August 15, 2016 § 1 Comment
Winemetrics is halfway through its 2016 on-premise wine list surveys, and to be frank, there is very little good news to report. Wine lists are not only decreasing in size but also in variety. Selections are increasingly based on brands controlled by the top 10 suppliers. Since the start of 2015 we have seen many iconic independent wineries ‘absorbed’ by the largest suppliers. Benziger, B.R. Cohn, J. Winery, Orin Swift, Patz & Hall, Siduri, Talbott, The Prisoner to name just the ones that come to mind. But this decline of wine on-premise is just half of the bad news for wine. The meteoric, unstoppable rise of craft beer and craft cocktails may spell the end of wine on-premise as we know it. The key, and most damning piece of evidence is the admission (in confidence) from wine professionals themselves. When not at company functions or on the corporate expense account, they are drinking beer and cocktails, simply because there is more variety, flavor and value in the average beer and cocktail list. This is especially true in casual restaurants where the same wine products appear with monotonous regularity. For the record, I am not a proponent of the ‘small is beautiful’ school of wine marketing. Major national brands are extremely important to a segment of wine consumers that seek the comfort of a consistent, well-known producer. However, when these brands or their line extensions dominate wine lists to the exclusion of any innovative or more esoteric products, it is at that point that any wine consumer with a slightly more adventurous palate closes the wine list and orders a beer. And, I confess, that’s what I do now.
If you believe my observations aren’t supported by facts please click on the link below to Lewis Perdue’s Wine Industry Insights where he features a recent Gallup survey.
From Winemetrics’ observations of hundreds of chains and independent restaurants, it does not appear that the wine industry is taking this threat seriously. As a 35 year veteran of this industry, I have seen trends, brands and fads come and go. I remember vividly a distributor presentation by a wine cooler executive in the 1980’s who extrapolated his brand’s 2 year growth curve a decade into the future, promising his audience of a massive windfall in profits. According to the executive, this was ‘guaranteed’. It didn’t quite work out that way – has anyone seen a wine cooler recently?
Of course, we cannot lay the blame solely on the wine industry, as the restaurant industry is also complicit in this process. Possibly persuaded by off-premise sales figures and incentives of the larger suppliers, restaurateurs have yielded too much control of their wine lists to big corporate interests. In Part 2, I’ll discuss steps restaurants can take to not only invigorate interest in the wine segment, but actually take ownership of innovation for their wine selections.
July 13, 2016 § Leave a comment
Our readers may have taken note of a recent FSR article on Growler USA, a beer-centric chain boasting 100 tap lines and dedicated to serving craft beverages (including beer, cider, mead and, yes, some wine). According to the article, the chain has plans to expand from 3 to 35 units by the end of 2017. We should note that this concept has precedence with World of Beers, which started with one location in Tampa, Fl in 2007 and is planning to grow to over 100 units by the end of this year. Additionally there are numerous growing regional chains offering a dozen or more drafts and many more craft brews by the bottle. The ones we have surveyed have partnered extensively with local and regional craft brewers and provide vital opportunities for endorsement and consumer trial.
So what compels me to draw your attention to Growler USA? First, they have an unparalleled commitment to serving a superb product, equivalent to a craft brewery tasting room. Second, they are seriously dedicated to providing consumer education, with all of their bartenders qualifying as Cicerone Certified Beer Servers. Third, they are devoted to supporting local, innovative craft beverage producers. Finally, and this is key, every Growler USA location provides a continuously updated list online of all their 100-plus selections with prices, something offered by virtually none of the hundreds of chains and independents that Winemetrics currently surveys. This means that a consumer can be pretty certain that what is on the website is available on tap. I know this is a relatively simple process from a technical standpoint, yet when it comes to craft beer selections, most chain websites merely state, “Ask your server about our selection of craft beers” or words to that effect. Apparently, informing potential customers about what is being served and at what price, by location, is too much work for the average chain IT department. In fact, there are an increasing number of chains that provide no beverage information on their websites and even fail to provide prices on their printed menus! (More on that issue in a future post).
Congratulations to Growler USA; I hope it prospers and reserves some of its taps for innovative, regional wine producers.
(Note: Winemetrics has no relationship whatsoever with Growler USA or anyone associated with the company)
July 13, 2016 § Leave a comment
While wine lists across the board are decreasing in size and variety, beer list trajectories are in the opposite direction, expanding in both size and diversity in even the most casual chain restaurants. Moreover, there has been a quantum leap in beer-oriented chains at all levels of the chain spectrum from national chains such as Yard House and World of Beers, now 70+ units strong, to regional chains such as Eureka and Plan B. These chains have certainly been helped by the explosive interest in craft beer, which has seen growth in both the mundane e.g. Pumpkin Ale, to the esoteric e.g Gose and Brett-fermented ales. So why hasn’t the wine industry begun introducing exciting and buzz-worthy products to keep pace with their beer brethren?
The answer lies largely in the attitudes prevailing among the thought leaders in each industry. With few exceptions, the wine industry has doggedly remained loyal to the European concept of wine, that wine is a product of terroir and tradition, e.g. the fixation that the best wines are representative of a specific variety and place. Estate-grown wines of approved varieties or blends that follow traditional production methods are held in the highest esteem by an increasingly narrow group of gatekeepers in both wine production and wine media circles. Had the beer industry followed the same path, the majority of producers would still be following the Rheinheitsgebot, which dictates that beer consist only of malted barley, yeast, water and hops. And we would never have had the vast array of products that has vaulted the American beer industry from mediocrity to its current apex of innovation and growth. Fortunately, American beer producers rightly found this European model too constraining and began experimenting with untraditional flavors, fermentation techniques and aging methods. In a few short decades, American craft beers have become the global standard of beverage innovation. If you had suggested 30 years ago that American brewers would be opening facilities in Germany, the birthplace of modern brewing, you would have been laughed out of the bierstube. In the 1990s, hypothesizing that someday small American brewers might have a market value of over $1 billion (Lagunitas, Ballast Point) would have earned one a trip to a local asylum. Yet it has come to pass.
What remains puzzling is that, despite craft beer’s incredibly successful example, which has been eating the wine industry’s lunch for the past decade, few wine producers have dared to defy the ossified old guard who continue to enforce the standard of European wine production. Is it arrogance or merely ignorance that prompted the wine industry to relinquish an entire segment that it should rightfully own – cider ( a low alcohol fruit wine), to the American beer producers?
Having been in the alcoholic beverage industry for over 3 decades I have a fairly good ideaof how this saga will play out, unless drastic measures are implemented very soon.
The wine industry today is much like the U.S. auto industry of the 1970’s, which took the attitude that the public will buy what it tells them to purchase. We have all seen how successful that approach has been. Now Toyota is the world’s largest car company. Hopefully, the wine industry will come to its senses before it is too late.
October 29, 2015 § Leave a comment
Winemetrics 2015 survey of 100 top casual dining chains has seen a drop in both by-the-glass and by-the-bottle listings. In our 2014 survey, the average casual dining list had 18 by-the-glass (BTG) and 23 by-the-bottle (BTB) selections. This year our preliminary survey indicates that those numbers have fallen to 17 BTG and 21 BTB. Domestic wines dominate this segment, making up 70% of all listings. The smaller selection size also limits the diversity of these lists. Below is the typical allocation of placements by variety. Varieties not appearing on the table below would be found in the Other category, this would include Zinfandel and Syrah/Shiraz which, until recently, were among those varieties that had a presence on casual dining lists. Part 2 of this blog will reveal the leading wines in casual chains as well as average pricing.
|Average Casual List||#BTG Listings||#BTB Listings|
October 6, 2015 § Leave a comment
There is an industry rumor circulating that Treasury Wine Estates (TWE) is contemplating a purchase of the Sterling brand from Diageo. Winemetrics, having done preliminary research on Sterling’s on-premise performance, is not certain this would be an appropriate fit for TWE. Sterling used to be an on-premise powerhouse; five years ago Sterling was a leading restaurant brand, ranked 7th by-the-bottle (BTB) in Winemetrics 2009 On-Premise Wine Distribution Report. However, the following year Sterling had dropped to 16th BTB. Since 2010, Sterling continued to lose distribution on-premise; in Winemetrics most recent 2014 survey, its BTB ranking fell to 50th place. Further analysis indicates that Sterling and Beringer, the flagship brand of TWE, have similar strengths, both with 29% of their on-premise distribution in Cabernet Sauvignon.
Perhaps a better choice for TWE would be one on Diageo’s Pinot Noir focused brands, such as Acacia or Chalone. On-premise distribution of Pinot Noir represents just 4% BTG and 5% BTB of TWE’s portfolio of brands. Meanwhile one third of TWE’s BTG and a quarter of its BTB distribution are devoted to White Zinfandel, a variety experiencing a slow decline on-premise. Of course, on-premise distribution may not be a deciding factor in a wine brand purchase. However, the well-known brands, that have recently been sold at a premium, (Meiomi is a perfect example) have had extensive restaurant distribution at the time of their purchase.
For more detailed analysis on the compatibility of Diageo’s brands with the Treasury Wine Estates portfolio. Please contact us at email@example.com.
July 28, 2015 § Leave a comment
Many wine industry insiders were surprised at the lofty price Constellation Brands paid for Caymus’ Pinot Noir powerhouse, Meiomi. A deal that did not include any vineyard land or grape resources, from what we understand. However, if you believe that on-premise distribution is the benchmark of brand equity (build brands on-premise, build volume off-premise), then there may be some justification for this tidy sum.
Winemetrics is about to release a new report introducing its Wine Equity Quotient™ (WEQ) and Brand Equity Quotient™(BEQ). Both of these valuations are based on a wine’s (or brand’s) on-premise distribution characteristics which include:
- total number of listings (either by-the-glass or by-the-bottle, there is a separate WEQ for each)
- total number of chain/restaurant groups where it has distribution
- The diversity by chain type (Casual, Upscale Casual, Fine Dining) of its distribution
- Average Price
When Winemetrics compared the top 3 Pinot Noir By-the-Glass by their WEQ values, we came up with the following numbers.
- Meiomi WEQ – 29
- Mark West WEQ – 19
- Mirassou WEQ – 21
Constellation paid $160 million for Mark West in 2012. While we are unable to precisely determine Mark West Pinot Noir WEQ for this year, we do know that since it’s purchase this wine has increased on-premise distribution by about 40% since 2012. Using that number of total listings with Mark West’s current WEQ calculation, it would yield a WEQ of 13.
Let’s use this Wine Equity Quotient™ value with Mark West’s purchase price to estimate what Meiomi might be worth in today’s market:
160/13 = p/29 where p would be the purchase price of Meiomi in millions of dollars
p = 357 or $357 million dollars.
Certainly Constellation Brands used far more sophisticated analysis than this to determine Meiomi’s fair market value, but I don’t think they overpaid.
Winemetrics Wine Equity Quotient™ (WEQ) and Brand Equity Quotient™(BEQ) will be introduced in Winemetrics’ new 2015 Wine Buyer’s Report, our first report targeting wine buyers, beverage managers and wine professionals who sell to this group. This report will be released August 1, 2015.
November 19, 2014 § Leave a comment
If you are a recipient of Winemetrics’ newsletter, you have already seen this headline. Casual chains cut wine listings considerably in 2014. We think the primary cause of this is greater competition from craft beer and cocktails, which are successfully challenging wine distribution in this dining segment. I have already outlined how craft beer and spirits outperform wine in profitability in a previous post. Still, it appeared that wine was holding its own in casual chains until this year. We were shocked to see all of the top 10 casual chains in our survey reduce their wine selections along with regional chains. Below is a partial list of chains with reduced wine selections in 2014:
The Cheesecake Factory
Overall reductions add up to over 17,500 lost By-the-Glass (BTG) placements and more than 22,600 By-the-Bottle (BTB) listings. A study reported by Cornell’s Center for Hospitality Research indicates that smaller list sell less wine overall so that wine revenues in these accounts will probably decline. This could become a self-fulling cycle in casual chains. “Reduce the wine list = sell less wine = reduce wine list further as the current selection of wines does not justify its investment” This sounds like a beverage program being run by accountants, not beverage professionals.
One thing is certain. The wine suppliers who were included in those lost -17,000+ BTG listings and -22,000+ BTB listings, will be selling fewer cases on-premise this year unless they find alternative outlets.