“WineRamp” is an important new initiative to try to overcome obstacles to the continued growth in the U.S. wine market. The idea, in simple terms, is that younger consumers aren’t finding the on-ramp to wine that the baby-boom generation discovered back in the day. What’s the problem? Well, it is complicated, of course, and there are many factors at work here.
Got Your Moo-Stache?
But one issue is simple. There are literally thousands of wine brands on U.S. shelves and each one promotes its own products. But no one is telling the story of Brand Wine. WineRamp hopes to fill in that gap.
It is still early days and impossible to know what WineRamp might look like if it gains the necessary industry support. Some people think of it as a “Got Milk?” program for wine. “Got Milk?”, you may recall, was a very popular generic promotion campaign for dairy milk, with television, print, and more components. You might remember the photos of celebrity endorsers with their white “moo-staches.”
“Got Milk?” was successful in raising awareness, but as I wrote on The Wine Economist a few years ago, it could not prevent the slowly evolving collapse of milk consumption in the United States as consumers opted for other products, especially plant-based non-dairy milks. Got Milk? Yes, but increasingly it is made from almonds or oats.
Grass Roots Initiatives
Generic marketing campaigns are inherently top-down projects, but that’s not the only possible strategy. Mobilizing forces at the grass roots level is another option. Neither approach is easy or guaranteed to work. What would a grass roots wine project look like?
“License to Steal” (aka LTS) is the name of the national wine marketing conference, which will be held this year on March 22-24, 2022 in association with the Eastern Winery Exposition in Syracuse, New York. License to Steal? Well, the idea is that everyone brings their best ideas about how to reach consumers and promote wine in a sort of open-source environment where sharing and stealing go hand-in-hand.
I started thinking about License to Steal when Donniella Winchell, the driving force behind the 15-year old initiative, asked me to recommend someone to record a brief “Crypto 101” video for the program. I’ll do it, I said. It will give me a good excuse to do some research and get up-to-speed on blockchain, crypto-currencies, NFTs, and so forth.
Gulliver in Lilliput?
The LTS program includes presentations and discussions that are relevant to all wineries, but especially the ones that I think of as “grass roots” American wine. Some U.S. wineries are huge (Gallo produces an estimated 100 million cases a year) and sell in broad national and even global markets. Gallo towers over the U.S. wine industry like Gulliver in Lilliput.
But most of the 11.300 US and 872 Canadian wineries are smaller — much smaller — producing 10,000 or 5000 or even fewer than 1000 cases of wine each year. These wineries succeed or fail depending upon how well they connect with local communities, forging wine-based relationships one happy consumer at a time.
Each of these Lilliputian wineries is small by itself, but there are so many of them that they can make a difference. That’s how grass roots connections work and it would be a mistake to underestimate their current and potential aggregate impact on wine in American society.
While we are thinking about top-down wine promotion, I think it is important keep the grass roots in mind, too. LTS is a powerful tool and the dozens of regional and local wine associations and their members. Can they be persuaded to sing a song of wine (with local variations, of course) to win the ear of hesitant consumers? E pluribus unum is a worthy goal.
Are you the sort of person who looks at every new garment to see where it’s made (and of what material) and studies the nutritional information on the back labels of the groceries that you buy? Me, too, although I don’t claim to be consistent in these investigations and I am sure that I miss a lot.
FDA Meets TTB
Many people take an intense interest in the products they buy, especially food and drink since they go into our bodies. Calories per serving, along with sodium, carbohydrates, and protein, are important to many people.
It is interesting – and maybe a problem – that wine and other alcoholic beverages are for the most part exempt from nutritional reporting. Wine labels must tell consumers alcohol by volume and warn them of health dangers, but not display ingredients, calories, or other factors that are required for juices, sodas, milk, and other beverages.
This label from a bottle of Stella Rosa wine is an exception to the current rule — calories, carbs, and so forth are clearly listed. Why? As I understand it the reason is that because Stella’s alcohol is just 5% abv (below a 7% regulatory threshold) it is regulated by the FDA as food (nutritional facts) as well as by the TTB as alcohol (government health warning). (Note that the product is described as “partially fermented grape must!”)
Label of the Future?
I am not sure that anyone buys Stella Rosa because of the nutrition information (it is one of the hottest wine brands today), but maybe the lack of such information is already affecting sales of wines in some market spaces. Consumers purchase a lot of different products and they don’t really need to buy anything that doesn’t take responsibility and own its list of ingredients and nutritional profile.
I believe that wine, beer, and spirits will eventually be required to list their ingredients and nutritional data. I wonder what would happen if wine were to take a voluntary step and be more transparent now as a way to shape the narrative? I know there are some who think transparency would backfire – consumers would turn away if they knew what a bottle of wine really contains or how many calories are in a serving a Chardonnay. But look at Stella’s sales …
White Claw, the ridiculously popular alcoholic seltzer product, has a nutrition label, too, and it is clear that it uses this to its advantage by exactly hitting the critical “100 calories per serving” number.
Limiting Label Clutter
There are several areas where wine could improve its transparency and I’ve been learning how technology can help. QR codes have the potential to lead consumers to sites where they can satisfy their thirst for more information, for example. I think everyone has a QR code reader on their smartphone, although I am not sure how many people use it.
The Treasury Wine brand 19 Crimes has had success with its special augmented reality app that consumers focus on the labels to animate the 19 criminals, so we know that consumers will use apps to get more content about wine in some cases. Perhaps this is a way to be more transparent and accountable without filling the back label with even more boilerplate.
Giving consumers access to useful information doesn’t have to be very intrusive. For example, Italian DOCG wines and South African Integrity & Sustainability Certified wines feature simple codes that allow individual bottles to be traced back to the producer.
Ferret Out the Fakes
Blockchain technology has the potential to improve transparency and accountability in ways that can be important to the wine industry in the long run. People always think of Bitcoin when I mention blockchain, but it is important to understand that Bitcoin is an application of blockchain, not the technology itself.
It is an oversimplification, but I like to compare blockchain to those tracking codes we use for package delivery. Everyone who touches the package scans in information, which is attached to the package record you view on line. You can see where the package is at any particular moment and — hopefully — track it down if there is a mistake. Airlines use this technology now to track checked bags and I am always relieved to know that my suitcase full of wine is safely in the hold of my jet as we take off.
The difference with blockchain is that it isn’t just about location. All sorts of information can be attached to the record, which can be analyzed in many ways.
Thus a simple but very useful application of blockchain is to verify the authenticity and provenance of the sort of fine wines that are sold at auction — and to help ferret out the many fakes. A company called Everledger, for example, developed a system to use blockchain to verify the provenance and authenticity of diamonds and colored gem stones and is applying it to wine as the video above shows.
To Authenticity … and Beyond!
Everledger and others who are working in this space use blockchain and other sophisticated technologies to assure the authenticity of wine and other applications in wine are sure to be found because the blockchain blocks can record many types of information.
In response to the Porto Protocol and other initiatives, for example, many wine companies are working to reduce their environmental impact. Blockchain technology can collect this information all along the wine product chain, potentially allowing interested consumers to quickly assess the climate change impacts of their wine choices.
And that’s just the start. I have argued that wine companies need to own their supply chains when it comes to climate change and sustainability. Many companies focus on their own actions plus those of their grape suppliers. But wine’s product chains are pretty long in this day of efficient bulk wine shipments and Made-in-China glass.
This Changes Everything?
I can imagine a blockchain ledger that tracks useful information all along wine’s complex product chain and programs that would allow consumers and others to analyze and evaluate it. And, of course, wine is just one product where such a system would be welcome.
I’m not saying the blockchain and other technologies will change everything, but I will say this: transparency and accountability are only going to become more important in wine as consumer expectations evolve and wine is held to the same standard as other consumer goods.
We might think wine is special — and it is in many ways — but we shouldn’t assume that it is immune to the forces that are making transparency, accountability, and technology more important every day.
How is the changing investment landscape affecting the wine industry? Some thoughts on adventure capitalism and wine (and frogs and tides at the very end).
The cover story on the November 27 issue of the Economist newspaper was “Adventure capitalism: startup finance goes global.” It wasn’t, as this illustration might suggest, a story about Bezos and Branson and how their billions were powering rocket adventure tourism in near space. That’s interesting, but it’s another story.
VC become Ad-Venture Capital
The article traces how venture capital (VC) has gone from a niche investment space to something that seems to be much broader and more pervasive. VC is usually thought of as early-stage private investment in privately-held tech and science firms. The old world of VC was mainly focused on the US and just a few sectors — think Silicon Valley start-ups. The idea was to invest early on in what in the best-case scenario might turn out to be a unicorn firm — one that would achieve a billion-dollar valuation while still in private hands and then go public in a big way. Ka-Ching!
High risk is one reason the Economist calls this Adventure (rather than Venture) capitalism. VC is inherently risky. The investments are by their nature illiquid and you need to hit the target with some very successful investments to offset the inevitable disappointments. I suppose it is a little bit like the old joke about the wine business — the best way to make a small fortune is to start with a big one. But of course some investors do very well indeed.
The Economist argues that VC is changing — being disrupted just as it has disrupted in the past. The VC world has broadened beyond the narrow set of sectors of the past and beyond the US. It has also changed as huge amounts of money have poured into VC firms. The fact that there are more investors taking risks doesn’t make the system less risky.
The Problem of Return-Free Risk
There are a number of factors powering the rise of adventure capitalism, but perhaps the most important is the scarcity of positive real returns in some traditional sectors and the consequent logic of assuming higher risk to achieve higher return. Necessity as much as entrepreneurship drives the trend.
It used to be said that US Treasury bonds were “risk-free return,” for example, and so good foundational investments for a variety of individuals and institutions. Now, an investment advisor I know says, Treasuries are “return-free risk.” The interest return is negative in real terms (below the prevailing rate of inflation) and prices are volatile. This fact forces investors to explore all the nooks and crannies of the financial world to meet their needs.
The VC boom isn’t the only example of their trend. You might not have heard of SPACs (special purpose acquisition companies) before this year, but they are now a big enough market niche to be going through their own boom-bust cycles. Some call them “blank check funds,” which suggests something about the times when high net-worth investors decide it is a good idea to hand a financial advisor (sometimes paired with a sports star or celebrity of some sort) a blank check to buy a private company.
There are also NFTs (non-fungible tokens) that sometimes trade for high amounts. I suppose there could be a SPAC that invests in funds that acquire NFTs — what could be better? And I understand there are active markets in virtual assets on metaverse platforms.
This Changes Everything?
If you want to consider how far investors will go to get a return, consider that huge amounts that some recording artists have received for their back catalogues of songs. A steady flow of fees from music streaming services apparently looks really good when the alternative is something like return-free risk.
The list of investors who are plunging into the world of adventure capitalism investing is amazing, including billionaires and speculators, of course, but also what we might usually think of as very conservative institutions such as university endowment funds and public sector pension funds. (I recently reviewed the endowment report of a major mid-west university that had 22% of its assets invested in private equity and venture capital.)
These institutional investors, who once focused on blue-chip investments, now find themselves pulled into higher risk illiquid investments by the gravity created by their need to achieve certain rate of return targets. Most institutions that I monitor aim to increase their private equity and VC profile in the future.
One important question is this: what happens to all of these investments when the economic environment changes, as it looks like it is doing now, with higher inflation pushing interest returns up and the big quantitative easing flows tapering off at least here in the United States?
Wine Investment Booms
So how is this a wine story? The Economist is right that investments in risky and illiquid assets is no longer limited to traditional venture capital firms and Silicon Valley sectors. It is hard to follow the wine business in 2021 without noting all of the investment activity. Acquisitions (Sycamore’s purchase of Ste Michelle Wine Estates, for example), SPACs, and big moves by some institutional investors, too. Lots of money searching for returns in winery and vineyard investments.
Everyone seems to want to get on the NFT bandwagon, for example. Even Penfolds, the iconic Australian brand owned by Treasury Wine Estates is piling in. According to one report,
Australia’s most celebrated wine-maker is going digital with the announcement that Penfolds is teaming up with non-fungible token (NFT) marketplace BlockBar for an innovative new project. The partnership will see a limited edition NFT tied to the impossibly rare Penfolds Magill Cellar 3 barrel made from vintage 2021. According to the iconic Australian brand, only 300 will be made available, for the cool sum of USD$130,000 (AUD$180,00).
And Penfolds isn’t the only producer to exploit interest in NFTs. Barossa winemaker Dave Powell is offering the entire 2021 vintage of his wine through sale of NFTs. Is the wine’s value greater when linked to a NFT? Many apparently think so in the same way that some firms are trying to raise their profile by linking to blockchain (Square, the payments company, is now Block).
Better than Birkin?
Fine wine has done very well as an “alternative” investment in this environment and I have received several emails promoting funds to invest in fine wine assets. According to a recent article in Forbes, fine wines topped the list of alternative investments over the last decade, a list that includes blue chip art and furniture, classic autos, and colored diamonds. Wine’s rise to the top of the pile was noteworthy because it has now outperformed the previous leader … handbags! Gosh those Hermès Birkin bags did really well — I assume you have a bunch of them in your retirement portfolio, yes? Nah — me neither.
I think it is clear that wine is part of the adventure capitalism story — how could it escape such a broad, powerful trend? So the questions I asked above apply to wine, too. What happens when the economic environment changes, as it seems to be doing now? Which of these investment strategies will endure and which will fade away?
Frogs and Tides
Many, including the Economist, seem to be enthusiastic about the adventure capitalism trend and all that goes with it, but it makes me nervous. It seems to me that this is a process that normalizes risk without actually reducing it. Having taught university classes on financial crises and written a couple of books on this topic, I take risk very seriously (and I don’t think I am alone).
The current investment environment in wine and more generally reminds me of the parable of the frog in the pot on the stove. The water heats up slowly, so you kind of get used to it. Once you realize that things have started to boil up it is too late.
I will therefore be watching closely as the monetary life-support system tapers off and interest rates rise. As Warren Buffet is supposed to have said, you never know who is swimming naked until the tide goes out!