What Business Skills Are Needed to Prosper in the U.S. Wine Industry?

Dec 10, 2015

What Business Skills Are Needed to Prosper in the U.S. Wine Industry? New Survey Provides Some Answers

Very few industries have the same level of intense competition faced by the United States wine industry. With more than 90,000 wine brands offered in the market, complex regulatory issues, shipping challenges and growing competition from other alcoholic beverages, like craft beer, wine businesses need to make sure they hire and develop employees with the right skill sets. But what are the most important business skills and competencies needed to prosper in the U.S. wine industry? A new survey from Sonoma State University wine business researchers provides some answers.

About the Survey and Participating Wineries

Launched in spring 2015, a total of 338 wineries completed the online survey. Of these, 50 percent were small wineries producing less than 10,000 cases; 24 percent were medium-size wineries producing 10,000 to 99,999 cases; 15 percent were larger at 100,000 to 999,999 cases, and 11 percent produced over 1 million cases.

Wineries from 13 states responded to the survey, with the largest representation from California at 79 percent; followed by Oregon at 5 percent and Washington at 4 percent. Length of time the wineries had been in business varied from 35 percent at less than 10 years; 52 percent between 10 and 39 years; and 13 percent more than 40 years. Table 1 shows self-reported performance indices for the three years prior to survey completion in 2015.

Table 1. Prior Three Years’ Performance of Winery Sample (2011-2014)

2011-2014
Increased Decreased Stable
Sales Growth 81.8% 5.2% 13%
Profit Growth 73.8% 4.8% 21.4%
Employee Growth 42.3% 8.1% 49.6%

Strategic Challenges for US Wineries

Respondents were given a list of seven challenges and asked to identify the top three facing their company (Figure 1). An overwhelming 70 percent selected “Managing and building customer relationships, brand awareness.” This data point highlights how important it is to stay in touch with consumers, especially given the many new communication platforms that are available today that were not a decade ago, such as social media channels, mobile, tablet, face-to-face, and advanced direct to consumer (DTC) options.

Figure 1: Top Strategic Challenges for U.S. Wineries

img 1

Regulations and taxes were also cited as a continuing challenge by 51 percent of the respondents, followed by distributor control at 46 percent. Global competition was identified by 23 percent, succession planning by 22 percent, and access to capital by 19 percent. When asked to identify other challenges, 52 wineries provided specific examples, with a large majority focused on climate change and water issues, whereas others identified a looming labor shortage.

Skills Needed to Prosper in the Wine Industry

In order to tackle these issues, respondents were given a list of 14 business skills identified in the wine business research literature as important to success. They were asked: “Which three business skills will leaders need to develop in order to compete successfully in the future?”

Interestingly there was no agreement that one skill was much more important than others. Rather skills seemed to be grouped in sets, with marketing identified by 51 percent of the sample, followed by strategic planning at 49 percent, and then entrepreneurial thinking at 46 percent. These are all high-level skills that correspond with the challenge identified above of managing and building customer relationships and brands.

Table 2: Business Skills Needed to Prosper in the US Wine Industry

Skill Categories Response
Marketing 51%
Strategic Planning 49%
Entrepreneurial Thinking 46%
Operations 26%
Talent Management 26%
Finance/Accounting 19%
Information Technology 17%
Sales Experience 14%
Social Media Savvy 14%
Scientific Knowledge 10%
Negotiations/Bargaining 10%
Presentation Skills 9%
Statistical Analysis 3%
Foreign Languages 1%

These higher-level strategic skills sets were followed by important tactical competencies of operations at 26 percent, talent management at 26 percent, finance/accounting (19 percent), information technology (17 percent), sales experience (14 percent), and social media savvy (14 percent). These are all important skills to keep the business running, but it appears that strategically marketing to customers and adapting entrepreneurial and more innovative thinking is a first priority for success in the future.

It is interesting to note that many of these second tier skills relate to activities that are increasingly outsourced by wineries, especially smaller wineries. For instance, operations can be outsourced to consulting winemakers, custom crush facilities, or mobile bottlers. Temporary employment agencies can handle hiring and payroll. Accounting and IT are areas of expertise that have historically been outsourced by smaller firms. The outsourcing trend can be expected to continue as wineries focus on the skills that give them competitive advantage.

The fact that foreign languages scored so low may because, at this time in the U.S. wine industry, knowing a second language is not critical to success. Also since the U.S. is currently the largest wine market in the world, most other wine exporting countries want to sell into America, and therefore need to speak English. However, for large global wineries selling internationally, foreign languages are more important for major markets, such as Mandarin in China.

Implications for Wine Businesses

The U.S. wine sector has grown almost 50 percent in both volume and value since the turn of the century. However, much of that growth occurred in the 10 years leading up to 2010, as both export and domestic market growth has recently slowed. When coupling this slowing of the wine market with the fact that the wine-thirsty Baby Boomer generation has just this year become the second most numerous behind the more ‘financially cautious’ Millenials, then it is clear that the coming era requires careful navigation by wine sector management. While market growth may continue in the short-term, the perpetually cyclic nature of the wine sector shows that consolidation is never too far away.

Wineries already need to manage a competitive landscape with the ‘hourglassing’ challenges of producer proliferation within consolidating distribution channels. Thankfully, these businesses are actively investigating new routes to market. The survey results highlight that implementing marketing skills in customer interaction, communication, and distribution are the emerging leadership priorities according to the wine sector. Therefore, the leaders who recognize and adapt these changes as opportunities will be best able to cater to the changing wine business environment.

Posted in Dr. Ken Hardwood.