Wednesday, May 13, 2009

Mediocrity and the Art of the Self-Fulfilling Prophecy

I read the papers just like you. I watch the news, I catch the scroll at the bottom of the 24hr news networks while sitting in my accounts. Despite the popular opinion, the media isn't driving us into a recession, it's likely inevitable. I can make a pretty compelling case that the people in the wine industry most affected by the economic state, are making it worse for themselves.
Distributors and Retailers are in full on panic mode. I keep hearing the line "in order to sell more wine and remain more competitive, retailers need to sell $10 and under wines". I keep hearing from distributors that they can't sell mid-priced wines and higher anymore, and that the market doesn't have room for these wines anymore. I believe these are dangerous approaches. Wine sales are slumping a bit, but they are above this point last year. And they are about flat with 2007, which is much higher than 2005 or 2001. We have been spoiled by a seemingly endless growth cycle in wine sales. The growth will be much slower from here on, at least for a little while, but it's still growth. Consumers that I've spoken with haven't really changed their habits much either. I'm sure that there are consumers that previously bought $20 bottles on a regular basis, but are now buying $12 instead, but I haven't come across any.
So, retailers, thinking they are ahead of the curve, have bought big on cheap wines and promoted them heavily. They have in effect sold their customers down. This is a bad plan. Rather than focusing on getting customers excited about new and exciting wines and great vintages in Europe and California, they are looking for the next yellowtail (which single-handedly created a depression in sales for quality Aussie Wines).
Distributors have panicked even worse! Since every retailer overbought during the holiday season, they had plenty of remaining inventory during the already slow months of Jan-March. The sales numbers were down percentages that make managers fear for their jobs. But they were down these percentages in the smallest months of the year, so the real dollars down was not as bad as the percentage said. As a reaction, the managers started dumping quality mid-priced brands in favor of finding the next yellowtail. In essence validating the retailers stance.
I have no less than 4 shirts in my closet that have an argyle pattern on them. I didn't go out and buy 4 at once. Argyle was a pattern of choice for the last few seasons in many of the clothing stores I frequent. Subliminally, they sold me on the latest trend. And when all was said and done, I had at least 3 more pieces of Argyle patterned clothing than any self respecting man should have. I like argyle, but I didn't need it. The clothing industry embraced it, and I bought it. The wine business is doing the same thing right now, except this years "fashion" carries a lower price tag and lower profitability. The people that already sell the cheaper wines are rejoicing, for them, these are the salad days. "Of course consumers are looking for value comfort wines".
So now, sales and profits will go into the tank. Guess what else? Consumers that were shopping independent retailers because their wines were better than the grocery stores now have no reason to go to these shops. When independent retailers try to go toe to toe with grocers, they have no chance, and that is the path they are leading their customers down.

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