SPLASH DECANT 01/01/21

Predictions for 2021

If 2020 was an earthquake, 2021 is about rebuilding. Below are my predictions for 2021 – hang tight, it’s going to be a wild one that will ultimately reshape the whole beverage business in surprising ways.

Silicon Valley and Wine?

Can the wine world handle the new tech bro entrance? Will we accept hoodies and all birds? I am currently wearing both…DOH.
Tech is going to more strongly enter the wine world. Whether it’s a platform or marketplace like Sevenfifty, AI to learn consumer’s taste, another new product or app trying to “democratize” the wine world, or a platform to make ordering easy. Wine Tech is coming, and I don’t mean the “we want to be the Amazon of wine” people, that’s hogwash. I mean a tech perspective on wine problems.

What’s certain is that a tech hat put on a scalable product works, but it doesn’t match up with the artisan/farmer wine model. In other words, it’s hard to go tech with artisan products coming from the old world where faxes and 80’s pop music are still a thing.

Someone is going to solve the right wine world problem with tech and it will be the beginning of a massive shift in the beverage ecosystem.

Subscriptions Galore

As consumption at home and delivery to those at home solidifies as a bigger part of the game, we are going to see a sizeable amount of subscription wine clubs formed – both through existing brick and mortar retail and independent operations. Anyone who wants to scale their subscription into something real is going to realize that it’s hard to move wine around the country. Those who have it grooved and/or figure it out will win big.

The New Retail

If the experience of buying wine and spirits is like going to the gas station, then prepare to watch the retailers offering this experience squirm and struggle. The new retail is going to focus on the digital shopping experience, in-store operations, service, and delivery. From the first interaction to checking out, the experience will be the focus for those that want to win. Quibble with Total Wine or the like all you want, but try shopping online, in-store, and/or taking delivery from them. It’s brilliant. That’s where it is all going in retail.

A Great Reorganization

We are going to see rebirth and reorganization across the board in the beverage distribution and import ecosystem. If the import/distribution game was a chessboard, imagine an empty board that will be reset in a new combination we have never seen before.

There will be new players, consolidation, and a staggering amount of producers up for grabs. Along with this shift, importers with means will go more direct to have more control over their own destiny. It’s not the sort of switch you can just turn on or off and is harder than it looks – but direct is the new direction.

The gangster move is a consolidation of a few mid-size players – who will that be?

Private Labelism Hits New Heights

There is going to be a TON of juice available at a discount. The exhale of inventory of all of this available juice will be through current private labels and a startling number of new private label projects.

New Size Formats

Holy shit, this is huge, especially in the spirits space. New size formats of 700ml, 720ml, 900ml, and 1.8L for spirits will extend the lines of many known spirits brands and even more newcomers. It’s a huge advantage for those working with distilleries in the EU and Japan. This will be a gamechanger in Q3/Q4 and lead to record spirits sales.

Tariff Madness

On his way out, the Orange Monster is attempting to burn everything down and hand the next guy and his administration, not just a shit sandwich, but a full tasting menu of shit. For the cheese course, we in the wine and spirits business get this: there are more tariffs in play. This new round represents a financial and emotional migraine for the business that is going to take quite a bit to get rid of and is going to cause some casualties. We have to hope for get a new deal with the new administration.

Low and Soft – the Low Alcohol Trend Accelerates

Low alcohol is going to get a lot more attention this year. Brands like Ghia and Seedlip are going to see more competition and more play. Look for well-known distillers to jump into this space with line extensions of low to no alcohol that mimics beer brands that produce low alcohol products.

Big Box Natural

This year we are going to see the solidification of the Big Box Natural phenomenon. Wines that would have never fit into the burgeoning category five years ago because of the size of the producer or their mission will be publicly accepted and will hit more shelves than ever. This is directly related to the ascending demand and price of the en vogue wines and the business sense of the Natural Wine Tribe.

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SPLASH DECANT 12/01/20

The Birth of Big Box Natural

A few months ago the Valentina Passalacqua drama* was the go-to conversation in the wine streets of NYC, and I couldn’t help but be reminded of the Bressan issue of a few years ago.

As shocking as this is, there is no doubt Valentina Passalacqua will have US representation again. And like Bressan, the drama will be placed into a dark and unsuspecting corner of the mind of the market and the wines will find their way onto lists and shelves.

But below the surface of the Passalacqua drama was a significant development – a new iteration of the natural wine movement I am calling Big Box Natural.

Filling a Need

In February, my wife and I went to a wonderful restaurant with a voluminous natural wine list in Montréal and I asked the talented and well-traveled sommelier about the current craze for the V. Passalacqua and his response was startling:

“She is rich and has 80ha of vines. Her wines fill a need.”

Which need is that? Between the lines of this statement is a powerful cultural shift in the shape of the natural wine tribe movement.

Valentina Passalacqua didn’t just expose worker rights and issues, Passalacqua cemented the new business model – Big Box Natural.

And with it, comes a whole new iteration of the natural wine movement that has a far-reaching impact. What was unthinkable a few years ago has happened. Natural now has a proven, scalable, and repeatable business model and will get the full profit-driven treatment.

The Fundamentals of Big Box Natural

A decade ago, the early-adopting ambassadors of Natural laughed when you called a family estate of 15ha “a small estate.” Now, that definition no longer applies.

We are a long way from the barely-attended Dive Bouteille held outside in the rain.

The market driving forces of the Natural Wine Movement have been scarcity, fear of missing out on the new producer, approachable prices, and most importantly, being a part of a fun, kinetic tribe that is going against the grain. This is a movement that thrives on being David versus the commercial wine Goliath.

But, because demand firmly outstrips supply and pricing is now elevated, the producers of the Natural Wine Tribe have encountered a conundrum that will drive this new business narrative: not enough wine and less affordability.

The fundamental change in the Natural Wine Movement is that large production is no longer off the table. Big estates that would be laughed at as a member of the tribe will now be considered natural. It’s done, and Valentina Passalacqua proved it.

According to the facings in stores today, even a large farm where a portion of the vineyards are farmed sustainably, another portion organic, and the third portion biodynamic, can produce natural wine. These wines are bought by the truckload and portrayed as natural on shelves and lists.

Going forward, having a larger quantity available at a moveable price tier is where the action will be. Wines that hit that magic fire price point below $19.99 will become much more prevalent.

For the above reasons, you will see many more private labels masquerading as Natural. Veiled collaborations that make it sound like a well-known producer made the wines or they were made to certain specifications. Even wines where the source is more than dubious will be passed off as natural.

In concert with this phenomenon, many natural wine producers will start sourcing from outside their appellation, expanding their holdings, and borrowing/trading fruit to supplement production and profit.

Large retailers will buy these labels from private-labelist importer/distributors until they decide to jump past the importer/distributor and source their own next best thing at the lowest possible price, expanding this space even further.

Big Box Natural is the new fire category where the growth is going to be dramatic, mind-bending, and turn this David into more of a Goliath player.

Will this snake eat its own tail? Will this ruin the artisan, wabi-sabi model, or will all boats rise? We are going to find out in 2021.

*For a quick take on the V. Passalacqua drama, Eric Asimov of the New York Times wrote an eloquent piece you can read here.

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SPLASH DECANT 11/01/20

Reality Show Wines

Have you had Snookie’s Silvaner, Flava Flav’s Furmint, or the New Bachelorette’s Beaujolais?

Not yet, but with the way things are going they will soon be at your neighborhood shop with a proper label from a high-powered marketing team.

They may come with a large, cartoonish clock, or be as simple as a new sexy wine marketing term like clean wine. Minimalist labels will have the celebrity’s name front and center with typography that is SO perfectly on-brand. Bonus: they will almost always have a winemaker from a notable winery “making” the wine to add a sliver of market viability (or a questionable veneer of substance).

Celebrities are crossing the rubicon in droves to not just drink on Instagram live, but lend their names to wines and build brands to add to their expanding portfolios. It’s easy to picture the marketing meeting that led to most of these celebrified wine projects.

Just a few months ago, I read that a certain celebrity wants to “create the defining brand of rosé Champagne,” and I laughed out loud. Then I looked into who is involved and it just made me sad.

I will always give any wine a fair shake, but I can’t look out into a multi-layered, under pressure beverage marketplace during this pandemic and not shiver at the reality show wines appearing on shelves in large quantities. I get the allure – these wines bring easy sales or there may be some new customers that call. But I ask you, what has happened to your conviction? What are you left with?

The moment Nate Ready makes a Napa Cabernet for Elon Musk (Flamethrower Cabernet?), I will concede. There might even be short term positives to the celebrification of wine, but there will no doubt be a hefty price to pay.

Sadly, I believe these reality show wines are in large part another symptom of a segment of the wine world that wants reality show wines of low substance, high celebrity, and barely-there soul.

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SPLASH DECANT 09/01/20

Is it Art or Science?

Asking if the beverage game is an art or a science is the wrong question – it’s almost always too much of one and not enough of the other.

EX: If you can look at your inventory turn over a relevant period and predict exactly what will sell next month, you are selling a commodity, not a handmade product. Everything goes out the window when there is an external force like an economic downturn or once-in-a-lifetime pandemic or a restaurant closing or a retailer gets hit with a wicked fine that leaves them cash-strapped.

Most of the time there isn’t enough art. There is no song, cadence, belief, impulse or feel – an absence of rubato.

Anyone can run a report and think they have the answers. But to weave art into what you do requires a strong, invested core.

Conversely, working purely on artistic impulse without observing data and you are a fool – maybe at times a lucky fool, but a fool.

Relearn to thread this needle every day and you will find a balance that others wish they had.

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SPLASH DECANT 08/01/20

The Biggest Beverage Industry Reset in History

We are in the middle of the biggest reset in beverage industry history since prohibition.

What we once knew as “normal” is flattened, cracked, and in many cases, decimated by the pressure test of the coronavirus. Today it is a tabula rasa – a leveled playing field that will not be repeated in our lifetimes.

Legacy importer/distributors are shaken up and quietly toppling over. Sales reps are getting laid off in droves because the pre-covid sales rep role no longer exists. Wine clubs are the new, splashy-blasty trend. Celebrity-owned, mostly private label wines are occupying valuable shelf space instead of grower/producers. Athletes are moving into the beverage space in droves with wineries, brands and partnerships.

The beverage game has been shifted forever, but because of the dynamic reshaping of the industry, more is possible than ever before.

High-level producers are in play. Internal culture in distribution can be invested in and changed for the better. We can extend a hand to those that have felt like they can’t enter this business. The old 8-track business models of the beverage industry can move into the now – or wither away.

Look around. It isn’t the beverage version of Planet of the Apes and we aren’t looking at Lady Liberty. It is time to rethink, renew, and execute on something new that really represents the future.

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SPLASH DECANT 05/01/20

A Pause – Returning Soon

It has been a while. I have many posts in queue that I just can’t bring myself to publish.

When I think about the passionate table side messengers that would leave a bottle without a word, or the intuitive advocate behind a full rack of wines that points me in the direction of a new, quiet jewel, I am deeply saddened. I am brokenhearted that I may not see them making art in their work again – that they may not return. It is a difficult possibility to accept.

Not only is it hard to see the light right now, but the world around me is screaming that this is a time for reflection and recalibration and I am going to listen. The world has shifted and we must to shift with it.

While there are so many more uncertainties today, I am certain that the beverage industry that I have been blessed to be a part of and work with over the years is the most dynamic and imaginative group of people around. We will rebuild this together and it won’t look like it did before. But we must charge forward – resolute and clear-eyed.

I will be back making new things in August. Until then, I wish you hope and safety and good health.

“ We will rebuild this industry together...

A Long Walk

April 28th, 2020 – Bushwick, BK

Walking at dusk in my neighborhood is like wandering into a zombie movie set and not knowing it isn’t real.
Rebel restaurants with masked people doling out batched Negronis and Beer. They are making the best they can with whatever they have.
Every block, shiny signs are without luminescence loom over an empty space or new mercado. Every sound seems louder. Each truck that crashes by to deliver something essential snaps me back to the edge of the corner.

The birds chirp and sway. The flowers are in broad bunches of blooms. Both unaware that there is unfathomable uncertainty and hope and despair all around them.

I cry under my mask and wonder if anyone can tell. Do we even really look at each other any more as we dodge to at least six feet away like a giant game of human tetris? How can we see each other again?

But what can we do? We breathe. We stay present. We walk forward, not knowing what is ahead (we never knew before…).

SPLASH DECANT 02/13/20

The Dangerous Domino Effect of the Wine Tariffs

Many articles have been written about the threat to the wine industry from the 25 percent wine tariffs imposed in October of last year and the threat of the up to 100 percent proposed in December. But not enough attention has been given to the dangerous domino effect the tariffs have initiated.

These tariffs – both proposed and already imposed – have acted like a string of napalm bombs. The lingering impact is more destructive than anything I have ever witnessed in the wine business previously. The after-shocks have shook the very foundation of the wine distribution chain and left a looming shadow of the grim reaper hovering over the whole industry.

It would be impossible to fully illuminate the panic that has set in on the U. S. importers and the subsequent reaction of business actions/decisions that have occurred in response – but below are a few of the major shifts I have seen in the game.

In response to the proposed tariffs, there was a giant effort by the industry assembled opposing them, but it may not be enough as we go into the second supposed decision moment on Tuesday.

I hope everyone keeps the pressure on their representatives, because the threat is definitely not over.

What is certain is that there is immense confusion about which tariffs are still in play and a palpable fear among those in the wine industry that realize that the heavy tariff hammer could still come crashing down.

The Facts

On October 18th of 2019, in retaliation for the Airbus/Boeing ruling by the W.T.O., the U.S. imposed a 25% tariff on products from Germany, France, Spain, and the United Kingdom, including wines of 14% or lower. These tariffs are due when the products pass customs. For a full list of the October tariff products, click here.

In December, less than two months later, the U.S. formally proposed to escalate and expand the tariffs to up to 100% tariffs on all wines from the EU (and other EU products). These proposed tariffs are also related to the W. T.O. ruling in favor of the U.S. This tariff threat is still active and could still be imposed. Click to view the proposed list here.

French President Emannuel Macron apparently had a “great conversation” with our president and they agreed to a truce (announced via twitter) for 2020. This supposed truce is in response to the 3% digital tax that was passed into law last year in France and retaliatory “extra” tariffs threatened by the U.S that do not relate to the W. T.O ruling. This truce apparently means (color me dubious) that French sparkling wines like Champagne, Crémant, etc., are spared from this retaliatory tariff – at least for now.

Contrary to some confusing press coverage and social media posts, this “twitter truce” has nothing to do with the up to 100% tariff proposal that is still in play.

A Shape-Shifting Moment

If the emotional mindset of market were reflected in the stock market, it would be in a free-fall full sell off. Importers are straight up shook.

What happens during these moments? A massive reorganization of the whole shape of the industry, followed by acquisitions and consolidation.

Cadence Alteration

This is a business that works on a cadence – there is a tempo to importing wine from Europe in shipping containers.

The 25 percent tariffs that were imposed in October came as a surprise and put immediate pressure on countless importers with wine already on the water.

The timing of the October 25% tariff (going into the busy season of ’19) cut into 2019 profits and likely pushed some importers into the red.

With the imposed 25% and subsequently threatened up to 100% tariffs, the cadence of the entire wine import business became immediately corrupted, leading to significant bear trap scenarios highlighted below. In short, it is already real messy and will get nasty before it gets any better.

Right now, importers are actively trying to share the current tariff costs by asking for discounts from the wineries, putting new wineries they were planning to launch on hold and most alarmingly…questioning whether to put wine on the water at all.

Scale Trouble

There are a plethora of “small” importers in the game. The small, specialist importer segment is one of the largest growth segments of the past decade. Many of these smaller operations don’t hold a lot of stateside inventory or have large cash reserves. The currently imposed 25% tariffs impose a major strain, and in many cases, the threatened tariffs put a halt to any ordering in the new year…which brings me to the next problem:

Out of Stocks Galore

Normally the first months of the year (January/February) are naturally lean in inventory. Importers are re-upping after the high velocity buying/selling of the holidays and there are some end of year tax considerations.

Because of the imposed 25% and threatening prospect of up to 100% tariff threats, many importers were horrified to order more wine for the new year. The idea of re-ordering wine presented an incredible risk.

This dynamic is creating a shocking amount of stock outages and once-in-a-sales-lifetime opportunities for those with inventory to fill the open spaces on lists and shelves.

Sadly, as of this moment, a few notable importers are still waiting to order wine. They are afraid to get hit with a higher tariff that is imposed while wine is on the water, and can you blame them?

Pricing Push

Importers and their distributors are going to start to raise pricing in response to the imposed 25%. This has already started to ripple through the marketplace and will continue to over the coming months.

Will we reach the Sancerre ceiling? Will some categories start to fail because they will inch past the consumer comfort zone with pricing? I think it is a wine by wine situation, but there will surely be strong changes. Additionally, certain “on fire” categories will move past the sweet spot on lists and start to stagnate – they just won’t fly off lists like they used to.

Here’s what I know for sure: the action of moving a customer from one category to another is much harder than it seems. The Touraine Sauv Blanc customer doesn’t automatically start buying the New Zealand Sauv Blanc.

Further, if the currently imposed tariffs are upped to 100% and/or expanded to other countries in the EU, the category discomforts get amplified exponentially.

Collector Heaven

Collectors are secretly loving this. A collector with wine in their cellar stateside looking to sell is in wine heaven. All of the notable/collectible wine is worth more now and can be sold or consigned at a premium to restaurants and retailers in NYC.

“ ...there is immense confusion about which tariffs are still in play and a palpable fear among those in the wine industry that realize that the heavy tariff hammer could still come crashing down.

Rep Moves

No one in this business enjoys being out of stock and it isn’t ever a good look with any customer. Bring up stock outages/inventory problems to a sales rep and there is always a twitch. It is the strobe light of beverage sales.

Sales reps don’t like sales haircuts. They hate the prospect of the sales floor dropping out from under them because of short inventory.

For this reason, you are going to see some sales rep movement; reps are going to look for greener grass.

Producer Shuffle

Producers are going to move to new importers for the U.S. and/or allocate more wine into other markets around the world. They HAVE to look for the right place to keep stable sales.

This is exceedingly complex because coveted producers are often smaller production and they don’t necessarily have to sell to the U.S., but the past ten years are a good argument that they would be risking quite a bit if they choose to not be represented in the thirsty U.S. market.

What does this do for the natural wine tribe? It isn’t good for availability or representation and the pricing increases are going to be a heavy burden. Think about the Loire Valley in particular…

The DI Model Danger

Going direct is another trend of the past decade – it means cutting out an importer (or distributor) tier, controlling pricing, and ultimately making more profit margin. I have written about the responsibility of import and distribution before; it isn’t as easy as it looks. Retailers and Direct-to-Consumer operations have been using email campaign programming to pre-sell, import, then deliver the wine to customers. Now they are going to face the same difficult and existential question the classic importer faces: do we risk it? Do we risk the chance that there will be more tariffs imposed on wine on the water that we have already sold and then have to pay the tariff on it when it arrives?

For now, this model or any variation of this model looks exceedingly dangerous.

Who wins?

Simple answer: Stateside inventory plus cash for buying power (or the possibility of borrowing cash), and consistent payment patterns over the past few years with producers equals a major upper hand. Some might even call it a wealth of inventory – I call it the model that will win every time.

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