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100 p r a c t i c a l w i n e r y & v i n e ya r d n O v e M B e r 2 0 1 4 w i n e b u s i n e s s C alifornia wine will hold its own in the global market despite shifts in consumer demograph- ics, scarce water and competition from imported wines, craft beers and cocktails, according to wine industry lead- ers participating in a new CEO survey conducted by the University of California, Davis. Results from the survey of wine execu- tives were presented Sept. 23, during the Wine Industry Financial Symposium at the Napa Valley Marriot in Napa, Calif. "Wine industry leaders are keenly aware that this is a time of great change for California wineries and related busi- ness," says Robert Smiley, professor and dean emeritus of the UC Davis Graduate School of Management. "As the baby boomers 'pass the glass' to the millennial generation, there will be trade-offs in consumption. It is just a simple fact of age. As you get older, you drink less. But the industry professionals surveyed indicate that they are prepared to meet these and other challenges by adjusting their brand composition, adapt- ing new technologies and becoming more efficient in their use of water," he adds. Survey of wine executives Smiley gathered opinions and projections from the heads of 26 wine companies for this 13th annual wine executive survey. The 26 participants included 22 wine producers, with six in Napa Valley, three in Sonoma County, one in Livermore, one in Washington state, two global wine companies and other wine companies. One bulk wine broker, two wholesaler/ distributors and one wine marketing com- pany also participated. Wine consumption by baby boomers is declining and will continue to do so as that group ages, but consumption by the millennial generation is expected to steadily increase, the wine executives reported. "We find that the millennials are fabu- lous," said one respondent. "They are adopting wine at a faster pace, and they are a different type of consumer than we have seen in the past. How to reach mil- lennials, how to engage them and build brand loyalty with them is more compli- cated than with the boomers." Millennials are bringing a new interest in craft beer and cocktails, survey par- ticipants said. Many respondents sug- gested that the wine industry must pay close attention to those two competitive trends in the beverage business but seemed confident that the wine industry would eventually benefit from them. "Craft beer actually expands the market for us and offers an opportunity for mil- lennial exploration and entry into the market, which then will progress up to wine," said one wine executive. Competition in the domestic wine mar- ket from imported international wines will increase, most respondents said. The industry should plan accordingly by in- creasing promotional efforts through local trade organizations, paying greater at- tention to wine quality and value, and better communicating those benefits to consumers to maintain brand loyalty, they added. Climate change and water scarcity were also on the wine executives' minds, many of them listing these among the industry's top issues for the next five to 10 years. Many wineries are already implement- ing a number of strategies including using imaging technology to minimize vineyard water use, recycling winery water for use in vineyard irrigation, and changing win- ery equipment and procedures to use water more efficiently. The five questions that Smiley submit- ted to participants and their responses follow. Q: How does your branding strategy ensure competitiveness in the growing market of craft beers and cocktails? Are you considering collaborations with other liquors? ■ Spirits are going to intrude onto the dining room table, and the mixologist is going to be working with the chef to do cocktails that are paired with foods. ■ If people are appreciating high-end qualities and flavors, that is a good thing. They are upgrading their experience, they are getting used to spending $20 for a glass of something. ■ Part of it is economics. You can get a glass of wine for $12 or $14 in a restaurant, you can get a fancy vodka for $7 or $5, and a part of it is restaurant pricing of wine by-the-glass. The only thing that we can really do, in that regard, is to work with wine kegs to reduce the packaging cost out of the wine and end up a little bit more effectively priced on the shelves. ■ My wife and I have been having more cocktails than we ever had before, and it is fun! I realize that it is maybe taking a little bit of the wine by-the-glass business away. ■ Craft beer is taking some of the occasion of wine. That first bottle of wine is being impacted; you know people are starting out with craft beers and then as dinner goes they switch over to wine. It is just one more competitor to start the meal with. We have some lightly carbonated wines that are new, that are not obviously a Champagne-tap level, and then we also have some flavored wines. ■ Yes, I am worried about it, it is sort of a share of stomach issue. I do an all-com- pany meeting and I try to read the tea leaves in the marketplace and identify all the competitive threats to our industry. We continue to see a proliferation of wine brands; there is an explosion of craft beer and craft spirits that potentially compete. There is even recreational marijuana now. It is sort of a share of buzz issue. ■ I am not sure that they are having an impact on all categories like the wine business, but the younger consumers, in particular, are interested in authenticity. Robert Smiley, Ph.D., director of wine studies, dean and professor of management emeritus, Michelle Nishikubo, graduate research assistant, University of California Davis, Graduate School of Management BY Wine industry leaders adapt to consumer shifts and drought 2014 Wine indus t r y CeO s ur vey