into their value set right and help in wellness is one of them and being you know you mentioned a lot last week Julianna it's about the transparency and what is the transparency and authenticity mean today it doesn't mean that I necessarily have to have all of the from the soil up through a you know privately held entity that then has a you know erected a tasting room there but instead it's just that I'm being honest about the type and style of wine and engagement that I'm offering you and that's why a lot of these wine clubs and brands that exist solely in digital actually are successful and selling for this trial I mean I there's a whole difference so to Rob's point though we either eat ourselves for growth or we have to eat into other categories that's fundamental at piece I do have questions about you know we keep chasing this younger generation as if that's an onboarding piece and I'm not sure that that's right or not wrong I don't have an answer for that I don't think anyone does but we do know and Joe fat torini from the wine show did this great presentation about the behaviors of people that drink wine arrived at some point in their life usually when they have kids are home so that is an onboarding and what may we're targeting too much trying to go downstream so far instead of waiting to when they're ready to be home and they have some affluence and saying that fits in your lifestyle in this way we talk about all this base I hear saying but I do have a bit of yeah you have insight kepta sysm about that only because what we drive nice is the younger and the new consumer that's not engaged completely with us juliana talked about it last week as well is already allocating their very limited funds to hire and luxury and experiential activities and they don't want to have a house and necessarily want to start a family and have these kids so if we're waiting for a life stage that was one that we saw a greater engagement in wine before from past better generations i don't think we can count on that either greedy as an opportunity to say it is good to understand when they're getting there we need to be able to meet them at that point but i'm not sure we can wait I agree you're right so you were you're saying it's like there's a there's a huge cohort that's not moving into that family ownership but the cohort that is we're not targeting that cohort well we talked about the report for a while now which is the indulgence gap yes right yes and so if we wait the hope is that they will have more money and they will pay more but that gap that we're gonna have to go through as an industry which is painful that means more vineyard removals that means more people going out of business right it's the destruction of capital and agree and so bank doesn't like it nobody likes it as a person who loves this industry I just want to see better for us absolutely and so it really does mean taking advantage of the opportunity the opportunity to the head of us is this large young consumer I hate I mean I get tired of talking about it honestly but the industry is is still not taking advantage of the opportunity sorry can we go to slide 21 because I think it underscores just a little bit about what we've been saying this is this is a new set of information that a sip source is it's a group of distributors essentially that are putting their data together and and creating this information and what you can see is you know growth rate in spear it's is positive and that's on-premise and off-premise that's grocery and restaurant and then you can see what's happened with wine over you know the last couple years and on-premise and off-premise wholesale depletions by volume r- so at the same time we see growth in the spirits category and that's alcohol mm-hmm we are seeing negative growth in wine which is alcohol so you've got to say to yourself what's the difference and there's several differences one is a one is the way they market another its price wine is two times more expensive as spirits per serving there's different ways to look at it but but it's it's more expensive now my recommendation isn't that we all drop our lead price I mean that's not that's not the solution but we've got to come up with solutions to address price we've got to come up with solutions to address trial we've got to become relevant to that young consumer and here's one other thing that gives me a lot of hope there are two data points there there okay data points and I won't say who they're from yet you may know out there but I'd like to see more as the reason I'm being hesitant but but there are two data points that suggest that the young consumer is when they do buy they're buying the most expensive bottle and it doesn't mean they're buying the most unlike you know but there's reports from a while ago that we're talking about you know the a lot of wine that the young consumers buying is just not true but they are buying the most in these two separate reports from totally different sources the biggest bottle when they do buy the most expensive bottle when they do buy and that's really interesting to me because what that says to me is that they are into buying these for gifts and for special occasions so when they put a bottle a nice bottle of wine out as a gift when they put it you know when they bring it to a party for a special occasion what is that what is that telling you it's telling me that we got a young consumer that actually aspires category that's right that that it is they recognize it as a special thing they have the by the everyday kind of spirits that they can put in their house and share with friends work law but it's a special thing now it's it's also it's also there's a negative to it because this is the way the wine industry got into its problems before is and we had meta factor a very long advertising campaign that was about wine what are you saving it for because we recognized as an industry that wine is being used for special occasions instead of being used everything we wanted to increase that frequency so we really don't want to go back there but I do like that I do like that data point that says the young consumer is is buying these expensive bottles and they do they do behave that way they save their money for certain things right and then and then they parachute in or however you do that question to you I hear you saying that I don't disagree by any means yes you do I know this lead but there's a whole generation and there's two of us sitting at the table that have affluence and the targeting of us is not happening at all in a Gen X base is it I mean I as if we want sustainability through that indulgence gap we need to connect with the Gen X we have the revenue you know the means to buy these products and we have to connect with them not forcing them to come to the winery you taste this but at their home and we keep saying that over and over again but we keep leapfrogging this generation that's right in front of us it will helps help sustain us through that next gap and we're jumping right to the millennial and I'm not saying I love Millennials by the way I'm looking at the economics of it which is these people have the money why are we not talking about them well we you mentioned earlier that when we talk about tools to market whether it's health that boomers are sorry rather Gen X also respond to those messages so if we say make that argument we are thinking of ways to reach not just Millennials but we're actually looking at just reaching consumers overall with different tactics whether it's health or wellness or consumption occasions so if you go back to that approach of looking at marketing to alter raishin those are all macro concepts that are that are happening in health press what I'm saying is the micro concepts of like when we're doing direct targeting to be right how we're doing our advertising showing people of our age that are doing that yeah you know so it's really fascinating you know we do we have to change and we talked about this I think in the last show that we need to have people in the tasting room with you know sleeves and gauges you know that yes but that you know they represent the people that are buying their wine we can't just you know leave in my generation in the tasting room because we have free time on our hands it's that's nice but the concept of you can't be what you can't see right whether that's about who and what you end up being in life or how you engage in your lifestyle yeah that it is that representation we walk in I agree I agree it's all about the targeting especially in a micro basis I'd also say that the data that I see shows that the growth that we are having in segments is all due to Gen X so in some respects we are doing the right thing well they are seeing some success what's happening is what we said they're living in their life stages and we waited for them to get here but I think it's not just about Gen X it's also the diversity of culture I mean is spanning triggers we've still never tapped I've not American drinkers we seventh time there's a whole again blue ocean like we said last week to explore and test and find out how these people will respond to wine culturally because those are the growing you know US population is changing I think for marketing what we really need to find out is why did that person Gen X or millennial purchase that forty five dollar bottle of wine what was the decision and the decision-making factors behind that purchase and then try to target in there for example there's an online sales platform that goes heavy into content and video and that's how they sell product it's not the right way to do it or do you go more short-form you go with partnerships and advertising like finding out exactly what's making these people tick to make that right okay it'll be different for the different person in price points a different age groups of the consumers by a micro segmentation and recognizing it's not one I think the industry areas is the larger industry I should say the you know the heavier production wineries have I know this for a fact now because of a presentation that I was involved with in early December and we had representation from 23 of the largest wineries and I was encouraged by by the viewpoint they recognized this the problem they recognized where we've been lacking they recognized that our marketing is off in the past some of the things that have driven could the category higher have been the larger wineries that do have the money to advertise mass media bases and I've been kind of waiting for that and there's a small little piece of Joe gallo was quoted in in the press release from Gallo when they were talking about the purchase of the 30 odd brands from constellation and he said you know part of the goal is to increase the category and and so it was a very small thing nobody ever talked about it but I you know I was kind of like yes we're all rooting for that to be the case because as we talked about the pie can either continues to shrink we're stealing from other al-khattab we really do need to continue to figure out how are we gonna actually grow the landscape yeah what's the what's the messaging gonna be we talked a little bit in the first show about you know the use of natural to talk more you know talk more about wine is natural you know so there's some marketing things that have to happen I know in the background Amy and I are working together on some some programs with others in the industry to try to see if we can pull some things together MJ Dale's been at the centre point of organizing all that from inventions I tip my hat to her for the effort that she's put in there but I know that the industry is aware and it's it is again part of the reason that I'm so optimistic right this second people people look at the report and they go it's pretty pessimistic and I don't think we can make change until we can all say yeah there's a problem and this is what it is and I do feel as an industry that's where we are when this industry aligns is it has always turned things around it might take a while but I do think we're gonna turn around I think whether you are a large producer a small producer a grower a distributor a cork manufacturer bottle maker if volumes are shrinking every single one of those categories everything one of those participant is sagging and there's and they're gonna struggle so I think you talk about collaboration earlier about yeah I mean it's just an important part of what we all need to recognize right that while you obviously need to be building strength and health within your own individual winery and or you know vineyard because you're a grower on that and I think everybody to recognize the strengths that we have as wine as only a portion of Alka Bev so that we can build some momentum so it's you know it's again not just one thing or another or multitude of tiny you know band-aids and tactical fixes but instead stepping back for a moment and recognizing where can the the the wave of change actually start because as you've been showing for a couple of years we're seeing deceleration of growth we're eeing continued less and less engagement and how are we gonna actually bring that to a halt and then be able to pivot back into the momentum to be in our favour to really reindustrialize but Paul you probably have a few other questions we had a by the way the questions that we've been getting both before the telecast and and then during the telecast have been pretty impressive I think really drilled in questions people you know show that they understand the problem you know I you don't see people complaining as much as trying to really look for solutions I think we're through that barrier of you know identification I mentioned an identification of the problem there's a process you have to go through where it's okay here's the problem no it's not well maybe it is oh yeah there's an example okay yeah we have a problem right that it takes a period of time and I think we're through that but Paul you have a question there that we can take a let me find one give me just one second I know that amy has a couple get up as well that from yesterday or I have a question about slide 22 about off Prem growth below great $90 I'm just curious if there's an opportunity within that category I mean we've seen it going down and declining obviously according to this but to embrace a new consumer get entry is there an opportunity there I think it's Rob alluded to with the transaction of the constellation pieces of the portfolio over to gallo my guess would be that Gallo has a good strategy and play in hand because it is it is not only good for them but good for the total industry to be able to figure out how to halt that decline and be able to use it as that point of engagement and taste trial which they have led traditionally over many years so and I I watching it I actually you know given the fact we have oversupply right now we got to figure out what to do with this juice and the traditional approach and the approach that will happen is that will take good wine and we'll sell it down into the next year yep and so my expectation kind of is that we might see a reversal of you know right around nine or ten dollars we might see we might see volume actually you know you know pick up a bit there because we're gonna have price come down now is that sustainable you know it depends what we do with it if those are new consumers that are coming into the category that really that's really what it depends on and I don't know that that's the solution but it may be part of us it's just a big encouragement if some pantry stocking of the current core consumers we don't I do think that there is a really good opportunity for that and I think we're all cheering you know Gallo along with this acquisition because we've done such a good job over so many decades in really being a great point of entry and recognizing how to find those consumers but it's not just up to gallo right I mean we all have to recognize it I've been talking about what are the ways that we can activate and motivate across all generations but there's consumers to engage with us in the first place as you said Paul which is the expensive thing to do but then once they're with us how do we actually increase their their identification of being a active part of the wine to your point yeah the getting them across the line to engage with wine but it's different levels of engagement you know whether it's a bottle a year or nine bottles a year right we have a large cohort of the Millennials as Rob talked about earlier that are willing to pay you know a lot of money for very infrequent purchases how do we then make them feel more comfortable and part of the Total Wine community so that they want it to be again it consistent and you know continuous part of a healthy and balanced lifestyle question yeah were you so basically they said Rob you've spoken before how the wine industry needs to take a page of the spirits playbook do you see this being more of a consumer or brand focused endeavor and what would you consider the key callouts health and wellness brand focused there I would add I would add we saw that one slide slide 21 where we saw that both spirits and on and off premise are showing high depletions that are still growing while on-premise is decelerating it's still showing growth and I would say you got to dig a little deeper into health and wellness it's really about being able to identify the key messages right right people that still want to consume alcoholic it they don't have an option right now that's that's knowable to them in the wine category because of the sugar I'm talking about it so they they immediately go to spirits and there's kind of like or we list or we don't we don't even talk about we hide the fact right how can we use the language and we identify we don't want to talk about the fact that we have we actually have calories it's one of the one of the things that I that I talked about in the report was was I just find it fascinating that one of the the top beverages in bars is Tito's vodka and soda you know because Tito's vodkas the best thing ever obviously but there's no carbs and soda has no calories so you know the rumor is that it's the least caloric beverage at the bar so it's part of what's driving that and and so how much is in a glass of wine how many calories in a glass of wine and the answer is you don't know you don't know you know well you know you'll start asking the questions I would just so I'm right is it red wine or is a white wine always you know what is the serving you know about but it's not it's not it we've been we've been hiding from calories we don't want to talk about calories and there's some reasons why there's some things we've got to go across for instance vintage to vintage variation how you know how is expensive is it going to be to actually figure out how many calories are in a serving what is a boundaries that we've got to come across we got opportunities for collaboration within the industry so we can standardize so that people that are seeking that information that do want to get involved but are hesitant because we're not giving them the data they want that's right so there's a lot of talk about off-premise conversations try package size we have any much conversation about on-premise and about you know our decline in on-premise and that trial comes through on-premise and in fact that's the largest tasting room in the world yeah all the restaurants and then we go into on-premise loop that's a yeah that's a that's in a place where we do need collaboration in some form or fashion because we're way too expensive in the bar I mean we're we know what prices are and we had a lovely dinner last night and amy was sorting down there we assigned her the task you started beyond the wine list and instances that's too expensive that's too expensive that and we've all we've all been in that spot in the bars we think is industry I hear this consistently well we're going to take our excess wine and we're gonna put it into a by the glass program it is excess I actually am actually kind of okay with that but when there when there is not an excess what we do is we reverse engineer are great purchases to create a lower-priced wine and then we're saying that we're using that for trial for a consumer to come in and recognize who we are and it's it's not doing that we're we're having a worse quality wine representing our brand I'm not saying it's bad we all make great wine let's let's just say that right now I think no I was gonna but you know to finish that whole strategy of by the glass isn't going to drive and it's obviously not driving demand it's not even driving demand in the restaurants price is a big deal in the restaurant when you can find it in the grocery store and then when you can find it I mean the other big big disconnect is when your consumers come into your tasting room and they look online they find out how much you're priced out and then they go somewhere else or the grocery store wherever and they find it a lot less that was that's a little bit messy too yeah it's a different problem I think I have a huge question I'd them because I think we in growing up in wine knew that brands were generally built for higher end brands on-premise and off-premise was where you build your volume brands right on that piece or you trial them and on premise and then I'm just it's something that we really need to find a new place with broken we can't I would say just treat what your accounts just similar to my point earlier about you know you identifying communities treat your accounts as marketing vehicles and I think you have to add value to get people to spend more so maybe that's creating a dinner series concept where the wine maker flies out and hosts a group and talks about the product but create some added value within that on-premise space that's gonna make them spend that that extra money on on the product net dovetails nicely into what I was going to say about the fact that on-premise itself is struggling to get consumers we have to remember that the number of people actually going into an establishment to eat a meal there's been on a strong decline thank you you know doordash and ubereats so we still as an industry have not unlocked how could we become part of that purchase if there's larger and you know growing numbers of consumers that are ordering their meals from on-premise establishment but having them delivered to home and when alcohol you know and wine specifically can't be part of that transaction then where are we left that was a big question actually one of things about how this Jordache partner with us in these problems in it we don't know yet and we're gonna have to save that because we are once again out of time I love these conversations I hope you guys enjoy them as well I always learn things and you know what I take away from the state of the industry report this year is we have opportunity we have opportunity because the industry is at a point of recognizing there is an issue and they're ready to talk in straight terms and do something about it we got to get everybody on the same bus we got to get everybody moving in the same direction we got to get everybody speaking the same language you know whether that is you know how we market why we market to who we market to whom we market somebody help me with my grammar in any case we do have opportunity I think and I expect to see a lot of movement in the positive direction the next year but with that I'd like to thank all my panel members thank you you can a couple of closing things you can immediately a watch a replay the video cast on the link that you are given for the livestream so you have that in your hands you can watch the replay if you are interested in participating in the annual State of the wine industry survey in the future and please please participate there is a survey at the end of the videocast that you can fill out and if your email is in that then you will be invited to participate next year with that thank you very much for tuning in with us in this second installment of the 2020 state of the industry videocast this year for Silicon Valley Bank we've enjoyed entertaining you helped and we look forward to the next time that we see you at Silicon Valley Bank you