Winedirect – a marketplace for all generations?

Listening to Joe discuss how he turned Winedirect around was fascinating. From the ashes of the global financial crisis, Joe grew Winedirect at an impressive 40% annually, facilitating more than $1billion in wine sales. Yet, even though Winedirect’s SAAS business enabled many small niche wineries to run e-commerce direct to consumers, Joe’s frustration was evident. Clearly, many of these wine producers were not optimizing their SAAS platforms. It is quite a shame. SAAS platforms have made it about as easy for non-digital natives to massively scale their sales and manage customer relations.

Given the massive consolidation amongst wholesalers and retailers, Winedirect’s future growth is now more strongly tied to the fortunes of small wine producers. This makes it more compelling for Winedirect to spearhead their own marketplace website; Winedirect has the knowledge of the wine business, a clearer understanding of consumer preferences, and most importantly, the digital expertise to drive customer eyeballs, engagement and retention.

We had an in-depth discussion in class on Wednesday with many good suggestions on what the marketplace must feature to win. However, I felt a great deal of discussion revolved around making a digital platform more approachable to those new to wine. Many of the suggestions were on catering to millennials’ desire for diverse and unique offerings, as well as sustaining their interest in a low attention span world. It is important to cater the marketplace to the millennials – who represent the future. But it would be remiss to pander only to them. While our case studies highlighted that Millennials were the largest US wine consumer segment, the 2017 Silicon Valley Bank wine report indicates that Millennials, with their limited purchasing power, buy wines at a lower price points.

Thus, if Winedirect chooses to become a Marketplace, it will need to continue targeting “traditional” Gen X and boomers. First, Gen X and boomers still trust ratings from authoritative sources. Wine scores of established wine critics like Parker, and magazines like Wine Spectator are still featured on bottles at retailers for that purpose. Second, Gen X and boomers do not have as large a craving for variety shared by millennials. Millennials can be fickle between wine varietals, and even hopping around to craft beer and domestic rye whiskeys. Gen X and boomers have a greater preference for consistency and brand names. They want their reliable Kim Crawford Sauvignon Blancs, and the occasional indulgence in some fine Duckhorn. As such, Winedirect cannot just be a marketplace for small lesser known wineries. Thus, Joe will have to strike a careful balance in creating a market place that will appeal to different preferences across age groups. Luckily, Winedirect as digital experts of the wine business are well positioned to curate a bespoke online wine purveying experience, across all generations.

What happens after the harvest?

In 2003, my parents, in what I assume was a fit of midlife crisis, decided they must start a vineyard. I grew up in Riesel, TX, on a small farm in a small town of about 900 people. We raised cattle and an ever changing odd assortment of zucchini, squash, cantaloupe, corn, okra, tomatoes and the like. After taking a wine tasting class at a newly minted winery one town over, my parents decided that normal fruits and vegetables were boring and they just must have a vineyard. The vintner told them buyers were increasingly looking for local branding but there were far more people who wanted to make wine than grow grapes, so they constantly imported juice from out of state. Eager to brand their bottles not only Texas made but also Texas grown, the vintner made a deal with us on the spot to buy any grapes we can grow that exists to this day for our little vineyard.

Me installing the trellis system for a new section in 2010

There was a catch for me though. As a 13 year old, I was plenty able to help with the planting but couldn't enjoy any of the product. What was a labor of love for my parents turned into just labor for me. I planted hundreds of vines, built a trellis system, trenched our irrigation ditches and installed our drip lines. Springs and summers were spent endlessly spraying, mowing and trimming. Within a few years we started bearing fruit, and as I grew older and grew a taste for wine I started getting more into the process. To this day I trek home ever summer to help with the harvest and am proud now to have now helped picked tons of grapes at over a dozen harvests. It was a lot of hard work, and I don't think the 13 year old me would believe it, but the vineyard has turned into one of my favorite parts of home and one of my proudest accomplishments.

2017 Latimer Family Harvest

This brings me to my motivation to enroll in GSBGEN 356. I've spent more hours than I can count planting and maintaining a vineyard, but my knowledge of what happens next is comically absent. My only tasting talent is the ability to discern a white from a red, and even that I would struggle with if I couldn't see the wine. Embarrassed enough by my lack of knowledge, I will often forego mentioning our vineyard because it inevitable leads to questions about wine that I am completely helpless to answer. I am hoping to learn in this course what happens after the harvest and to learn to speak intelligently about wine that goes beyond the vines.

Memorable Experience = Memorable Tasting Wines?

I feel like I've always struggled to remember the taste of certain wines. In part, I think it's because the flavor differences can be really subtle and muted, especially in comparison to other drinks, like cocktails, where the band of flavor is much wider.

But, this study I came across suggests that the time and place where I encounter new flavors may be linked to my memory of flavor. The study found that negative tastes from foods that caused stomach pain activated the area of the brain associated with memory of time and place. No such link was found for foods that did not cause pain. This study makes me wonder if in further research some additional links would be found between memory of time and place and taste in a positive context (if new studies using different methodologies were conducted).

If such a link is found in a positive context, I wonder if the implication for wineries is to try to create new physical experiences at their wineries associated with their tasting rooms - bolder artwork, more immersive displays and architecture, etc. to try to develop a more memorable experience leading to a more memorable tasting wine.

Why Devin Kelsey Enrolled In This Class

To preface, I apologize for the admittedly on the nose title for the blog post - I was struggling to come up with anything wittier and I found it funnier to simply steer into the skid and give the least imaginative title possible rather than give a mediocre title which might make you think I actually tried and ask yourself, "Does Devin actually think that's a good title for a blog post?" With this title, we all know that I didn't try to come up with a creative title and that keeps us all on the same page.

Regarding the answer to that question, however, I tentatively must admit that I'm genuinely not (currently) a wine nerd, yet I've often wondered what it might take to become one - And have joked with many friends that it was a key goal of business school. I'm very much the type of person who enjoys things like wine where you can obsessively follow a given industry and have a niche community with which the passion for the industry is unbounded - I currently follow cinema, craft beer, and college football all with that level of zeal that many in the course likely have for wine. Yet, despite enjoying wine, I have struggled to become a wine nerd.

I think a huge part of this issue stems from something I spoke about the other day in class - My inability to contextualize the world of wine in the way I seem to so easily be able to do for my other huge passion areas. For these areas, the world has always made sense in very clean and discrete terms. There seems to be an excess of information such that nobody knows everything and yet it's clear how any new information fits into the system of other information that you already have mapped in your head - I'd love to get to this point in wine at some point.

So, admittedly, I signed up for the class largely as a consumer wanting to gain a more formal understanding of the industry. I doubt I'll ever start a winery, though I do enjoy the sexier industries for which I believe in the product (the film industry being my biggest passion) so I was quite confident I would at least enjoy this course from the business side paradigm more than I might enjoy most other classes at the GSB.

Why is wine so expensive in the US?

I recently had lunch with a friend who had just returned from a vacation with her boyfriend in Spain. When I asked her about her trip, she responded, “why is wine so expensive in the US?” She complained about how ludicrous it was that she routinely paid $15 or more for a glass of mediocre wine, while a week ago she was enjoying an incredible 3 euro carafe of Rioja. My curiosity was piqued.

The discussion on the three-tiered system shed light on this issue. Economic theory dictates that increasing the number of players in the value chain leads to double marginalization and drives up prices for the consumer. Operations theory suggests that potential for inefficiency and waste increases as the supply chain becomes more complicated - e.g., potential for inaccurate demand forecasting and inventory purchasing at each stage of the supply chain compounds. For these reasons alone, we would expect to see lower alcohol prices in countries that do not mandate a three-tier system.

I left class wondering whether this fully explained the delta, or whether there were other factors at play, e.g. –

Consumer expectation (demand side) – because wine plays a larger role in culture, people at all income levels expect to be able to purchase decent wine at a reasonable price

Subsidies (supply side) – since wine is economically important for countries like Italy, France, Spain, do government subsidies play a role in keeping wine prices low?

Vineyard economics (supply side) – Many European vineyards have been in the same family for generations, while owners of American vineyards have held the land for a shorter time. (NB, this is based on completely anecdotal evidence). If this is the case, are mortgages helping push up the price of American wine?

Others?? 

Wine tourism in Italy vs. US

Before the GSB, I was fortunate enough to spend a year living in Rome. I fell in love with wine tasting in Italy as a way to familiarize myself with the food, history and culture of a region. While each experience was unique, I noted a common theme. Compared with Napa / Sonoma, which was always swarmed with tour buses and seemed to have a formula for getting visitors in and out the door, Italy struck me as comically underprepared for wine tourism at scale. Wineries in Umbria expressed bemusement when we said we would like to visit the winery and try the wine, and indifference when we tried to purchase it. At some of the finest Barolo wineries in the world, we were treated to hour-long personal tastings and tours of the vineyards and facilities (and trust when I say we did not buy enough wine to warrant their time).  Even Tuscany, which seemed the most equipped to receive visitors at scale, invested a huge amount in the visitor experience.

These experiences (and the differences I perceived between wine tourism in the US and Italy) inspired my interest in this class. I hope I will come out of it with a more nuanced perspective on how wine producers choose to interact with their customers, and what this means for their brands. 

Let's Talk Wine

I have grown to appreciate wine over the past few years in part due to my parents and in part due to my dislike of beer. In fact, one of the very first times I met my husband, he remembers me politely declining his beer, only to respond by describing my strong interest for wine instead. For as long as I can remember, my mom has used wine as a treat at the end of the day – a way to relax and live in the moment. My dad on the other hand started loving wine most likely through numerous business meetings and events. He grew to love everything about wine and through the years I have seen him develop his own taste and preferences. I have also seen him become more sophisticated in his knowledge of the industry. I always lean to him when looking for a wine recommendation and am rarely disappointed. 

One thing that I have been left questioning is this idea of price and quality. As Sunny mentioned in her post, humans perceive a higher price to indicate higher quality. I too have fallen for this before. In the context of entertaining and “wining and dining”, I would be interested to understand how perceptions or feelings towards a host or business partner might change based on the price of the wine or even the design of the bottle label.

When looking for research in this area, I found an interesting article from the WSJ. It says, “Successful business people are supposed to be able to identify value — and the wine list is no exception.” So how might one person accomplish this without any wine knowledge? The answer described indicates “cheating” by studying the wine list ahead of time and making an informed and knowledgeable decision. For others who may not have the time to invest ahead of time, simply asking the sommelier for help and admitting your weakness in wine selection is an easy and honest choice. Each of these choices seems like reasonable solutions that would not be harmful to building a business relationship!

For me, when choosing a wine at dinner, I have often relied on brand names that I am familiar with – typically brands that I saw frequently around the house. By taking this class, I hope to develop a foundation to begin establishing my own personal taste palette and understanding of the industry. Additionally, I have loved learning more about how wine is positioned in the market and the numerous strategies that are embedded in launching each brand.