2017 was a turning point year for the California wine industry. It was chock full of compelling events which posed challenges and significant disruption to the status quo. While DTC wine sales have surpassed $2.6B in 2017, new market dynamics are reshaping the way we are approaching our sales and marketing strategies in 2018 and beyond.
Let’s take a look at the top five events that set the stage for this year:
1. Devastating wildfires in N. CA Wine regions The week of October 8, 2017 wreaked havoc on Napa, Sonoma and Mendocino wine regions when Northern California experienced the worst wildfire outbreak in California’s history. The devastating blazes destroyed 245,00 acres of land, including homes, property and businesses. While each region came forth with unified support and strength as a community during the fires, the impacts severely affected the tourism industry through the early months of 2018. With October generating the highest number of visitors to the region, sales lost during the quarter through canceled bookings set many businesses that rely on tourism back to a longer path to recovery in 2018. The good news is, many more hospitality businesses are collaborating on ways to work together in the new year which will not only benefit the collective industries, but will attract and delight visitors as well.
2. Amazon Exits On Line Wine Business– In October Amazon announced they will be closing their Amazon Wine Store where they did prominent business as an aggregator for wineries and retailers alike. With their acquisition of Whole Foods, Tied House Laws posed challenges based on their ownership of brick and mortar wine stores through the Whole Foods chain. While this was a welcome reprieve for on-line retailers competing with Amazon’s prowess in web based sales, keep an eye on 2018 as Amazon is making big investments in Amazon Fresh and has intentions to ramp up their same day delivery program for grocery and beverage items from inventory in their Whole Foods stores. Rumors abound Amazon is courting other high volume retailers for acquisition in 2018. With the power of Amazon expanding the way retailers do business, it will be interesting to see how their strategies may reshape the wine industry.
3. Common Carriers Begin Enforcing State Shipping Laws– In Q3 UPS and Federal Express announced they would be enforcing cross state shipping laws for wine retailers limiting them access to deliveries in only 14 states. This move has mixed impacts for wineries who rely on distributors and retailers to reach customers in areas where they have no presence or permits. For wineries selling direct to consumer, this event potentially pushes sales opportunities back to the wineries to bypass second and third tier channels provided they carry compliant shipping permits. The discussion is not over. Many pro-consumer groups are setting up for battles which could end up in the Supreme Court.
4. Recreational Cannabis On January 1, 2018– The Cannabis Industry in California has been diligently setting the stage for recreational users coming on board in 2018. The wine industry has been abuzz with how the Cannabis market will affect or disrupt the wine business– either positively or negatively. The market dynamic has been positioned as keynote topics in most major wine industry events. Will these two industries become complementary or competitive?
5. Labor Market Squeeze– Immigration reform and new market opportunities for labor workers continue to severely impact accessible and cost-effective labor for wine producers. With many immigrants backing off entering the country on agricultural visas and moving to alternate industries like cannabis and construction, the diminished agrarian labor pool for vineyard work is presenting crucial challenges. Wineries are being forced to pay premiums for labor workers or invest in alternative solutions through automation. How will wine farming, production and consumer prices be affected by this in 2018?
An ancient philosopher once proclaimed there are opportunities in chaos. It’s also been proven disruption increases innovation. If history is on our side, it promises to be an exciting year ahead!