In Silicon Valley Bank’s recently released Preliminary Findings Report (you won’t get a recap of all the details here, save a few, so click on the link and download the PDF if you are so inclined) which precedes their more exhaustive Spring 2010-2011 Annual State of the Wine Industry Report, the Bank’s opening salvo declared;
The fine wine business, at some point in the past decade began to believe that the product was about an expensive purchase and ego-based conspicuous consumption.
No kidding…..and will the 2011 report conclude that the earth isn’t really flat?
I am only a dedicated wine consumer without the benefit of exhaustive original research, but back in 1995 I was already inking the same lead the Bank just now unleashed in their 2010 “acknowledgement of all that went wrong and better hurry up and change your ways” industry report. The nineties was an era when I almost entirely, but sadly, stopped buying California Cabernet and passed on delicious high quality wines from around the world as they elevated to cult status, one label at a time. I remember saying goodbye to the lovely Shafer “Hillside Select” Cabernet, for example, with the same angry emotions that must be summoned up waving forever goodbye to a loved spouse that all at once turned untrue. I took a spectator’s (no pun intended Mr. Shanken) seat as the unnatural spike in the fine wine business mushroomed. It seemed like the only constituency taking wary note was the serious wine enthusiast watching their favorite quality wines move through price zones and inventory squeezes that turned regular consumption into non trivial financial commitments.
With a fair dose of generalization, it was not the industry’s total fault since a fresh new crop of young and wealthy wine consumers bought these wines for immediate social standing, unaccompanied by levels of appreciation to adequately assess the fitness of three and four figure price tags. I remember sitting with a West Coast media executive in New York’s shrine to fine wine, Veritas, back in 2003 as he commandeered the wine list to order a magnum of off vintage California trophy Cabernet to drink alongside his SWEETENED ice tea at lunch. I don’t mean to pick on him, but that vignette has sat in my mind like a poster child for everything I witnessed and all my personal lamentations generated by an unnatural wine economy. Growers, four steps removed from the end market, turned happy with fatter contracts, winemakers experienced margin growth that the Bank’s preliminary report now demonstrates can only be supported by unnatural demand, volume, and price points, and the channel played along getting sucked into inflated inventories and weird program buying and selling. The financial community slurped up deal fees, lenders inhaled aromas of double-digit rates on debt, and wineries built monuments to themselves so freshly paneled tasting rooms could support the branding required to sell wine at prices that a real economy or knowing palate would eventually refuse to support. It was one giant combustion chamber. You can read a bit about this in this post that was written back in June on the heels of the Bank’s 2009 report.
And now the Bank’s invocation to the high-end wine industry that has slipped from annual sales growth rates in the mid 20% range just a few years back to (-11%) negative growth in the second calendar quarter this year, and that can’t charge or sell enough to stay afloat is that consumers will still buy wine but:
Products made by real people, and not just expensive brands without a sole…..each producer has to find out new ways to touch every one if its consumers in an authentic way.
The Bank has declared this as
good news for an industry connected to family business, the earth, and hand-made production.
And with that, the bank has belatedly pointed to the lighthouse after the fleet has run aground on shallow banks. With some helpless head shaking and a wagging “I told you so” finger, I agree wholeheartedly with the bank’s assessment. Maybe some day I will choose to meet my old Hillside Select friend from Shafer once more.