Posted: Feb 04, 2019
The 2019 Wine & Spirits Daily Summit Offered a Breadth of Perspectives
We attended the Wine & Spirits Daily Summit conference in San Diego, where we heard from sector experts from the wine and spirits industry, including Diageo and various distributors, as well as representatives from Nielsen, BDS Analytics and packaging and logistics companies, among other industry players. Herein, we provide some of our takeaways from the conference.
Cannabis Is Disrupting the Wine Industry, Too - Today, much of the conversation about the potential influence of cannabis on the beverage alcohol sector centers around the impact of cannabis consumption on the beer industry (owing in part to lifestyle trends). However, we heard from the speakers about the growing movement for cannabis-infused, alcohol-removed wine. Indeed, we were told about the possibility of adding cannabis as another luxury product associated with the Napa region. Regardless of whether or not Napa ultimately becomes a luxury cannabis destination, many of the industry players seemed to agree that while aspects of cannabis consumption may go head-to-head with wine, other cannabis-based occasions and need states exist outside of wine (and represent a market opportunity). Per BDS Analytics, the two biggest issues cited as hurdles to cannabis consumption are that consumers do not like how cannabis makes them feel and that they do not see it fitting into their lifestyle. Consequently, companies are responding to these issues by attempting to reduce the cannabis onset time to ~15 minutes and by establishing brands that consumers trust and with which they have a good experience (e.g., brands versus generic offerings). As such, consumer education is critical, as we heard that while first-time alcohol users may consume again post a hangover, when first-time cannabis users have a bad initial experience, they are not as willing to reengage with the product.
Consumers See a Place for Branded Cannabis in Their Lives - According to BDS Analytics, legal cannabis is growing at a 27% CAGR in North America, from $9 bn in 2017 to $29 bn in 2022. Moreover, ~80% of U.S. and Canadian adults agree that some form of legal cannabis use should exist (with 64% in the U.S. and 57% in Canada agreeing that cannabis has medical benefits). Additionally, 25% of adults aged 21+ in legal medical and/or adult use states have consumed cannabis within the past six months, with ~38% as acceptors (they would consider using in the future) and ~37% as rejecters (they would not consider using in the future). In fully legal states (with both medical and adult use), 32% of adults aged 21+ have consumed cannabis in the past six months. However, comparing medical use to adult use channels and occasions is not that simple, as consumption is often multi-faceted.
That said, regardless of the occasion, in Colorado (which is somewhat of a proxy for any state with full legalization), consumers have increasingly favored branded products. Specifically, in 2014, 81% of cannabis products were generic and 19% were branded, as compared to 56% generic and 44% branded in 2018. For edibles in particular in Colorado, 96% are branded. We also heard how market share is shifting away from flower, though the speakers cautioned that it is not that flower is not growing, but rather that other segments are becoming a bigger part of the mix (such as concentrates and edibles).
Cans Are Not Just for Beer; Consumers Are Prioritizing Convenience in Wine Consumption - Within the wine industry, while alternative packaging to the traditional corked glass bottle has existed for some time (i.e., the screw cap), canned offerings have become increasingly popular. We were told about the importance of having 187 mL, 250 mL and 375 mL can size offerings in a portfolio to meet the "single serve" and convenience need states. However, the industry players agreed that there is a critical need for consumer education, as while a 375 mL can is roughly the size of a half-bottle of wine (a bottle of wine is typically 750 mL), a can of soda is only 355 mL in the U.S. (such that there can be a perception of not getting "enough" in the canned wine serving). Further, it is important to make consumers aware of the pricing scale in the canned wine category (i.e., canned wine is often sold in a four-pack, with the mL volume priced relative to the bottle equivalent, such that the pack is sold for perhaps $24). For consumers, it can be confusing to compare a $10-$15 bottle of wine, to a $24 four-pack of canned wine, to a much less expensive $5 12-pack of soda. That said, just as there was a lot of learning that took place with screw caps, the speakers seemed confident that consumers will eventually adapt and accept canned wine (especially as more big name brands begin to offer this option). That said, wine manufacturers themselves have a lot of questions around shelf stability for canned wine, and the manufacturing process for each brand requires a great deal of testing. Ultimately, canned wine is another packaging innovation to add to the retail offering, where we heard that retailers that have either a more premium offering or a value offering are performing better (with a lot of compression in the middle). Specifically, there is some degree of tension between online and in-store grocery retailers given the fundamental differences in shopping behavior, as wine purchases are often made on impulse after viewing the available selection. As such, we heard a bit about how online grocers can better curate their digital shelves and brick-and-mortar grocers could drive increased consumer engagement through targeted food and wine pairing.
Brand Relevancy Matters, and It Requires Investment Spending - According to Diageo's Dan Sanborn, Senior Vice President, Culture and Partnerships, being relevant is more important than it has ever been before (in part owing to the sheer magnitude of information available at any given time), although it is increasingly difficult to get consumers' attention. For example, 72% of consumers use free streaming video sources (e.g., YouTube). In light of this more cluttered and fragmented media environment, this type of technology has made conventional methods of educating consumers about products less impactful. Consequently, Diageo has committed resources to establishing branded entertainment, strategic partnerships, alliances, and technology and emerging media to capture share of mind. For instance, we heard about branded, original content such as the Lagavulin spot, Johnnie Walker's partnership with Game of Thrones to promote White Walker, positioning in movies like Blade Runner, and the use of virtual reality in spots for social causes. All in, Sanborn was clear that significant investment spending, across a variety of channels and demographics, is necessary to drive brand positioning today.
By Wendy Nicholson
February 01, 2019
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