The BinWise team recently attended the Oregon Wine Symposium in Portland to rub elbows and talk shop with Oregonian wine producers, distributors and marketers. Over the two days of the symposium we partook in a number of revelatory conversations about wine market dynamics for this small but rapidly expanding market, talked about perceived and real trends in the wine industry, and discussed some of the unique challenges being acutely felt by each of these players.
Prior to the convention we consulted the BinWise Insight data platform to analyze on-premise purchasing and sales data for Oregonian wines to see if we could spot relevant trends to share with Symposium attendees. BinWise Insight aggregates and analyzes billions of dollars of purchases and sales logged on the BinWise platform by thousands of restaurant wine-professionals. Augmented with TTB metrics, our analysis paints a fascinating picture of opportunities and challenges.
Oregon is, of course, best known for its limited production, premium Pinot Noirs produced along the mist-shrouded undulations of Willamette Valley. Sales of Oregonian wine overall have been hot, having seen a strong upward surge over the last two decades: average growth is almost 9.3% year on year (figure a). On the face of it, this elongated hockey-stick growth pattern seems to far outstrip that of the California wine industry, which averages just 2.5% growth per year–but of course context is everything. Oregon’s 3.1 million case total output in 2015 is just a drop compared to California’s massive 257.7 million cases sold.
Small but mighty, Oregon’s wine future seems on a full-steam-ahead upward trajectory, right? A detailed look at data paints a much more nuanced picture.
Part of Oregon’s explosive sales growth (as that of Pinot Noir in general) can be attributed to the 2004 movie Sideways—in the film, the protagonist, Miles, expounds at length on the ethereal beauty of Pinot Noir (while denigrating “f*cking” Merlot as swill (for the record, we personally love Merlot just as much as Pinot Noir)). Despite a limited release, Sideways was a surprise cult hit. Equally surprising, swaths of wine consumers took Miles’ words to heart…and the fate of Pinot Noir and Merlot took divergent paths: Pinot Noir went on to clock a 16% rise in sales the next year, while Merlot sales withered.
Having poised itself in the market as pinot noir specialists, Oregon was uniquely situated to take advantage of an unexpected bump in popularity. Oregonian Pinot Noir fared well in step with the larger pinot market and continues to do so, both in retail and on-premise sales.
Diving into our BinWise Insight data on the New York restaurant market, it becomes clear that while Oregon Pinot Noir’s fortunes are still rosy, other varietals are heading sideways—or in some cases, worse. (figure b) The last 2 years have seen a 34% rise in Oregon Pinot Noir sales (# of cases sold on-premise in NYC), but the same timespan sees sales of Oregon sparkling wines go flat and white wine sales take dramatic losses. As we’ve previously covered on our blog, sparkling wine sales in New York City is downright effervescent (figure c), so the loss of Oregonian marketshare in a decidedly upbeat environment is doubly distressing.
Over the two years of data, Oregonian sparkling’s marketshare has been halved and accounts for less than 0.5% of sparkling wine sales by volume on-premise. The tide on bubbles in New York city may be rising, but Oregon’s boat is certainly not going with it.
Understanding that there’s an issue is only useful if there’s a way to respond to the issue. So is this a product problem (product doesn’t match consumer tastes or needs) or is it a marketing problem (not positioned or messaged correctly or is badly priced)?
Coping with Change—Sparkling Wine as a Case Study
If a generalization can be made of the evolution of wine in Oregon, it’s one of farmers become winemakers, rather than the other way around. This seems a minor distinction, but it manifests in rather clear ways on the land as it does in the marketplace.
On a journey up Silverado Trail, one is struck that Napa truly is wine-country writ large, with vineyards planted cheek-by-jowl across virtually every accessibly arable plot of land from ridge to ridge. Perhaps reflecting the businessman-cum-winemaker nature of Napa Winery owners, it seems as if every square foot where a vine might direct its face to the sun is optimized, tilled and trellised. Each acre in Napa carries (an enormous) price-tag, and maximizing return is a critical element in the venerable tradition of turning a large fortune into a small one.
By comparison, ambling along the mist-shrouded bucolic side-ways near Dundee, one is struck by the very opposite—vineyards are fragmented plots along verdant hillsides still given over to thickets of trees and pasture-land. Rather than leverage all available acreage by putting it to vine, wineries leave swaths of acreage untouched or leave them to other crops. While there are notable exceptions (accelerated by recent mergers & acquisitions), production volumes of wineries tend to be small. To an extent, there’s a sense in Oregon that wine is the by-product of farming, the very reverse of the sentiment one gets in Napa.
The fragmentation of the Oregon wine industry presents a central challenge in reversing recent losses in marketshare. The wine industry is inherently un-nimble—product cycles minimally take a year (and longer for wines that need time in barrel) —making shifting with trends a challenge beyond the usual risks of chasing the latest latitude of consumer hem-lines. For example, those producers who came late to the un-oaked new world Chardonnay mini-party (brief, and sparsely attended as it was) will have surely regretted attending: the trend dissipated as quickly as it began, and fragile inventory sat unsold on shelves and in warehouses. Given then that the timeline from vine to consumer glass for sparkling wine can take several years, it’s understandable then that there’s a trepidation at jumping on the boat, regardless of how quickly the tide may be rising.
Furthermore, while in other industries one associates small players with nimbleness and the ability to outmaneuver larger companies, the lack of necessary capital to make the strategic changes necessary to succeed in the market can hamstring the efforts of smaller wineries to pivot production and marketing efforts. To return to the case of sparkling wine, amongst Oregon growers for example, sparkling wines are viewed as something of being an expensive lark, a pet-project rather than a serious pursuit. Properly made sparkling wines take significant time and effort to produce, resources out of reach for many smaller producers. While a sparkling wine can theoretically command a higher, premium price-point, ultimately justifying their production, the up-front investment to produce sparkling wine in marketable volumes can be a challenge on the small winery budget.
Lastly, adding to the inherent challenges and risks of chasing the sparkling wine renaissance, while Oregon retains significant brand caché for its Pinot Noir production, that reputational umbrella doesn’t necessarily extend to cover its sparkling wine production. As one sommelier we spoke with noted:
The Old World offers both quality and value bubbles, and for familiarity, Californian fills that need nicely. Oregon is a hand-sell, and not an easy one because no-one really thinks of it, like an answer in search of a question.”
This then speaks to a larger branding issue of Oregon bubbles in the market, a battle which any single producer would be hard-pressed to pitch. The Oregon wine industry as a whole would need to band together and make a concerted effort to radically shift marketing efforts to bring Oregon sparkling wine to the forefront of consumer’s minds and wallets.
Winning On-Premise: Building on Strengths
If not in the realm of sparkling, where then are the opportunities for Oregon to increase in-roads in the on-premise world?
A deep dive into price and cost data from BinWise Insight highlights a unique opportunity for Oregon to capitalize on its reputation for producing high-quality Pinot Noir. In comparing average on-premise sales price data for California and Oregon Pinot Noirs (both by the glass as well as by the bottle) the Oregonian counterparts sold for 8.6% less on average. Because of the small margin in comparative price sold, it’s apparent that the consumer sees both Pinots as being of the same general quality (same brand stature)—that said, the Oregon Pinots are capturing nearly 9% less than they potentially could within that price category. With small marketing tweaks there’s clear opportunity for Oregon to strengthen their reputation for premium and super-premium pinot while closing the pricing gap and capture significantly greater revenue with minimal effort
While retail and direct-to-consumer represent a major slice of sales, on-premise wine trends can exert an out-sized influence and be the canary in the coal mine. Sommeliers decisions in shaping their wine programs aren’t just reflections of wine industry trends, but can play a major role in shaping consumer purchase patters—Rosé’s meteoric rise over the last few years was driven in no small part by sommeliers championing year-round pink on their wine-lists. (see our article on the Rise of Pink)
BinWise has unparalleled insight into purchasing and sales trends forming at the nation’s most prominent wine-programs, and our analytics tool, Insight, offers a deep look at data aggregated from a multitude of sources. We’ll be posting more fascinating data on our blog as we examine different facets of the wine industry in future posts.
applying science to the art of wine