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2025 Direct-to-Consumer Wine Report Videocast

Rob McMillan, EVP and founder, Silicon Valley Bank Wine Division

Rob McMillan: Good morning, wine world. Welcome to another edition of Silicon Valley Bank's reporting sequence. We have a state of the industry report that goes out in the first part of the year. This is the direct-to-consumer report.

It's an interesting time in our industry because of all the changes that are going on. So we'll probably talk about more than just direct-to-consumer. Matter of fact, we will talk about more than direct-to-consumer.

I do have a lot of people though that ask me, you know, what exactly are we going to talk about? And they're very excited to hear us talk. And I have to say, I'm kind of excited to hear us talk too because I never know exactly what we're going to say. It's not scripted out hard, so you know, it's just kind of going to come off as it does.

But before we start, let's go through a couple of things. Did I say I was Rob McMillan? Not that it matters that much, but founder and Executive Vice President of Silicon Valley Bank's Wine Division.

I always like this part. We have attendees from all over the world. We started this business and reporting, not thinking that it was going to be a worldwide thing, but it has become that. We're the greatest consuming country in the world, and so a lot of the other countries are interested in what's happening here. And, you know, the direct-to-consumer piece of it isn't in all the other countries, and so they envy us.

And I have to throw out one more thing. We're actually the envy of the alcohol beverage industry because we do have DTC and it's mandated by law now. We can do it, and I'm grateful for that.

But for this year, we have viewers from Argentina, Australia, Belgium, Brazil, Canada, Chile, France, Germany, Greece, Italy, Israel, Lebanon, Mexico, Moldova, Portugal, South Africa, Spain, Switzerland, the UK and the US and a bunch of other regions. So we have about 2,000 viewers this morning, and we probably have a few more that watch the replay. But thank you guys for tuning in, and thank you to the studio audience. We're grateful that you're here as well.

Let's see. A couple of housekeeping notes. To turn on the closed captioning feature, you have to click on the live transcript button on the bottom. It's below the zoom bar. Please feel free to submit questions using a Q and A function. Now we have probably, I'm going to say a dozen, something like that, of our employees that are in the background. They're going to answer your questions.

We might get into AI, matter of fact almost for sure we will. Take it easy on the AI part because we're all still learning about AI and we have an AI expert here. And so I thought we would probably have Justin talk a little bit more about that.

So with that, let's have our guests introduce themselves. Andrea?

Andrea Myers, Director of DTC Sales & Marketing, Round Pond Estate: Yeah, thanks, Rob. I'm Andrea Myers, Director of DTC and Marketing for Round Pond Estate.

Justin Noland, VP of Digital Experience, Treasury Americas: Hi, everybody. I'm Justin Noland. I'm Vice President of Digital Experience for Treasury in the Americas. Treasury Wine Estates is a global leader in wine, with an admirable luxury portfolio here in the US.

Paul Mabray, COO, Pour Now: Paul Mabray, doctor of digital as Rob calls me, so, doctor, doctor. So, yeah, back again. So glad to be here, Rob. Thanks for having me.

Rob: Glad you're here. Let's see, where to start? So let me start with, I'm going to go straight into it, Slide 22. The industry is actually in a really unique place and a good place.

This is a slide from Sipsource, and you're going to see a few slides probably today that have that kind of pinkish-looking box around them. And a few other analysts have talked about this. Dale Stratton mentioned it. Wine Business Analytics, I think they mentioned it as well. But we're getting near a bottom. And so this is phase two of a of this correction that we're going through, this demand correction.

And so we do like to see that we've gone through this period, phase one, I'll call it, of declines, minus 2, minus 6, but that's accelerating declines, that's tough. And now that we've been here, maybe even into last September, our decline rates stopped, which is a great thing.

And now we're kind of hovering at minus 7 percent, but you know, it still is minus 7 percent. So that's one that we would like to see evolve.

If we could go now to slide 24, please. So this is from Nielsen NIQ. And so this is the May report, and this is 2023, 2024 and 2025. So you can see across the top kind of a matching acceleration, minus 2.7, minus 3.1, minus 4.

And, you know, this is what we're dealing with as an industry. We really have two industries, so you can't really talk about this component without recognizing that this is driven largely by the large suppliers and those that are making a lot of wine.

I think the number is something like 60 percent is under $10, the production. So that's influenced by that. The thing to recognize, though, is if you harken back to that last slide—you don't have to go there Carla—but if you harken back to that last slide, we were looking at minus 7 percent. That was depletion rates. And here we're looking at minus 3 percent. Now why is that good? Well, let's go to slide 23 if we can.

So here is wholesale inventory and sales, and for this, through the end of what—is that March? It must be April. It's not marked there, but I'm pretty sure it's April—we're at a 30-year high in the inventory turnover rate. So our we're not going in the right direction there.

So despite the fact that we have the wholesale side of things kind of slowing up with that minus 7 percent, it's not reducing the inventories at wholesale. This is alcohol, it's not just wine. It's important to acknowledge that.

But the reason to point all this out is that we're still in this correction. As much as I want to say we're at a bottom and it's only up from here, we still have a ways to go. We clearly have to go at least another year before we start to see things begin to improve.

Now all that said, that's a lot about the industry. If we look actually at the premium side of things, we're doing okay.

From our financial database at Silicon Valley Bank, we're able to see that about half of the wineries were profitable, and the industry group as a whole had about a 1 percent sales growth rate last year in 2024 compared to 2023—that's up. So that's nice to see.

And the other thing I think that's super positive is we now are in a place where the industry sees that we have an issue and we have to do something about it. In the survey this year, we asked some open-ended questions about, you know, how are you attacking this 30- to 45-year age group? What are you doing? And we got some really fascinating data analytics. Thank you for their help in sorting through all that.

But we ended up, you know, the big discovery for us was that the people that were the wineries that were in at least 70 percent DTC were actually profitable and then if they were only 40 percent they weren't, and that was you know pretty much across the board.

The other thing is that we discovered that the industry itself when it comes to the fine wine side is doing kind of better as we get through this correction. So what we discovered was that the ones that are doing well—and I thought this was fascinating—the ones that are doing well are actually focusing on external things. They're looking at, you know, how do we improve the tasting room? How do we improve the experience? A number of different things.

Mostly, it kind of looks like they're looking at some of the same things that we've always looked at versus anything in particular new. And the wineries that aren't doing well are the ones that are focused on cost cutting. Now cost cutting isn't a bad thing. We all have to look at cost cutting. You can't do that and expect to grow for very long. It's just kind a one-and-done generally.

You know, managing cost expenses, pardon me, managing expenses is, you know, pretty important. But I thought it was fascinating to discover that the wineries that were looking externally, they were actually growing, growing by like 6 percent. And then the ones that were not, that they were more internal, having 6 percent sales growth not losses, declines. There we go.

So you know, fascinating thing. And so, you know, the learning from that is make sure you're looking externally. It sounds really simple, but you know, the data prove out that we really have to, you know, look at what's happening externally. We have to figure out how to attract that 30- to 45-year-old. And everybody's got their own way of doing it. But, you know, back to what I said in the first place, the premium industry in particular has got direct-to-consumer.

I feel really bad about what we've seen with R and D and challenges that that's going to create probably for the next couple of years anyways as we see account shifting. It may cause some bumps in data from the analysts looking at as well, so we'll have to be careful as we look at that.

But you know we have direct, and that is a way that you each can control your own brand in the premium segment, and I think you know when we're talking about control, that's a pretty good thing.

From that, Andrea, did you have something you wanted to talk about?

Andrea: Yeah, let's maybe jump to slide 8 and talk about visitation.

So I don't think it's a surprise to anyone seeing that visitation is down. It continues to decline. But I think a real positive trend here is the AOV increasing while visitation is still low, and I think that speaks a lot to time is money. The more time you spend with a guest, the better results you're going to have.

Rob: So just for the audience, each of those mountains are a full year of results, and you can see with the green dotted line the trend on that, you know, visitation is dropping, and why do we think it's dropping?

Andrea: I think it's definitely an industry problem and it's, I don't know, I know Paul has some very specific thoughts on it.

Paul: We've talked it about for years, I mean, the diffusion of traffic across all the tasting rooms and the seated experiences just slows the valley down completely. So you know, decades ago you'd go through a tasting and you'd do barely up to four or five wineries in a day, right? And now if you do two, that's a big day. You know, think that that's really tied to it. Also, we forget that also eats wallet share. So if I go to Beringer and I go to Round Pond first, I'm probably gonna spend my money there. The third and fourth winery probably are unlikely to have, you know.

Rob: Justin, you manage a bunch of wineries, right?

Justin: Well, I get to work with a lot of people that manage those experiences.

Rob: So how many groups of visitors do you think you can see a day in those?

Justin: I think every winery has a little bit of difference, right? I mean, at Treasury we have hospitality sites at Beringer that can see a ton of people. Sterling can see hundreds if not thousands of people in a given day versus a place like Stags Leap that only gets to see a few because of both regulations and just size of the property. But I do think there's a shift in visitation as well, to Paul's point, you just don't visit as many places. So the volume, the traffic of people. But there's also just more to do in the valley. There's great restaurants. There's more and more we're seeing people—

Rob: I would say there's more to do in wine country because we a very large audience.

Justin: Absolutely. Absolutely. And just broadly, and not even wine country. It's a reality, is there's more to do everywhere. There's a lot of different experiences that people can have, and they're just being more aware of those cool experiences. Virtually every major city is opening up new experiential museums and other kinds of things that are drawing those kinds of crowds. So your typical tourism in any given place being diluted based off of the broader experiences available to people.

Rob: Did I interrupt the middle of your—

Andrea: No, not at all.

Rob: I think the other thing that's happening, I've talked about it a lot, is the rotation of consumers again. We've been actually going through the change of moving from a standing tasting bar to having seeded tastings and, you know, been narrowing that down for quite some time.

Going over the period of time, maybe up until—let's call it 2019, 2018—we're actually seeing growth, you know, even though we were still pulling that back on the other side. So we've there's more there's more to it than meets the eye probably right up front. I, you know, I thought that maybe coming out of out of Covid, we were actually looking at revenge travel. And I think that was maybe a part of it. But since that decline has continued, and I've had to rethink some of my beliefs.

And then you start to look at data that isn't in the report, but I know from Visit Napa Valley, I think that's the right one, they're showing that the people that are coming out of the Napa Valley are about 6 years younger, and that's all happened in in a 4-year period.

So that's encouraging, and it's back to the whole notion of how do we attract that 30- to 45-year-old. By the way, you found something, a prediction I made?

Paul: Oh, yeah, this is actually kind of good. So I mean, I think we don't talk about the underlying economics of how—

Rob: I always like to hear the ones that I was right on.

Paul: Yeah, I hear that, yeah. So you forget that we talk about the underlying economics that drive the wine industry and the affluence curve that you aptly named, that 35- to 45-year-old people. You predicted that the millennials wouldn't reach their beginning of their earning potential until 2025, which is where we're at. Which normally they would be at their apex of it right now. They'd be starting to really spend significantly. But that whole generational cohort is just beginning, and that's what you predicted a while ago.

Rob: And, you know, I think that's something to remember is that, you know, our biggest consumers have been the boomer generation, but that younger generation is really just starting to come into their own. Thirty-five to 55 is the typical greatest years of consumer spending.

Paul: By the way, not that I'm so emotionally hurt, but you keep leaving out Gen X. We're a growing spend category at a winery right now. Yeah. Usually dragging us all down. You hurt my feelings, man. Yeah. Who? Gen who? Gen what? Exactly. Yeah. These two nice millennials to my left here. You know?

Rob: So we're, you know, I think we're moving in a positive direction back to where I started is that, you know, we're off of that downturn in the premium side, we're doing better as a general statement, the industry as a whole is still sagging and we have, you know, a year or two before we're going to see any change.

And I hate to say it too, is that the grower side is going to be the last to recover, but it's just the chain of things. And so going back to that first slide from Nielsen, that's the one you want to look at. When we end up with that turning and starting to look like this growth, then you're going to have it go back to the wholesale. And so we're going to start cleaning up that distribution side, then it starts to go back to producers and then it goes back to the growers.

This is a time that we have to work through, but we're starting to work through it and we're starting to see some strategies.

Paul: Rob, how much does consumer confidence play into this over the last few years? I mean, we've been up and down from the, you know, the looming potential recession. Do you think that's playing some—

Rob: That's playing some I hear a lot of people talk about consumer confidence. But if I wanna go back 20, 30 years, other people have told me 30 years ago anyways.

Paul: Okay.

Rob: That really when it comes to wine, was recession-resistant. So you know, you get into recessions and typically you find consumer confidence drops. And what we found is, you know, way back when is that you'll have a very short drop in sales in the wine side, but it actually goes up, you know, immediately when people start to catch their self. And we kinda saw that in in Covid a little bit too is that, you know, we were going through a difficult time and people drank.

Paul: But as it pertains to travel and visitation to the valley, that's probably bigger, right? Would you say in that case?

Rob: In the wine country, you mean?

Paul: Yeah. Meaning wine country. The wine valleys. Yeah.

Rob: I think it matters, certainly from the standpoint of tourism. You know, that is a component that I think may impact some sales. Now, recognizing too that when we do have tourists coming in, you know, we used to have them come in from Asia, let's say. And it's hard for those people to join the club. It's hard for those people to ship wine back. So it probably has somewhat of a muted, don't you think?

Andrea: Sure. Yeah.

Rob: Let's see. Where do we—

Paul: There's another positive note. I mean, this year we're up, I mean, we're up in e-commerce actually from last year. So we're up 10 percent, we're 2 percent, which is minimal gain, but it's starting to mean that we're getting back into the investment then. I think that Justin can speak to this. Tell us more about what you think about e-commerce.

Justin: Yeah. Well, I mean, if you kind of start with where we were even just last year from a direct-to-consumer perspective—actually, take me to slide 7, if you don't mind—

Paul: No worries.

Justin: If we go into last year from an e-commerce or from a direct-to-consumer perspective, the average change in the volumes of those cases sold, we had actually fallen into negative territory. The year before that was essentially flat, so we're talking, you know, we had had two years of zero growth or negative growth.

So this is where you kinda start looking at, what are we gonna do differently? Where can we find opportunities to grow? Where can we find opportunities to change? And I think this is actually a relatively good news slide, certainly from a direct-to-consumer standpoint, in that in 2024 we grew in cases sold, we grew in dollar sales and we were slightly above on the pricing, right? So we're essentially flat on pricing, we didn't have to rely on discounting to get us where we needed to be.

So I think that's really good news. I mean, certainly not to the growth levels we were several years ago, but being able to sort of reverse that kind of slight downturn trend and do it quickly to get us back to where we need to be. And then getting back to your point, that's where I look at 2023 and we're seeing, you know, this sort of negative in cases sold and a real, real low on our DTC dollar sales.

I think a lot of wineries started looking for areas for growth. And again, with visitation being down, the likelihood of your club memberships, you're not going to acquire as many club members with visitation dropping. This is just an area that continues to be ripe for growth.

We saw in in 2020 and 2021. In 2020, obviously with Covid, things shut down, you know, most wineries put a lot more resources into e-commerce sales because it was their only option. And while the percentage on e-commerce went down in 2021, the actual total dollar volumes went up.

But as we kinda years and years go by, right, we slide back into our old patterns of we know hospitality really well, we know the club models really well, and we kind of stopped focusing on the e-commerce side of things. And I think we're starting to see that focus get back because we are all looking for areas for growth.

Paul: Yeah, well it's a catalyst year for sure after Commerce7 bought Wine Direct, which makes everyone reanalyze their what the future looks like. And either they're moving from the old Wine Direct, which was a tired old platform to the Commerce7, which I think they'll see some growth in that, or they're just reanalyzing their e-commerce business in general. It's fascinating to know.

Justin: Yeah. I think forced technology change is a good thing sometimes, right? Even if it's just requires you to take a look at it to not necessarily even to reinvest in it or put more resources, but you actually have to pay attention to it.

Well, look, that old system's atrophying at a terrible, terrible rate, so it was nice to see that. And I think it's gonna be a good boon for the industry and the unlocking of the R and D that's associated with that.

Also, brought in, you know, we're looking at new players now to some degree, so competition is always good for the industry in certain ways. But I think that's a shift. I think we'll see a growth from that next year because of all the changes. People are looking at their systems too.

Rob: You're talking about the e-commerce specifically.

Paul: Yeah. Well, I mean, that's incident that drives the growth for e-commerce. And if it's if you have a horse that can't run, you don't get in the race, really. And now if you have a better platform. But I also think you're gonna see a pretty bad fallout, and this is my opinion. I'm a big believer in Shopify, so is Sure. Justin actually treasuries on Shopify.

But it takes a big team oftentimes to put it together, and Shopify is not gonna be judged on Shopify, it's gonna be judged on whatever app you use to plug it in for your wine club. There's some good apps like Atomic, good vendors like Bloom, but it's hard to make the choice. You need a big team and smart people to do it.

Justin: Yeah. I would say, you know, as we get better tool sets, whether that's a Commerce7 tool set or a smart wine industry-style plug-in for something like a Shopify, the idea is can we enable people to do more, to have better outreach to their consumers to email them maybe a little more often or reach out to them with SMS and really tell their stories.

Paul: With integrated SMS tools together.

Justin: Well, now we're talking crazy stuff. No, I mean, this is the good things, right? It's really about how do we how do we rethink the all of those tool sets in general and make them more intuitive, make them faster, better, stronger for people who are not necessarily, you know, ultra tech-friendly to do it?

Paul: It's true. It's very hard. I volunteered Sundays on a winery just to help out through the digital transformation and helping guide through the tool sets and finding the right answers is very, very challenging. I don't know how small winery does. I don't know how you make those decisions.

Andrea: We're talking to smart people like you.

Paul: So, yeah. No, it's a hard job. There's no playbook.

Rob: So let's pull up Slide 13, Carla, please, if we might. Thank you. So this is another one of those spots where you can kind of see things leveling off, which is not a bad thing I believe. So standard tasting fees are, you know, kind of in a narrow range over 3 years, reserve tasting fees again in that narrow range.

Now, the reality is with visitation lower, there's going to be more pressure to discount. And so the question that I would wonder anyways without this data right here is, you know, how long can we keep raising prices in what is likely to become a more of a discounting environment. That's the salve, if you will, for oversupply is always discounting.

Now there's a way to discount and a way to not discount. You don't take your top-end SKU and say, okay, it was 100 or let's just say it's 50 and we're going to sell it for 25, and that's not the right way to do it. You narrow that down, you try to keep your top-line pricing, you roll that excess inventory down to the next level and you improve the value and then you market like hell really.

Paul: Can I ask a counterpoint to that, though? I mean, I hear that discount is a probability, but instead of discounting so that we're trying to steal from the same pie, why aren't we marketing and getting a bigger pie? Why aren't we trying to find ways to attract customers in different ways, right? I think that would be a better way. I would like to see that thinking for us because—

Rob: Well, as an industry, many may be aware that in two thousand I think it was 2021 when we announced a USDA marketing order. We had it mostly ready to go. We had raised a couple million dollars. And, you know, the industry itself was what kind of pushed back on it because they didn't want to pay the taxes effectively that you have to get to that. So getting to that next step of how do we all, you know, pull together and actually market, you know, can we do that? I don't know that we can do that, but we're gonna have to find some other ways to—

Paul: I'm not asking that. I'm thinking that there's dollars to be spent in a digital way to attract customers to come to our winery. That those dollars are better spent than us discounting our tasting experience, right? Trying to find from that pool, you know?

Andrea: Actually, that's something we didn't talk about last night that I meant to ask you, Justin, is what are your thoughts on paid media and driving visitation right now?

Justin: I mean, I think it's gonna be different for everybody. And this kind of even goes back to, you know, we have kind of flattened out these tasting fees and there's this question of, you know, is visitation down because price is too high? And I think the answer is going to be different for every single winery. There's certainly wineries that are delivering a value experience even at high-level pricing. And there's wineries that probably aren't delivering a value experience at that high level of pricing.

Rob: Agreed.

Justin: So I think it's going to be different for everybody, and I think it also depends on what that brand home experience needs to be. What is the brand story being told at that home?

When somebody goes there, that may very well be the first impact that the brand can have on a person is that experience on a property. And again, it's less of a price question and more of a value question. I think, you know, it's certainly for younger audiences as we are looking at experiential options out there, have no problem spending a ton of money on the things that we know we are going to value. You know, if it's a concert or something else that we've just been wanting to go to. So it's just ensuring that we're meeting that experience expectation.

As it relates to the digital media side of it though, digital media is—so again, we in this past year we have finally gotten to a point where search, so your standard traditional Google searches, Bing searches, et cetera—has taken over the number one spot in the way people discover brands, products and experiences away from friends and family recommendations.

So if you're thinking about it, a search strategy, whether it's paid or not, but probably at least somewhat paid, should be the very first area that you're thinking about when it comes to marketing because that is the number one way people find you. So thinking search strategy as a top level, not necessary—I mean, there's all sorts of different digital media that you could talk about, but the simplest stuff of bidding on keywords is probably going to be effective for you.

Rob: Let's go to slide 9 for a second. It's a jog off of the tasting fees. Tasting fees, you know, largely flat. So slide 9, I'm sorry. I got to page nine. I have my page numbers and my slide numbers mixed up. Slide 18. I'm sorry, Carl. That's my fault.

So we did ask one question, and this is just something that I had talked about maybe the last two videocasts is, you know, is it is it the, the cost of tastings? And, you know, on top line, it would I think it would seem that way. And Justin, I think you nailed it on the head. It really is about value. Are you hitting the right consumers with the right things?

And, you know, we've heard over time and as we've looked at the data from the survey, you know, many people changing up their approaches to how they're doing some of the events, kind of a moving from, let's call it educational, you know, where we're talking about the long days, cool nights, you know, the soils and, you know, the bricks and all that kind of stuff that my generation probably enjoyed. And, you know, the change up is as we looked through the success guide that we created, I don't think I mentioned that, but we did create a success guide with a bunch of details that's going out just to the respondents this year. So we're giving you kind of top-level stuff here.

But, know, that's that is one of the things that we notice is that the those that are doing better, not only are they focusing externally but they're starting to evolve their programs a little bit. We asked this one question, if your winery lowered tasting fees, has it improved visitation? And so I would call this promising and undefined.

To the extent we've been talking about lowering tasting fees, it's been a very short time so I don't know that we have enough time to really, you know, wait this. But, you know, effectively we have a third, a third, a third where visitation improved. We're 36 percent, closer to 40. Inconclusive 32 percent, no improvement 30 percent, visitation stabilized 3 percent. So, know, there you get an idea of where things are now.

You know, I see, I appreciate your guys chipping in, Andrea. You probably have some ideas. But, you know, what are some of the things that we're doing now to try to enhance and or pardon me, try to bring in more of the younger consumers? What kind of things besides discounting, or discounting? I mean, we can talk about that, discounting tasting fees. I mean, what are you seeing right now?

Andrea: Well, think it starts, to speak to Justin's point, digitally. The younger consumer is finding everything digitally, and so you've gotta be there and be relevant. But in terms of what are you doing in the tasting room, I think it's about really rethinking the look and feel of maybe a particular space in your tasting room that is, you know, shareable on social media and more attractive to a younger consumer.

Maybe it's something with music, letting them play their own music, or you know, of course it's gotta be brand-appropriate, but I think there's a lot of things you can do to modify, and fun is a big part of it.

I've seen wineries that have Polaroids, for example, at the tasting, playing cards on the table, things like that, which are, you know, if it's brand-relevant, I think that those are great ideas.

Rob: Yeah, and fun ended up being one of the things that just kept popping out in the open-ended questions, what are you doing? And this kind of this conversion to fun seemed to be a big component of it.

And, you know, another thing that I discovered in doing a bunch of work this year on this is that a younger consumer is probably looking for more diverse things to do. So maybe an older generation would be more loyal to a certain club because that's where they go and you start to get into this routine. You feel part of the home, if you will.

A younger consumer, though, coming out of Covid realizes life is short and is looking for more of a change in things. So what we've seen and some of the some of the data show that the younger consumers are actually less loyal. I don't think that's probably a surprise, but they change out in in the club memberships a lot quicker.

Paul: Can I ask you a question about that?

Rob: Yeah, please.

Paul: Do you really think it's just because it's a younger consumer or maybe we're not delivering the value in the club the same way anymore? We've been doing clubs the same way since 1995. They haven't changed, you know, very much with very few exceptions.

Rob: It's both. I mean, the data, I have it by age group. Yeah, so it does show that part of it. Okay. But, I mean, there's no question that we do need to evolve what we're doing and provide value. As I was getting to Paul is that, you know, this this group, they want to see different things, you know.

If they're gonna go to Europe, they're gonna want to go to Italy, want to go to France, they're gonna want to change up where they don't want to just go somewhere and then go back there because they had such a great time. So that means that's another, you know, thing that we have to figure out as winery owners, as tasting room operators is how do we change it up? How do we, you know, how do we bring these people back once they've been there?

You know, I think some of this is back to data. It's back to, you know, and you see a group of people come in together. Does your CRM or do you even track it? Do you even track when people come in together?

Another piece that came out in this survey was the benefit of horizontal communication. So instead of this top-down thing, it was more the lateral communication that wineries really wanted to focus in. And I can see how that would really work in this kind of a thing, where you had somebody that came in and they came in together, they had a good time. Now how do you bring them back? Because that's the important thing is how do we keep them in the club.

Paul: Let me ask you two guys. How are you redefining club in this new age? Because it you know, what are you doing differently?

Justin: Part of it is in some clubs, you don't want to redefine it.

Paul: Agreed.

Justin: So there are club members that have been with your club for a very long time. They've gotten used to the perks and the various things that they have. So you have to be a little careful with that, ensuring that those people continue to feel special and continue to feel valued while looking for alternative options—even down to, you know, one of the things, again, I get to work with phenomenal people, Liam Garrity at Frank Family is running tests with more subscription-based programs that are less the club member kind of setup and more of, I just want to ensure that it's convenient for you to have the wine that you want in your refrigerator on your shelf at all times.

Paul: Like a replenishment model. Like Hint water or something like that.

Justin: But in in that continuous way. So to some extent, again, it goes back to that value proposition of, am I providing enough value for the cost? Am I providing enough access, enough product that they can't get somewhere else? All of those things that make sense for those people. But it is definitely a tougher environment for club than I think it has been in the past.

Justin: Yeah. Well, I mean, we've been doing the subscription kinda the same way. I mean, we don't really look at the core of the model, right? I mean, I don't know what the next change is, it's got to be brand-specific, but there must be an adjustment that decides. I like the one where you're doing a replenishment model, there, you know, Marley Spoon is like a food in a box kind of like a Blue Apron thing. What else could we be doing to really make that? I'm not saying that level of complexity, but you know.

Andrea: Yeah, but partnerships, I mean, are a great point. Maybe if we can pull up slide 25, looking at retention versus acquisition. You know, retention costs much less than acquisition. And so I think a real focus on retention, outside of kind of adapting and changing things, is key right now. We spend a good amount of money, I would assume, at least we do, on acquisition. You're paying a new, your employee to get the club. You're paying whatever acquisition cost you had just to get the guest in. And so what if we just took that money and we used it on retention and put our focus there? If visitation is not, you know, increasing, it's making it harder to acquire new members. Let's focus on the ones we do have and keep them because if that percentage went down, it would be significant.

Paul: By the way, one of the number one questions that we got from the audience was how do we do a better job with club acquisition and retention? So like what kind of methodologies are we doing? That's there's a theme about 20 different questions that flow into those two. I'm gonna let the operators answer that. What do you think, Andrea? What should we do better?

Andrea: In terms of acquisition, I think about the existing database that you have. You have you have know, cancel members alumni that are very interested in coming back. And think about your cancel reason. So for example, someone that canceled for, because they were pregnant, a year later they're no longer pregnant. So let's reach out to them and ask if they're ready to rejoin at that time. Moving, the same thing.

And then I think also looking at nonshipment members, so and converting them to members. So guests that are just very loyal and want to purchase, but they do not like automatic shipments.

Paul: But why how would you do that? What would be the thing that we'd offer to them to advantage them over?

Andrea: I personally would just put them in a club.

Paul: Okay.

Andrea: And, you know, qualified once they get to a certain without automatic shipments and give them the benefits with their own terms of purchase, but of course once they get to a certain level.

Paul: Okay. How about you, Justin? Any thoughts about the acquisition?

Justin: So I think it's a tough conversation because virtually all club models will get to a point where they get to this plateau spot, right, where they've got customers that have been in the club for a long period a long enough period of time that they're hitting their average club lifespan.

Rob: And let's pull up slide 26 on that, if we can.

Justin: And you can impact those things, right? You can impact them, you know, in a percent or two one way, and though that is meaningful, but to assume that you can kind of go year in and year out with 10 percent, 12 percent, 15 percent increase in club never get to a point where you hit that plateau.

Paul: Yeah yeah yeah.

Justin: Just the math does the math on that, right? Like it doesn't work. So to your point, I think I think there is a huge value add in driving retention.

I think there's a—and this is you mentioned using things like a CRM—I mean, frankly, it's any element of your customer database, whether it's part of a CRM or not, to better understand who those individual customers are and say, how can I treat this particular person better in a unique way? Even if it's just, can I give him a phone call on his birthday? Can I do something different?

So it's like how do we create that individual specialness and that feeling of being cared for so that as they're making their decisions of which wine club to cancel because most people have more than one, you're just not that one. And if you can make it another 3 months and start building that average lifetime, you start seeing a difference. But again, just know that there are plateau points for virtually every club.

Rob: And I think one of the things, again, I mentioned this several times, is that it's a risk when we're getting all of our acquisition through the club—just pardon me, just through the tasting room—and, obviously, we saw that firsthand in Covid. When you shut the tasting room, what that does, interestingly, it drove a lot of the acquisition too. E-commerce.

Paul: No. No. Most of the club mostly e-commerce comes from people that come to the winery to be a boss with the club members. I think it's interesting that when you're talking about that data mining is fundamental, right? And the tools have been not very easy to get there. I'm, you know, I was bragging you about signals, this new tool that came out last week that's like 50 bucks a month, that's cost-effective.

They're using AI, which I think you're gonna talk about in a second here. But like to deliver up those kind of like, hey, this customer you haven't talked to in 6 months, this customer's birthday, or they bought wine a lot of times but not this time.

I'm a big fan of what they're doing for cheap. But like, that'll let you do this stuff, right, that you're talking about, Justin, really fast and easy at your fingertips.

Justin: And it keeps going back to those tool sets, right? If you can enable the right digital tool sets so that you can get out of the digital world and have better experiences in person, whether it's again on the phone, in person, whatever it is. That's what tends to drive club value.

Paul: By the way, that's the fun moment when I was doing that volunteering on the weekends. One of the biggest frustration points is these tools were not taking away workloads, they were adding workloads to these poor winery operators.

That's why I like to see more integrations, more tools working together and more tools being more cost-effective, to be honest with you, because some of these tools are extraordinarily expensive for the value they're providing.

Andrea: Speaking of digital tools for acquisition, I think one of the easiest things you can do is, last year or the year before, I believe it was Commerce7 that came out with a report that said the average consumer joins a wine club after their fourth purchase.

So what if you just sent an automated email after that was triggered after they made a fourth purchase and asked them to join the wine club. It's running in the background, you know, it's a little bit of work up front, but could be just converting.

Paul: Yeah. It's pretty easy and a customer joined too with like a Clavio or something like that for sure.

Rob: Let's go to slide 28 for a second. This is the one that we talked about a little bit last night. You know, it's back to the discounting. You know, do we discount our top line? Do we discount our, you know, how do we get mind share? And prices isn't all of it. You know, I don't remember how many fees are in marketing, price, you know, promotion, place.

Paul: All the things. Place. Yeah. All the Ps.

Rob: Yeah. I mean, there's a bunch of them. I have a better chance at remembering the seven dwarfs than I had to do the five Ps. Yeah, so price is just one component of it. But, you know, we ask this is a little bit of a hangover. I don't know that we'll ask this question next year, but, you know, we asked this about, you know, the Covid period. What are you doing? Because we saw in 2020 people discounting or waiving, you know, shipping.

And, you know, if you look at this, what you're seeing on the left side is the incidents of discount in shipping for the club is going up. Discount shipping for the club is going up. And then free or discount on additional orders, that's going down.

So you know, we're starting to see a little bit more, let's call it stabilization or, you know, feet in the ground, stubbornness. What are some of the other things that you can do, though, if you're going to just play with price? And again, that's not all of it, but if you're just going to play with price, what besides shipping can you play with?

Paul: Yeah, no, we were talking to the wine shipping guys and among ourselves here, like summer months are dead for us, right, because of the heat and how do we use better marketing around cold shipping than anything else? And Justin's program is really great. I mean, you go to Beringer and it's just one price for shipping and they get it there with a cold box and it's great.

Justin: Yeah. Well, know, again our operations team does an amazing job where they will look at what states are going where, what do the temperatures look like, what's necessary in what regions and to some extent, working through and certainly partnering with wine shipping to say what should we be doing, when should we be holding, what should the next thing be, and that team does an incredible job certainly through those summer months to try and get the product to the customers in the best way.

Paul: I think without going overnight through FedEx

Justin: I mean, try not to, right? I mean, shipping is a high expense. I think all wineries know that, right? And, you know, to some extent it's also as people think about e-commerce and they think about how, you know, the vast majority of their purchases do have free shipping or essentially subsidized shipping, so there's certainly an expectation that that's gonna be happening here too.

Andrea: Yeah, and one point on that I think is important to consider is if you are holding shipments for weather during the summer, what you're doing is shipping it all in the fall and stocking them up right before the holidays. And so they don't need to purchase more. And so, the more you can ship now, get them to drink now, then they're gonna reorder.

Paul: Right, right. You're not pantry stuffing them in the fall, you can actually get your O and D sales Yeah. Appropriately.

Andrea: Yeah. That's right. But to your point, Rob, of what else can you do besides price and shipping, think about will call members. I'm sure most wineries have a pretty substantial database of those that live locally. And what are you doing for them during shipment time to increase, to get them to add on bottles?

Is it a value add? Is it an additional savings? What is it? We often talk about shipping, we don't very much talk about what we do for our will call members, which are very loyal and are often some of the best ambassadors of the winery.

Rob: Maybe you can give them a chicken sandwich when they show up. But, you know, that's a great point. I mean, and I haven't really seen the research so I don't want to comment on that, but I've got to believe that for most wineries, there's a local circle of people in a club because and over time, we've had a lot of the clubs develop over, you know, the kind of benefits that you can, you know, only have locally. So I don't know if a chicken sandwich is the right way to go.

But, you know, when they come, you know, what are you going to do for them? And maybe some of that is about, you know, a little bit about what some of the folks were talking about, about enhancing, you know, the experiences. You know, I'll go back to something I've said for a while now and I am starting to see this take place now is taking the experience on the road. And by that I don't mean that we're going to we're going to get in a plane and go to a country club. That's not what I mean. What I talk about is, well, let me back up one step. I've said for a long time I'd really worry about the wine industry except we haven't marketed to the other 49 states. And it's tongue in cheek of course.

But, you know, if I have a winery right now, the thing I'm looking at isn't so much just in you know, this focus on just that tasting room, just everybody come here. That shouldn't be what what's happening, we have to kind of broaden that horizon. And I don't think, I've never been impressed when somebody's got 10,000 cases and say they distribute in 50 states.

You're not building a brand that way. The way you do build brands is you go to a certain area, it could be where your tasting room is and I think if you reflect on what you've done to build your brand in the tasting room, that same thing can be done in a different region. So you figure out where that region is that you enjoy going maybe as an owner, and you figure out, you know, who you might be able to hire. Maybe there's a concierge at the Hilton that's looking for, you know, a gig, what do you call them, side gigs?

Paul: Side hustle.

Rob: Side hustle. Side hustle. Thank you. Just trying to keep up with the lingo. So, that's even a little dated at this point. But, you know, you can effectively create a branding experience where you know this representative of your winery is in there a little bit more often.

You can pay them on a commission so it's not going to be, you know, quite as expensive. You're not going to do you know, a bunch of salaries. And, you know, they get to be part of the community as well. And maybe they're, you know, you'd actually like to go get somebody that is positively thought of in the community and, you know, has a place.

And if you can get that person, you know, you might start to see sales go up in the restaurants and you would like to see that person go to the restaurants, you know, you have this.

Paul: Well, why don't we just do some basic fundamental myth busting which is, you know, you're right. There's 49 other states and there's this crazy tool called the internet that you can touch all 49 of them pretty easy or even the other half of the state.

I think we think that members can only join a club if they come to the winery. I think Justin, you have a pretty good stat about how much you grow wine clubs just for digital acquisition.

Justin: Yeah. Well, especially, I mean, our wine club team has done a really amazing job. And thinking about each of the brands separately and thinking about how they can differentiate options.

But for wineries like Stag's Leap where there's not a possibility of that many people coming into the property, there's options and that's where we do put money behind paid media and explaining what the experience looks like, what it feels like to get Stag's Leap wine. And they've done a really great job in acquiring online.

And to your point, just on kind of going on the road a little bit, one example I like to talk about is Dow, one of the newest members of Treasury. If you go down to Paso Robles to Dow Mountain, it is one of the most exceptional wine country experiences you'll ever have. Not everybody's going to go there, Not everybody's going to get to have that experience and the Dow team has done a truly phenomenal job of showing up at places and providing the Dow experience at places.

We just partnered with LIV Golf. And they're literally pulling up these massive beautiful Dow experiences at the golf course and at various events around these tournaments and giving people an example of that sort of Dow life, what Dow represents all over the country.

Rob: So it sounds like it's more than just, you know, Sauvignon Blanc, Sauvignon Blanc.

Justin: Exactly. Well, and that's, you know, to your point of the brand-building, it's not just about the tasting, right? You know, it's phenomenal wine, of course, but it's about how you're making those people feel, how they're excited to be a part of it. What are the kinds of events and things that you're attaching yourself to because that's the feeling you want from your consumers. Where do you show up and how?

Rob: And I think that that gets off into the, you know, one other area is, you know, what kind of events are we attending? What you look at you look at, you know, who we wanna bring in that 30- to 45-year-old, what kind of events are they attending? Are we attending those events? Are we, you know, joining with them? A very bright man, many of you know him, Dale Stratton. Danny Breakers is one of my friends. I just wanted to drop that too.

Paul: The three wisemen.

Rob: The three wiseman, yeah. But, you know, Dale told me probably 20 years ago, he said, you know, we gotta recapture occasions. And he was looking out 20 years ago at the change in demographics and just the diversity that was going to happen. We were gonna move away from, you know, what was my generation and effectively, you know, people that all come from Europe, you know, there's less diversity.

And, you know, what does that look like going out? And, you know, we were talking about this a little last night. I finally figured it out, Dale. You know, that you start to see it when you go to a restaurant and instead of people drinking wine, they're having cocktails. And we lose that experience. Or, you know, what's happening with, you know, Mexican beer and, you know, where does the wine fit in that? I go you know, I live in Napa, go to some of like a quinceanera and it's tequila there, or beer. If I bring a bottle of wine, you know, I drink it.

So you know, recapturing those occasions I think ends up being part of it. So how are we reaching out as an industry to that to that generation? How do we, you know, have them enjoy the events? You know, it could be at our winery or it could be somewhere else.

Justin: Yeah. I think a big part of it is making sure that it's not about you a little bit, that it's not about the wine necessarily, that it's how can we play a part in their occasion. How can we be a part in them being the lead of a situation?

A good example, 19 Crimes, you know, nobody really thinks of Halloween as a wine occasion necessarily. The team at 19 Crimes certainly did. You know, those guys, John Salamando and that brand team was like, look, you know, we can, you know, people go out and party, they go out and have, you know, drinks with friends, they're enjoying themselves, how can we insert ourselves into that occasion and have some fun with it?

So they did, you know, limited-time bottles with Frankenstein and Dracula on them so that it was very much a part of that occasion, so that it was just a piece of something that they were having fun with.

Paul: It followed confectionaries almost to the same idea, where you have like Easter candy and you have Halloween candy and you have Christmas candy, and I think that was a brilliant move on your part to really drive that.

Justin: Super smart team thinking about those things. So that's just, again, as we sort of think through, and especially from a DTC perspective, because you have that communication with your consumers, you know when holidays are coming, you know when various things are coming.

How can you position yourself to be that, you know, whether it's the luxury wine that they're gonna have all the time or they're that aspirational luxury consumer and they're probably only gonna buy it at, you know, at Christmas time or Father's Day.

Paul: Or the one you forget, the gifting is—Silver Oak does an amazing job on gifting drives, and you've got a new one coming out too for your gifting.

Justin: Oh, we're excited about getting some gifting going for that team too.

Paul: Okay. Okay. Well, we'll talk about it. Okay. Sorry. I just did the big reveal for you? But, you know, I think gifting's key. We forget about that. These are all the occasions we have to reclaim that Dale talked about and, you know, Halloween should be our occasion just like it's everybody else's.

Rob: Yeah. Yeah. Yeah. One of the things I wrote in the state of the industry in 2019 was that, you know, probably the greatest risk we face, this is in 2019, is that we stay on rails. We just keep going on that. We keep riding that rail as long as we can. Well, it's making money. It's making money. In 2019, I said we have to look outside of this because things are gonna change.

And I still think we need to create environments in our wineries where it's okay to fail. You know. We were talking last night about, you know, what does it look like now to waive tasting fees. It's just another thought that I had a long time ago was, you know, when you have down periods, you know, maybe you can make programs for a target generation that is less price, that's got the right kind of music. It's just more set up for, you know, a different consumer and get them involved, know, is that a path? I don't know, what do you guys think?

Paul: Well, we saw John Charles be very brave just 2 days ago to do the free tasting that was on Thursdays and Tuesdays—

Rob: I think Thursdays and Sundays.

Paul: You know, whether it works or not is irrelevant. What matters is that he's taking risks out there and testing and trying and learning. And hopefully, one of the things we don't do well enough in the wine industry is the scientific process. Instead of just saying, oh, it didn't work. Iterating on it and continuing to adjust it. And I know him and his team will do that, but it's exciting to see. I don't know if it's gonna work or not, like I said, but that experimentation is what we need more of, trying and testing.

Rob: And I 100 percent agree and I just know, just the way I've embedded the culture actually and I think in my division, is making sure that we can fail.

Fail is how we learn, and rather than saying well that's never gonna work you know, you know, waiving your tasting fees on Thursday, that's never gonna work. How do you know? Just let's try it and let's okay. We failed. It didn't work. Let's switch out. Let's learn from it. Why didn't it work? Oh, okay. Well, let's change it. And, you know, that's how it's the iterative process that we learn. But, if we start with this whole notion of, well, it'll never work, or if you're in an organization that doesn't support learning from failure, then you're just not gonna have the growth that you're looking for.

Paul: There's a great book out by Jason Keith that just came out 2 weeks ago called The Case for Bad Ideas, and it's amazing. It's like a way to do ideation to find a bad idea that turns into good like one of the greatest video games of all time was about a monkey throwing barrels against two plumbers. Right? Mario, you know, and super fascinating stuff there to do, but you're right. How do you open up that creative process?

Rob: You know, as an idea person, one of the things that's drove—driven? Droven? You know what I mean—me crazy over the years is when I come to somebody and I say, hey, I got an idea. And I lay it out and it's, you know, it's original. And it may be good, it may be bad. But, you know, when the other person says, well, who's done that before? And if that's how we define what a good or a bad idea is, we'll never have original thought, you know.

So back to what I was talking about, we've really got to get off the rails. We really have to look and I think we're seeing that, you know, in the data that I saw, the people that answered the open-ended questions, there's more and more people that are starting to say, yeah, you know, here are the things that we're going to do. We're going to include fun more often.

We're not going to give up on the generation that's paying the bills still. You know, we still wanna do. But I gotta tell you, you know, the older generation doesn't mind being included in the dance with the younger people. I shouldn't say it that way. That kind of sounds creepy.

Paul: Did sound a little weird.

Rob: Yeah. But, you know, I'll give you an example. One of one of my clients for years has made sure that a club pickup party was, you know, laden with a bunch of younger people that he was bringing in and letting them be part of the game. He's, you know, kind of helping them get into the thing too.

And there was a lot of older people there, and they enjoy seeing them have fun. You know, maybe they're not dancing like that anymore or maybe they never did. But, you know, they enjoy that. So I don't think you have to say that, you know, it doesn't work the other way. If you if you just have old people in a—and I can say that because I am—and that's your club, and then you're gonna have a hard time getting off of that rail. You're gonna have a hard time figuring, you gotta change something. You have change something to find that new generation.

Andrea: And don't forget to measure it. Because otherwise—

Rob: Amen, sister.

Paul: Yeah, amen.

Justin: Yeah. I think, I mean, outside of spending power and where they find their information, I don't think there's as much of a difference between generations as we all like to pretend that there is.

Paul: Yeah. Yeah. We attribute qualities that we like ourselves. You know, when they talk about the younger generation loving experiences, Rob, you like experiences, don't you? Even as old as you are?

[LAUGHTER]

Rob: Yeah. I mean, maybe not the same ones they like. But, yeah, the human character is, you know, the human condition, I should say, is similar across generations. It changes, you know, in the same way that this generation, you can look at all the social change that has happened in this generation. Same thing happened in the 60s with my generation. So there are occasions and there are times in life, but it does evolve a little bit and we have to get off those rails the way we think about things.

Let's go to slide 29 for just a second, and we haven't really talked about regions much, this is the average length of club member tenure by region and so, you know, congratulations Washington and Napa. You know, you have, and I think it's impressive that Napa still showing that kind of growth over a period of time by the way, and other California is, Santa Barbara still is. So there those are regions that I believe are working really hard in the marketing side and they're having success—I'm not saying the other ones aren't—but, you know, 43 months is, that's good. There's something that's something that's going right. And I know for a lot of people it's, you know, there's this love-hate with Napa, you know, it's like, we're just like Napa except. But Napa's, you know, got a track record of developing hospitality and other ways of attracting consumers over time. You know, a lot of us should look at what they do and kind of repeat some of that stuff, speaking as a Napa person yourself, I guess.

And let's go to slide 30, if I can next. So lifetime value of a club member. And it's back to one of these pink boxes again. So, you know, it's a flattening period. There's only, you know, so far you can go with this. You know, trees don't grow to the sky as I like to say. It's a bad way to say it, but roots don't grow to the center of the earth. There's got to be a better thing than that. If trees grow to the sky, that's the opposite, but it's that never has really worked very well.

But, you know, you can see things are flattening out. Lifetime value of a member that has to do with, you know, length of time in a club, how much people are buying. But you know, 2,600, if that's the lifetime value of your member still, that allows you to bring in a lot of marketing into that into that thing.

Paul: Yeah. What percentage of that is your retention budget, right? That's the fundamental question. What's how much of that $2,600 are you doing to both retention and acquisition? That's the math equation that we need to kind of look through the lens, right, on that piece.

Rob: Let's go back and bring up the AI thing. You know, I didn't want to bring it up right away because we would never stop talking about it. Now, I have to confess that I am a neophyte, if that's a word or a good word maybe. But I'm at I'm at the beginner stage. You know, I just got over the point where I've figured out that ChatGPT is not AI. You know, there's more to it than that. I know how to make pictures now for my blog with people that have three legs and four arms, you know. That's kind of where I am. But, you know, there's a lot of other things that you can do that are productive. And so, you know, what are the some of the things that you're looking at, Justin, that are helping be more efficient and direct with your business?

Justin: Yeah. Well, it's definitely been a kind of core piece for Treasury to be rolling out generative AI and getting more and more of our team kind of across all of our businesses not just using it, but learning from it, figuring out new ways to be more efficient, to add in new ideas. We've got a great team out of Australia that's putting together classes and check-ins and various other things that we can do.

But if we start from like the why is it important, right? You know, I mentioned search being the number one way that people discover a new brand. Well, know, gen AI is actually taking market share today from traditional search and is starting to push brands to have to develop stronger content that is meant to work with these generative engines so that you better understand. So you're going to need better brand authority, you're going to need better content.

How do you scale that? If you're a portfolio company, how do you think about it? Do you think about it on a brand-by-brand basis, or do you think about it as a how do we scale content that lifts everybody?

But kind of getting back, it's like, okay, so if this is our end goals—where we are going to need to know this stuff—we should start by learning the basics and learning how do we use AI tools, and there's hundreds of AI tools out there. ChatGPT is a phenomenal one.

My partner in crime and probably the best digital mind in wine, Shem Swerkes, is a huge ChatGPT guy. Sure. You know, I kind of take it a different route and I use Google's Gemini, and as company we're using Microsoft Copilot, right? And all of these tools are there's similarities and various differences.

So again, if you're looking to just get started, and Paul has a great take on this which is kind of different than mine but I think it's actually like if you do both of them, you're going to kill it in getting started with things like AI. I say just pick one of the major tools, start with that, it doesn't matter, I'm not trying to sway you as to which one, but you know, ChatGPT, Gemini, you know, any of these things.

Rob: What's the other one, Pilot something?

Justin: Yeah. Copilot for Microsoft, uses ChatGPT, it's just different.

Rob: Is that an agent? That's called an agent?

Justin: Not exactly.

Rob: All right.

Justin: So we can get into agentic AI, which is actually really cool stuff too, but just start by using it for yourself. Start by using it on things like meal planning, vacation planning, you know, if you need to buy a new dryer for your house, if you're thinking about car shopping, you know, start using it to ask those kinds of questions.

Start better understanding how you talk to an AI. How you ask an AI questions or tell an AI to ask you questions so that it better understands what you're looking for. There's a lot of different ways that you can do that don't have anything to do with the business side of you but can give you a better understanding of how that interaction will work, and you can start thinking of all of the different ways that you might be able to use it in your actual wine business.

Rob: Yeah, it's one of the things I'm sure a lot of people have noticed is when you go on, like, social media now, whoever it is pumping, you know, Copilot or whatever it was you just mentioned or, you know, any other AI. They start to say, okay, you know you could have searched for this way ask more questions. I was on just looking through a bunch of Google stuff the other day and just my feed, and there's something about the Battleship Missouri and so probably for the next day, it kept wanting to ask me questions about the Battleship Missouri.

But how do we link that into actually go into the next step in in acquiring people, get people to look at us in the marketing side. How do we do that?

Paul: I think you gotta, I mean, there's a lot of AI that's gonna be through everything, right? Everything has AI under the hood soon enough. I mean, it's gonna be as invisible as it is in front of us, you know, whether it's a tool. And again, we learned how to use Excel, we learned how to use Word, we learned how to use databases.

And to Justin's point, we need to learn how to use this generative AI, and it requires a different kind of thinking and learning. And Justin's got a great approach to it. Like, as you said last night when you ask questions about yourself, you know if it's giving you the right answers of what kind of food you're really gonna like or not.

I like to go from a different angle. I like to say, what's one hard question I wanna help it solve and keep asking until it helps me get towards that solution because it's a hard way to really unlock the power of the AI. But what you're asking for is, it's pervasive. AI is not a singular thing. It's just like code or going to the web or, you know, so for marketing we're gonna be using it and we are using it a ton. You use it for content generation.

Your whole site marketing plan for the wine event was written by AI, coded by AI, image-generated by AI, marketing plan by AI, something else by AI, I'm sure.

[LAUGHTER]

Justin: Yeah, we obviously get to work on some pretty cool projects as innovative as Treasury is. So some of that stuff is just doing it for the sake of doing it. Can we try it? But the other side of it is we have limited resources. Even, you know, as a large company, you're working on a lot of different projects. You have limited time. So can we take, you know, an AI tool to help build out some of these other things for us? Can we use an AI tool to just do some of the stuff that we don't actually like doing?

You know, if you're creating content for a blog that's purely from an SEO perspective that maybe doesn't even go out to consumers, yeah, that's a great job for an AI kind of tool. If you're finishing up a weekly report on something but you've got all of the details and you can plug that in and an AI can give you a fairly comprehensive summary. That's a great way of getting an hour back in your week that then you can focus on those things that you really care about.

AI is also great when you think about wine industry as a whole, right? It's the kinds of things that can help make stuff we're doing today, helping to make our vineyard work safer, our winery work safer. Thinking about all of these other things that you can build out with it.

Paul: This is why I like that Signals app. He's got an AI on the back of it, and it generates lists really quickly to tell you, hey, test this list, test this list, test this list. Looking through all the data. But you don't have time to comb through data a hundred different ways. You know, you're able to get it in a single-serve.

Rob: Yeah. I go back to a long time ago, but this is when PCs—I'm gonna really date myself now—but PCs were just starting to come in. Apple had already, you know, been out there. I started my banking career in in 1981, so this is right around that time.

And IBM caught up with it, you know, that's what they decided, hey, maybe these Apple guys got something. For a long time, IBM didn't want to do PCs. And so, when I started my banking career, Bank of America had bought a bunch of PCs because IBM was their client. And they sat in the back wall and they had this little green thing and went beep, beep, and this little cursor thing. That's all it because there was no software.

But I had this one guy sit at my desk and he said, you know, what's the movie, the movie, The Graduate, you know? I got one word for you: plastics, you know? And, and so, this guy comes up to me and he says, you know, I got, I got one word for you. It's recreational things like, you know, Brunswick and, you know, those kind of we're gonna have so much time with PCs that's gonna do all this computation stuff for you. So we're gonna have all this extra time. You know, we can go out camping, Coleman, you know, bowling, Brunswick.

You know, and that didn't work out, did it? I didn't make that investment. Of course, I didn't have any money at that point either. So you know, AI actually is gonna start to change that a bit, don't you think?

Justin: I certainly think so.

Rob: I mean, it's gonna it's gonna arrange things so you don't have to actually sort through all this stuff.

Justin: Yeah. It's going to empower people to spend more time on the human aspects of their work or the aspects that they are super passionate about. If you really like wine writing, you really like being in front of a consumer and talking about wine and doing those tastings as opposed to the end-of-the-week financial reporting that maybe you loathe that stuff. If you love it, that's what you're there for, but those are the tool sets to Paul's point that are going to be embedded software that's going to allow you to just move through that stuff much faster.

Rob: Andrea, as a small winery, how are you thinking about AI? Do you use it at all?

Andrea: We do. To Paul's point, it is starting to be embedded in in all, pretty much all tools. You know, for example in Photoshop, you can load in an image and it can extend it out so that you've got room to add copy onto it. But also, very simple ways. So I think for content, for example, we took our blog and took blog posts and uploaded it and said optimize this copy for SEO.

So you can start with something you already have and just say optimize it for. Act like this type of thing, this type of person and optimize for. So really simply, just copywriting in general for marketing is huge.

And personally, I upload Excel files all the time and I'll either say, put this formula or create a formula and put it here. This is what I wanna see here versus going to search for what is the proper formula to put in there. Just do it for me and then spit it out, with the formulas in it and summarize it for me and things like that. And so that's huge time-saving.

Rob: I didn't know it did that. Like I said, I'm still learning. And so that's why I was interested in you guys talking more about it. You know, I recognize where I am.

I know that I need to you know, rearrange my own brain and, you know, I gotta go take some classes or something. I go online, there's these guys that's you got the boot camp for 30 days or whatever. You know, I think, well, maybe I can do that, but I'm probably going to get taken on that one. There's gotta be a better way to do it. Where's the starting point, Justin?

Justin: I think the starting point is just logging in and signing up and starting to try stuff.

Rob: Logging in to what?

Justin: Either ChatGPT or Gemini or Copilot. Again, there's lots and lots of tools, depending on what you want to do. I mean—

Rob: And don't be daunted by it? Don't be afraid of it. Just try it. Play with it.

Justin: Go ahead. I was just saying, it's okay to be uncomfortable around new technology, right? That's normal. Everybody gets it. But you can't let that stop you from kind of being innovative and trying new things and learning these new tools that are going to be necessary moving forward. I mean, you know, just the other day, Kalshi, a sports betting app, they ran a commercial during the NBA finals, you know, a really, really high-dollar, high-value marketing opportunity that was created 100 percent via AI.

You know, cost them two grand and have a guy took 2 days on Google's Veo 3.

Rob: And it was Google?

Justin: Veo 3 is their video creation engine. And those are the kinds of things that we're going to need to rethink a little bit how we do creative. Especially as there's a need for more content. And continuous more content and brand authority, and there's a need for this kind of proliferation of content in different ways. And AI stuff is starting to get to a point where you can't see the difference.

Paul: Especially images.

Justin: Especially images. I mean, video is even getting there too.

Rob: I mean, it's not there, but it's getting to with my three-legged pictures that I'm generating.

Justin: Sure. But it's one of those things. So it's just starting to think about how all of these things are going to fit into a long-term strategy, especially with brands that we deeply care about, that we want to ensure are having their stories told in really meaningful ways, and we're having these authentic conversations with consumers.

But how do we utilize these tools in order to allow us to do it on a bigger scale?

Paul: And there's gonna be a lot of, there's gonna be displacement of jobs for sure. But let's use an example that you were asking there for marketing. And I wanna make a really important point, though, which is last year we did an email survey, you did an email survey, and over 50 percent of people emailed less than once a month. And over 25 percent emailed less than a quarter. Emails cost money to make. You have photography, you have imagery, you have all that stuff. AI can expedite that process and make those disposable images, which because an email's digital garbage to be honest with you, spending all that money for something that goes in this digital slough bin. It's hard unless you have a team. Having this to get you out there so you can tell your message at a higher frequency is a great example of a marketing.

But before we get all AI googly-eyed because there's all kinds of stuff there, there are so many fundamentals in the tools that we have today that we are not unlocking for DTC. I can't tell you how many wineries are probably pulling Commerce7 up, which is the Ferrari of e-commerce, and they sell the default email saying thank you for purchasing.

They have the, there's email tools at La Clavia that allow you to build these really amazing customer journeys to help you keep customers buying more or help you keep them retained, and they just use it for an email marketing tool—just big blasts, email blasts. These are not rocket science.

Rob: No. We are typically laggards when it comes to technology in the wine business, and it's got many different reasons behind it.

Paul: My point is we should be focusing on those fundamentals. I love talking about AI. I love it. I'm passionate about it. But the tools themselves are there that we can unlock to get a lot more money.

Justin: Yeah, was just gonna say, if you could do one thing in the digital world for most direct-to-consumer businesses it would be optimizing and personalizing the website experience and the customer journey via email. You can do those three things, you're going to fix an awful lot of your problems.

Paul: Customer journey email meaning like after they visit the winery they get a drip email. It means after they print a purchase, send something to them 3 weeks later saying, hey, how did it taste? These are things we're not touching actually for 90 percent of the wineries we're talking to today.

Rob: So, I'm gonna go to one more slide, and I want you guys to think. I'm gonna give you guys last thoughts, final thoughts. So think about that while we do this. Let's go to Slide 6, if we can.

So once again, here we got one of those boxes, this is a trailing 12 months.

This is wine business analytics, so a ship compliance data. And the orange dots are is or are, anyways, you know what I mean. That's the value trend.

So you know, you can see the value trend was has been going down. It's been going slower than the volume trend, which makes sense because that's the way everything has been going.

But it's starting to flatten out. Now, you could even argue that it's certainly the beginning of this year that it's beginning to trend up just a little bit despite visitation being down. The dollar component of this, the average order value, has been going up.

So you know, again, as I go back to, you know, where are we in this journey through this recalibration cycle? You know, we're through stage one. We're all done with that, I think. Yeah. I mean, I think we are.

And, you know, we're into stage two, which is this flattening period, but it's still not going on the right direction for a lot of the industry, a lot of the big producers especially. So we have a ways to go there, but we are making progress and I think we should all feel pretty good about that. But, Paul, I think let's go with you first on closing thoughts.

Paul: Yeah, no, I think we still have a huge opportunity in the 49 other states or even the other half of this state in a digital touch points and to increase our sales there. And I think that the tools that we have, not only do the vendors have to get better to make it easier for us—that's their responsibility—it's our responsibility to get better using them. And I'll tell you, if we could unlock 20 percent more of the tools that are out there, you'd gain a lot more sales than we actually are realizing today.

Justin: I would go with just remembering that direct-to-consumer and when I think about direct-to-consumer I think about all of it, right? I think about the hospitality experience, the club experiences for sure, but also the website experience, the email experience—all of those things are a huge component of how you position your brand to a broader audience.

Looking at the wine industry as a whole, it's a bit of a bright spot. It's a spot where we're still seeing growth. It's a spot where we're still seeing opportunity. And for people that are investing in that opportunity and making that opportunity even better, those typically were the ones in the data that were seeing the better growth. Looking at that.

So I would just look at that as a, hey, this is a positive note from this year, is if you can look at your direct-to-consumer business and say, where can we invest? Where can we find more growth here? Where can we be thinking about improving our experiences, improving our value, that's an opportunity to win.

Rob: Andrea?

Andrea: I think I'll go kind of a different direction in that, don't forget the importance of relationship-building in direct-to-consumer. The people that you hire play a huge role in that relationship-building. It doesn't matter what you're doing if the people that are doing it aren't genuine, empathetic, caring people. That really makes all the difference with guests and keeping them and their tenure, how much they spend.

And then also, I guess, the other thing is just, to some points earlier, try something new. Once a month, once a week, whatever it might be, just try it and see how it goes and measure it.

Rob: Yeah. And make sure that, you know, the ideation phase, that you practice that, you know. Don't just stop with anybody got an idea? You know, I mean, just brainstorm. You know, it's simple stuff like that.

I think, you know, this survey probably more than any of the other ones, just gave me a real basic thing, which is it seems really simple but the wineries that are doing better are looking outside of themselves. They are looking at those that that 30- to 45-year band of potential customers, and they're starting to make the investment in those customers and they're already starting to see a return—more so than the wineries that are just looking at internally and saying, you know, how do we manage things a little bit more tighter? You know, that's where they're going.

So, you know, that I think is probably the most important thing to recognize. And, you know, as we continue to move through this phase we'll get back, it's going to be you know a year or two before we get to where people really want to be. We're not going to be you know growing before the end of the year, I wouldn't go there personally.

But, you know, we're going to get there. We're making progress as an industry. And I think we all ought to be grateful that we have DTC because we have options to do sales. We have options to, you know, market to the other 49 states. You know, the opportunity is really endless, but we just can't, you know, think about the problems and not do something about those problems. To the extent we have them, let's tackle them.

You know, one of the things I said and I think it was the last, maybe this might have been the last day of the industry before, maybe the one prior, but collaboration. You know, we're so much more effective when we're collaborating.

And so to the extent that you can collaborate either through your marketing association, ABA association, neighborhood, you know, however you want to collaborate. If you want to, you know, spread costs, if you want to share marketing lists—believe it or not, there are wineries doing that—you're going to find better ideas, I think, as you spread out that way.

So those are my closing thoughts. Let me throw out a couple of final things.

As a reminder, you can now access the 2025 Direct-to-Consumer Wine Report on the website at svb.com. Everybody that's online and in the studio audience, you got the email that has a direct link to that.

Those that were the respondents on the survey this year, they're going to get that analytics and Silicon Valley Bank success guide that's going to have a little bit more detail and some of the things that we talked about, how we're weighing the differences in success and less success if you will. So you'll get that as well and it's gonna be I think next week, you should also get the replay of the videocast, maybe later in the week. We have to do some of our own internal stuff first on it, but we'll get there.

If you're interested in receiving the complete set of charts and data used to develop our wine reports, we encourage you to participate in our annual State of the Wine Industry and direct-to-consumer surveys.

Really, you know, we don't do this without people stepping up and, you know, we're grateful. I don't remember exactly how many we have, but I'm going to say, you know, 500 respondents, something like that this year. It's a very healthy segment of respondents. Without that, we just don't get anywhere.

So with that, I think I'm going to wind up and thank all of my studio audience.

Paul: Thank you.

Rob: By the way, not studio, my panelists and studio audience. I thank the people in marketing and production crew that's here in our brand-new sound set and stage for all of the work that they've done in this. And for all those people that are tuning in the studio audience and TVs worldwide, we hope to see you one day here at Silicon Valley Bank. Thanks for tuning in.

About the Silicon Valley Bank Wine Division

Silicon Valley Bank, a Division of First Citizens Bank, is the premier commercial bank for emerging, growth and nature companies in the technology, life science, venture capital, private equity and premium wine industries. Its Wine Division specializes is commercial banking for premium wines and vineyards.

SVB boasts the most experienced team of commercial bankers dedicated to the wine industry of any bank nationwide. Established in 1994, SVB's Wine Division has offices strategically located in Napa, Sonoma and Oregon. It caters to clients in the fine wine-producing regions of California, Oregon and Washington.

By virtue of its dedication to the wine industry, Silicon Valley Bank is able to support its clients consistently through economic and growth cycles and offer guidance on many aspects of their business beyond traditional banking services. Silicon Valley Bank, a division of First Citizens Bank, is a member of the FDIC.

Disclosures

This material, including without limitation to statistical information herein, is provided for informational purposes only. The material is based partly on information from third-party sources that we believe are reliable but have yet to be independently verified. For this reason, we do not represent that the information is accurate or complete. The information should not be viewed as tax, accounting, investment, legal or other advice, nor should it be relied on in making an investment or other decision. You should obtain relevant and specific professional advance before making any investment decision. Nothing relating to the material should be construed as a solicitation, offer or recommendation to acquire or dispose of any investment or to engage in any other transaction.

Silicon Valley Bank, a division of First Citizens Bank & Trust Company, is not selling or distributing wine or wine-related products. Through the online informational platform SVB Cellar Selections, Silicon Valley Bank provides material to employees about a variety of premium Silicon Valley Bank winery clients and their wines. These communications are for informational purposes only.

Silicon Valley Bank, a division of First Citizens Bank, is not responsible for, nor is it a participant in, the sales of any winery products in any fashion or manner and makes no representations that any promotion or sales of alcoholic beverages will or will not be conducted lawfully. Further, Silicon Valley Bank disclaims any responsibility or warranty for any products sold by wineries or other wine industry service providers.

Silicon Valley Bank provides banking and financial services, along with industry insights to vineyards and wineries.

Paul Mabray, Pour Now, Andrea Myers, Round Pond Estate, Justin Noland, and Treasury Americas are independent third parties and are not affiliated with Silicon Valley Bank, a division of First-Citizens Bank & Trust Company.

The views expressed in this report are solely those of the author and do not necessarily reflect the views of Silicon Valley Bank, a division of First-Citizens Bank & Trust Company, or any of its affiliates.

©2025 First Citizens Bank & Trust Company. All rights reserved. Silicon Valley Bank, a division of First Citizens Bank & Trust Company. Member FDIC.