As individuals and businesses are deeply impacted by COVID-19 and its health and economic consequences, we are seeing experimentation that will change the landscape in the long term. The wine industry is no exception. With a shelter in place order, in some cases, consumption is going up. A primary distribution channel of higher-end wines has been greatly disrupted though. Wineries have been forced to shutter their tasting rooms – but this may prove to be an opportunity for these businesses in the long run.
For those who have visited the idyllic environment of wine country, you are familiar with its beauty. Wineries build on this beautiful setting to allow consumers to provide a memorable and enjoyable experience (that makes you more likely to buy their product!). A typical wine tasting experience in the early 2000s was simple, relatively short and included visiting multiple wineries in a single day. It was closer to bar-hopping than the experience we now see.
With luxury wineries currently selling about 60% of their total sales in the direct-to-consumer (DTC) channel, wineries have been in a slow journey of rediscovery and adaptation to strengthen their DTC business. As they became more sophisticated in understanding the tasting room experience as a valuable distribution channel, the tasting room evolved to be a more tailored 2-3 hour experience with a friendly and knowledgeable wine educator, well-paired foods, and a focus on developing a deeper relationship with the customer. The wineries’ goals have been to gather customer data, better facilitate direct wine sales, and (hopefully) engage customers with their wine club/list offering (periodic pre-arranged purchases of their wine).
The very traditional and several-centuries-old wine industry has typically been averse to disruption and relatively slow to innovation. Most wineries’ efforts have been single-handedly focused on the on-site tasting room/wine club experiences. For the most part, they have neglected other strategic options that could be more aligned with trends observed in younger generations (a.k.a. the new wine consumers). Disruptive events like COVID-19 create the environment for new answers to emerge.
What is happening during the COVID-19 lockdown?
To state the obvious, tasting rooms have been shut down entirely wherever a shelter in place order exists. Without this sales channel, wineries have been left to contemplate how to fill this gap. An emerging alternative is Virtual Tastings. In most versions, wines are sold and shipped in advance and customers can enjoy an online video session (live or pre-recorded) with a wine educator, the winemaker, or even the owner(s), to learn more about the winery and their wines and serve as an opportunity to build a relationship with their customer.
The Virtual Tasting is, of course, notably different from the Tasting Room experience. The beauty of the environment is missing – likewise, the personal contact, carefully designed room, and food pairings just are not the same. Innovation usually does not serve as a 100% replacement though. Part of the experience has been disaggregated and re-packaged.
This new reality disrupts the way wineries will need to sign up new customers into their wine clubs/lists as well, lacking the direct human interaction that has been happening at the tasting rooms. With limited or even non-existent personal feedback, wineries need to find alternative ways of reading their customers and getting them to subscribe to their membership programs. The skills wine educators have developed to capture a new following will have to be repurposed. Strategies to build a connection with customers after a Virtual Tasting will need to be designed, and new alternative means of communication will have to be used.
Rob McMillan, “State of the US Wine Industry 2020”, Silicon Valley Bank Wine Division, February, 2020.
What will happen post COVID-19?
The disaggregation of the wine tasting experience will result in a number of new opportunities for wineries to utilize tasting as a distribution model. The online tasting experience, although in a different environment, opens up the customer to a deeper multimedia experience than they were likely to have had at the Tasting Room of a winery. The color, tastes, and origins of a wine can be explored in new and interesting ways. In a similar fashion, wineries will have new and different opportunities to reach out to their customers and entice them to subscribe to their programs.
Wineries can experiment with how that Virtual Tasting works. Although there has been an almost immediate surge in virtual tasting opportunities as soon as people were forced to stay home, we have only seen the tip of the iceberg this new way of interacting is creating. As wineries start getting immediate feedback from their customers, they will be able to quickly pivot and adapt their experiences. This will also be a great opportunity for wineries to get more (and better!) data from their customers, which can be leveraged to tailor their experiences, define more individualized marketing strategies (telesales, online shopping), shape specific wine club offerings, and engage with them in a more profound (even if physically distant) way.
Organizations like OneHope have already been using a distributed tasting model where individuals can host their own wine tasting with family and friends. This innovative sales channel enables a more seamless entry for potential OneHope customers. Unsurprisingly, it was a short jump for OneHope to start offering Virtual Tastings.
Large tastings, synchronous cooking classes to pair foods with wine across a wide number of customers (maybe with a celebrity chef!), or even recorded sessions with a Sommelier over Youtube will be more widely considered. With wine drinking happening at home (at least for now) and limited shopping alternatives, wine clubs/lists may become more relevant and exciting.
As wine tasting experiences are redefined and wineries start innovating in their approach to signing up customers into their wine clubs/list or even completely changing the format of their offerings, appealing opportunities for cross-selling (wine and/or other products), bundling, redefining pricing strategies, and creatively marketing their offerings will be created.
The Winery Tasting room experience will come back, but now with many new flavors! Perhaps Virtual Tasting and other new experiences end up replacing to some extent traditional tasting experiences, forcing wineries to reimagine, once again, the way Tasting Rooms work.
Paradoxically, social distancing and the need to rethink the types of human interaction we can create may end up originating new kinds of communities around wine tasting that are unthinkable and often impossible to create around a traditional Wine Tasting experience. These are scary times for everybody, but one of many silver linings is that wine will likely get more exciting! Cheers!
About the authors
Matt Sitter is a partner at Advantary, LLC and provides operations, strategy, and executive coaching services. Matt is passionate about optimizing team collaboration.
Prior to joining Advantary, Matt held leadership positions with the advisory firms CrossLead, Inc. and the McChrystal Group. Matt is an ICF credentialed executive coach, has led a wide variety of functional areas and served on multiple executive management teams. He received his BA from Brown University and MBA from the Tuck School at Dartmouth.
José Salgado is an entrepreneur in the food and beverage industry and a senior financial analyst at Duckhorn Wine Company, with a strong inclination for thoughtful innovation.
José has cofounded two fine-dining restaurants and has been instrumental in the development of Hilo Negro, a winery in the premium wine region in Mexico. José has studies in Enology and Viticulture and serves on the board of the Healdsburg Education Foundation. He received his Law Degree at Instituto Tecnológico Autonómo de México and MBA from the Tuck School at Dartmouth.