If you're on email lists for fine wine retailers, you know that they're feeling pressure from the tough economy. Before considering wine retailing specifically, let's quickly look at the state of retailing in general.
The current general retail environment
Today's Wall Street Journal cover story is titled Retail Sales Plummet with a subtitle "Discounts Don't Revive Holiday Spending; High End Walloped." After reading the article, I felt these headlines were a bit misleading. Here's why:
- The 8% decline in December 1-24 sales over the prior year was really half that or 4% when gasoline price declines were excluded.
- Luxury goods (excluding jewelry) fell 21.2% instead of the 35% in the front page bar chart. Unfortunately, that's still a high figure and fine wine probably fits more in this category than any other.
- Inflation-adjusted consumer spending in November showed consumer spending actually increased slightly in November (over 11/07) given falling gas price benefits. Personal savings rates climbed too.
- "E-commerce showed the most resilience with online sales falling just 2%." In another WSJ story, Amazon Lauds Its Holiday Sales, Amazon says it had its "best ever" holiday season.
The fine wine retailing environment
Robert Parker launched a comment on the Mark Squires Bulletin Board on eRobertParker.com in late November called Wine Market Correction which generated hundreds of responses and over 20,000 views. While he paints a somewhat gloomy picture for various participants in the wine trade, there are always opportunities which emerge from adversity as people's willingness to try new approaches is higher than ever in the search for solutions.
With regard to fine wine retailing, I believe we will see some players fold who can not adjust fast enough to the new environment; others may seek third party investments (see The Wine Club takes on a new partner).
What fine retailers should do to succeed
- Focus on execution fundamentals - Almost two years ago, I wrote a post called Criteria for selecting a good wine retailer which is aimed at wine collectors and enthusiasts but this can also serve as a checklist for what retailers should deliver. Solid execution drives success as the Amazon story demonstrates.
- Reassess business model assumptions - Assumptions that were once true may no longer be. Evaluate how to operate more efficiently and with less business risk while treating nothing as sacred. Cut costs wherever you can.
- Pressure suppliers for better terms - Suppliers, whether distributors or producers, need your business too. If you need more competitive prices, demand lower prices or the ability to market wine without buying it first where possible (i.e., brokering).
- Access new customers - Get creative in how and where you target new customers. Innovate with new marketing tactics. Beef up your online presence.
- Reactivate prior customers and increase "conversions" - Everyone has customers who haven't purchased in a while. Have you revisited them to provide an incentive to come back? If you conduct business online, are you doing everything to maximize the number of your online site visits which convert to sales? E.g., we recently added a live chat facility to our site to provide expert wine assistance to online visitors during business hours with higher conversions as our objective.
What wine collectors and enthusiasts should do
- Patronize wine retailers you care about - Support your favorite retailers by focusing your wine purchases with them, even when prices might be a little higher. Consider why you like them and the services they provide that you don't get from others.
- Refer friends to your preferred wine retailers -Word of mouth is a powerful mechanism. If you're a wine collector or enthusiast, chances are you have plenty of wine drinking buddies. Don't hesitate to share your "secrets" of where you buy wine (and why). Read Seth Godin's piece Don't know what you've got till it's gone as he makes the point far better than I can.
- Consider investing in fine wine - I've written many posts on wine investing recently but contrarian thinking is how people make money. Moreover, your access to choice items at excellent prices is higher than ever.
- Manage your pre-arrivals risk - In an environment which could drive some retailers out of business, you should consider the financial viability of your preferred retailers before making new pre-arrival purchases and track down overdue pre-arrivals not yet delivered. (If you're a VinCellar user, this pre-arrival management capability is built-in).
Bottom line: Times are tough but fine wine retailers have plenty of levers they can pull to respond to much tougher market conditions and even gain market share in what is still an enormous, multi-billion dollar market for fine wine (even if prices are lower). Wine collectors also have a role to play in helping retailers while also helping themselves.
