NakedWines: The Tilt / Kickstarter / Indiegogo for Wine?

I recently came across an article on Nakedwines.com, which is a site that allows unknown winemakers to produce their wines through crowdfunding. The idea is that people can support these winemakers who are not affiliated with a wine label, and in return the supporters will receive a portion of the wine at an extremely discounted price. According to nakedwines.com: "By funding winemakers upfront we're able to remove a huge chunk of costs that in a traditional wine business would be passed on to you, the customer. Costs like sales and marketing. It also means the winemaker can spend more time in the vineyard and less in the office. Which means the wines taste better. It's a win, win."

NakedWines recently raised over $10mm in their latest funding round, which is impressive and seems like a big number for such a niche market. However, similar to the logic discuss in Emily's latest post, I'd be hesitant to try a wine from NakedWines unless I was familiar with the winemaker's story, had already tried their wines in the past, or received a recommendation from a friend. I've just had too many disappointing experiences of blindly grabbing an unknown bottle of wine from the grocery store shelves  and feeling let down. When a winemaker is connected to a specific brand, its easier to predict the quality level of wine because its connected to the overall reputation of the winery. Without a brand name or winery backing the work of these winemakers, its much more of a gamble. 

I'm personally all about supporting small businesses and people getting started in new endeavors, but am not yet sold on the NakedWines concept. I'm curious to see if anyone in the class has tried NakedWines, and if not, whether its something they'd ever consider testing out.

Here's their website: https://us.nakedwines.com/angels

Is Pinot destined to follow Merlot?

I loved the previous post about the Sideways Effect. This summer I spent my internship at Duckhorn which was started as a house of great Merlot and continues to be know for its great Merlot despite the market trends against Merlot and in favor of pinot. One of the things I discussed with my co-workers is why they think Merlot sales have dropped off so precipitously in the market. From a taste/weight perspective, Merlot and Pinot Noir serve similar purposes. They are fruit forward wines that pair really well with food. So then why have customers suddenly selected Pinot Noir over Merlot as their wine of choice?

My co-workers made the following argument:
In the years leading up to the Sideways era, Merlot gained in popularity. As a result, wineries followed market demand by planting more Merlot and producing more Merlot-based wines. As a result Merlot became available across all prices and quality levels. In creating this diversity and range of products, Merlot's reputation as a great wine was damaged because Merlot prices rose but quality didn't always come with it. Consumers became frustrated that they didn't know what they would get when they bought a bottle of Merlot. Customers are rational at the end of the day. They are not going to continue buying a product that disappoints them X% of the time and so they stopped buying Merlot at the same rate. As a result, wineries followed market trends and stopped producing Merlot. Restaurants and grocery stores stopped stocking as much Merlot because they couldn't move product. Next time you look at a wine list divided by varietal, there probably won't even be a section devoted to Merlot. This has become a vicious cycle because now that Merlot is not readily available for sale, consumers aren't getting exposed to Merlot (even the good stuff). If consumers aren't exposed to Merlot, they won't ask for it. If they won't ask for it, suppliers, distributors, and retailers will continue to ignore it as a category.

Ok, all that is to say I argue that Pinot is ripe to follow a similar pattern. Over the last few years, we've all seen the rise of Pinot. Meiomi's sale to Constellation for $315M is thus far the height of this trend. As Pinot has become more popular, vineyards have planted more Pinot and wineries have produced more Pinot. It has become available across all prices and quality levels (starting to sound familiar?). In addition Pinot happens to be a very versatile grape. Depending on where the grape grows and how its treated, it can be light and refreshing or heavy and rich. These forces all lead to the same place that Merlot arrived...when a customer is looking at a grocery store shelf or a wine list, will they begin to shy away because they don't know what they're going to get? Will this lack of predictability for the average-to-above-average consumer ultimately lead to Pinot's decline? I'd argue yes. As someone who cares about wine, I will never buy pinot if I'm not familiar with the producer or if I don't have someone to help me (e.g. a somm or wine retailer). I won't buy it because I can never be sure of what I'm getting in terms of taste and value. For me that's a deal breaker and something I feel is ultimately dangerous for the future of the category.

Could Vino Volo Become Millennials' "Go-To" Brand in Wine Education + Discovery?

Our conversation with Doug Tomlinson of Vino Volo got me thinking about how Millennials will learn about, share, and purchase wine in the future. 

As both Bill and Arsani pointed out, Millennials have already become the country's core wine drinking demographic. Tori's post highlights how millennials are eager to develop their wine knowledge and broadcast/share their wine preferences. 

However, there is still no "go-to" brand for wine education + discovery. A number of online-only apps are aiming to fill this role. Apps like Vivino and Delectable aim to be the "Trip Advisor" of wines. You can log and rate wines, check reviews, compare prices and learn about each wine. You can even follow your friends, making it a social network.

Right now, a major issue with these platforms is the "data entry" aspect: after each time you enjoy a bottle of wine, you have to photograph and upload the label, or you have to search for the wine manually. Another problem is that the experience component, which Tori pointed out in her last post, is missing.

With these issues in mind, I think Vino Volo is well-positioned to build this relationship with the millennial consumer and become their partner in developing wine knowledge and preferences. They could build on an app like Vivino, and integrate the in-person experience and tasting portion that these apps lack. And the semi-captive settings that Vino Volo is already targeting could be the perfect place for millennials to further their wine knowledge and tastes.

Airport/skiing/concerts/travel time is typically either social time, or dead time. If you are traveling with friends, you can share in the experience of identifying your wine preferences and discovering new wines. As we've learned in this class, people like to share their preferences and identify with certain wines. Consumers like to say they are into wine, in the same way that they like to say they read the Economist. And if you're traveling alone, you can convert the miserable "dead" time in an airport into time where you can experiment and develop your interest. Then if Vino Volo became a distributor, you could in theory have them ship you the wine that you enjoyed in your travels to serve at your next dinner party. There could even be a gamification aspect. 

This strategic shift online and to the role of "wine authority" will help increase customer loyalty and fend against competitors in the travel/leisure wine bar space. I have been working part-time on a loyalty program for a start-up, and I have learned that while a lot of companies have "loyalty" or points programs, true loyalty comes from a customer's relationship with a brand, and high switching costs. By serving as an online companion to log, track, recommend and share wine preferences, Vino Volo can create a "stickiness", or loyalty among its customer base in a more integrated and organic way.

While becoming a "wine authority and online distributor" would mean a shift away from their current core competency, it is a growth play that in my opinion would be worth the execution risk.

The question for Vino Volo is whether they should build or buy (or partner) in order to gain this online and distribution capability. 

Interested to hear other people's thoughts!

Happy National Drink Wine Day!

Yes.  That's today.  February 18.

Wine has overtaken Kendrick Lamar on my NewsFeed with people sharing posts, articles, you name it about wine.  Try a quick Google search to see outlets like USA Today ("Read facts about your favorite beverage") and E! ("Send a boozy GIF, it's National Drink Wine Day!  What does that mean?  We have no idea").

http://nationaldrinkwineday.org/

... to spread the love and health benefits of wine across the country.

The Sideways Effect: Impacts of Pop Culture

Hi class,

You may remember Travis and I mentioned the movie, Sideways in our midterm presentation on Oregon Pinot Noir.  I promised to post some of the most interesting additional details, so here you go!

Not only do I find the impact this movie had fascinating, I also think it's really interesting to read an academic analysis on wine consumption and also, once you see the findings, to think about what this could mean for where players in the industry can/should be investing.

For those who don't know (spoiler alert), throughout the movie, one of the main characters is constantly praising Pinot Noir and condemning Merlot.  (The clip when he is finally asked "Why Are You So Into Pinot?" below:

After the movie came out, the wine industry was all talking about the "Sideways" effect: boost in Pinot Noir, decline in Merlot.  There were lots of numbers being tossed around, and also a fair share of naysayers, who argued that Pinot Noir's growth and Merlot's decline after the movie's release was coincidence.  Surely, wine drinkers (especially MERLOT drinkers) could not be so fickle in their tastes as to switch simply because of one single movie, albeit a cult classic.

In writing our midterm, we found this paper which took a more analytical report to proving of disproving the "Sideways" effect.

Methodology: (You all remember D&D from last year right?  So you know how you'd do this?)..  They use annual scanner data to estimate demand functions for each varietal before and after the movie's release, comparing the sales to a control group, and, finally controlling for differences in pricing, as well as promotions.

Here are the highlights:

Impact on volume:

• The movie did in general lead to an increase in overall wine consumption
• The ratio of Merlot-to-Pinot volume experienced a statistically significant change (ratio decreased, so varietals got closer) after the movie's release, in both promoted and non-promoted volume
• The ratio of Merlot-to-Control was stable before the movie and slightly decreased after.
• The ratio of Pinot-to-Control was stable, then saw a HUGE increase, check it out below

Impact on pricing/willingness-to-pay:

• Merlot price fell slightly, while Pinot price rose (both statistically significant) indicating that the movie had an impact on willingness-to-pay
• They also found consistent volume trends in each price range

Conclusions and Implications:

In all metrics, the "Sideways" effect was proven statistically significant, however the negative effects on Merlot were slight and much smaller than the very pronounced positive impact on Pinot Noir. In fact, many attribute the continued outpacing of Pinot's domestic growth vs. other varietals to the initial spike from the movie. 

So, Miles, why do you drink Pinot? Because I saw it in a movie? Because someone paid me to say this? Because I genuinely like it?  Who knows..

Now, if you were a wine manufacturer or even a group of them (like Oregon Pinots... you know, even Vino Volo), a question for you: Do you spend marketing money on literally opening new distribution channels or partnerships, advertisements during the Super Bowl or pursue placement in a blockbuster film like this one?  How much would it be worth for Tony Stark to take Pepper Pots to a Vino Volo during the next Marvel movie?

There are risks and arguments on each side, and honestly, I haven't looked into any of the cost side of product placement (yet -- stay tuned for our Final presentation).

Museles Wine

One of the areas that wasn't covered in the Chinese wine presentations is Xinjiang, the autonomous region in the western corner of the country that is largely populated by Uighurs (a Muslim, Turkic minority). Xinjiang has a very long history of wine making, as a focal point of the ancient Silk Road, and there's an interesting and controversial dynamic at play both here and in Ningxia, which we discussed is one of the most promising "up and coming" regions. Both provinces are home to China's largest Muslim populations, yet despite the Islamic prohibition on alcohol boast some of the richest aspects of its winemaking history. Xinjiang, in particular, originated a wine that I doubt can be easily classified into our traditional conception of French Bordeaux or Argentinian Malbec: a fermented concoction called Museles.

Museles is created by reducing the strain from grape pressings and fermented in a clay pot, notably with specific mixtures of proteins such as pheasants and pigeon blood (as well as perhaps more palatable spices such as goji berries). Apparently the process, along with added sugar, produces something akin to a vermouth. Obviously, this would be a tough sell to Western audiences but it does parallel in some respects the efforts by more familiar brands to branch out into infused wines. My understanding is that we're still not past the age of the wine spritzer, in that more recent offerings like the Gallo "Spritz" are regarded as somewhat lower-par, lower-alcohol products (and often targeted to women specifically as an alternative to prosecco), but I'd be interested if folks have seen any infusions reach the middle of the market. Flavored vodka has been quite a success story generally, but in my mind adding a foreign flavor, even a complementary one, automatically downgrades the base wine used in the product--and I'd think that could be a potentially insurmountable problem for any producer trying to go above the lower ends of the mass market.

(for more, check out http://www.dailymail.co.uk/wires/afp/article-3110508/Grapes-Wrath-Muslim-wine-ferments-divisions-China.html)

Urban wineries to grow in prominence?

Craft beer. Small batch spirits. I've definitely paid more cold hard cash for the "artisanal" branding, and this weekend in Portland I did the same thing (and no regrets, btw). Only thing was I wasn't drinking beer. Or whiskey. I was in the wine tasting room of the Southeast Wine Collective in the hip area of South-East Portland, a self-described urban winery, throwing back some Oregon Pinot Noirs. Basically, Southeast Wine Collective offered the equipment, expertise, and services to turn those delicate Pinot grapes for new wine brands and into the glorious bottled, labeled, local, and, yes, artisanal Oregon wine. In short, a custom crush facility. It allows a lower barrier of entry for new wine brands to enter into the market, and ultimately become a virtual winery. I thought it was super cool. Super new. Well, I was wrong. At least on the new part.

The concept isn't anything new -- in fact it was written about in the New York Times back in 2007 with the article, "Wine Made the Coop Way"-- found here. New York Times notes, "Today’s wine start-ups are often “virtual” wineries... supplied by one of the state’s “custom crush” operations." Basically, custom crush is a way to build a brand before you make the large capital investment in your own winery. Ok, so maybe not such a new idea. I wondered, is this a good business? Well, we all know where the answer lies. Yep. Google.

Basically, if you can stand the risks of a bad crop, yes. In this article titled "Business Booms for custom crush wineries in Sonoma County", an interesting portrait was painted. One custom-crush owner, Brian Kobler, noted "'It wasn’t the gold miners who got rich, it was Levi Strauss and the people who provided the service; the people who didn’t mind taking a back seat to the more glamorous job'". The risk in the business is a bad crop of grapes which decreases the number of winemakers at your door trying to bring to market the latest Pinot. The hedge? Barrell storage. Yes, the article is light on hard data and heavy on anecdotes, but as long as the custom-crush operators don't screw up those grapes, it seems pretty interesting.

Especially thinking about the desire for customers wanting to see more local, artisanal, small batch, grass fed... ok, you get the point. Customers want wine with a story, and that comes from those new upstarts with a dream. Maybe, just maybe, we can get a urban winery in our backyard in DTPA. And maybe those new urban wineries won't take my first-born child for a glass of Cab like The Wine Room.

Pride in finding the next great wine

During last week's presentations, we all suggested up and coming wine regions. Our hunt for new locations is reflected in the broader population's wine demands as more people are looking to try wines from all corners of the world. A Growler article (http://growlermag.com/wine-from-weird-places) covers this recent trend stating that our generation is looking for the experience of a wine. This encompasses our journey to find the wine, our bravery to try new things, and our pride in sharing our discoveries with friends.

This trend is encouraging some good outcomes and some bad ones, as we discussed. We are taking more chances and finding more great wines at great price points. On the other hand, wines are often coming to market that are undrinkable and poorly made. These wines won't last long on the market, but may have their moment in the sun for a short while.

I wonder if our generation's curiosity will lead to a better and more competitive overall market in the long run or if we will grow fatigued by the overwhelming variation and SKUs.