Successful wine and spirits brands have navigated their marketing and sales through recessions before. What can we learn from them?
This post offers suggestions, and a bit of history, for brand marketing, sales, and budgeting.
We start with a few reminders that may calm your nerves while inflation soars in mid-June 2022, and, just today, the Federal Reserve raised its rate by 75 basis points.
WHAT WE KNOW: WINE & SPIRITS IS A RESILIENT CPG CATEGORY
We are marketers, not economists, but after surviving in this business for several decades, we know a few things about the category:
Resiliency: Wine and spirits sales have been shown to be more resilient to economic pressures relative to other categories. A great cocktail or glass of wine is a low-cost treat.
Loyalty and Market Share are High Priorities: We operate in a low-growth category. Implication: maintaining availability, share of mind, brand loyalty, and relevancy in the marketplace are key to long-term success. Wine Intelligence wrote an interesting blog post on this.
Trading Down May Not Last Long: A study of the Great Recession’s impact on wine sales by price tier showed that trading down drove low-priced wine sales in 2009, but quickly “reversed during the economic recovery in 2010…while both mid- and high-priced wine sales increased substantially.” as reported by WineBusiness.com.
WHAT’S THE SECRET SAUCE? AGILE, INTENTIONAL DECISION-MAKING
You might think a marketing agency like ours would recommend NOT cutting advertising and promotion spend. But our recommendations offer, and history suggests, a more nuanced approach.
- Channel Marketing Budgets to What’s Working: During the Great Recession, Delicato Vineyards focused marketing budgets on core brands, brand building, and customer loyalty…and grew by 30%. They used social media to “listen to how consumers are impacted,” according to Chris Indelicato, CEO, to better target messages. There’s an insightful article in Meininger’s Wine Business International that details their success.
- Promote Your Full Product Range: Don’t neglect to promote your lower-priced SKUs – you want your loyal fans to stay loyal, even if they’re trading down.
- Don’t Try to Compete with Cost Leaders: During the Great Recession, companies who changed strategies to compete with cost leaders lost. Those that doubled down on their differentiators won, according to a study summarized by Harvard Business Review. https://hbr.org/2020/07/avoid-making-this-strategic-mistake-in-a-recession
- Mitigate Sales Channel Risk: Yes, DTC sales are higher margin. But don’t make a knee-jerk reaction by neglecting 3-tier sales. Use low-cost, digital advertising to build or maintain PODs and pull-through. Here’s a post we wrote on this topic.
- Focus on Moving Inventory, Not Just Cost Reduction: We all know managing inventories is key to financial stability. Some brands reacted to the Great Recession by slashing below the line costs. Other companies took a less draconian approach, deploying temporary price promotions to hit lower price points that drove consumer demand and pull-through. Bottom line: it’s more important to move inventory than attempt to maintain a high shelf price in the face of stiff headwinds.
- Think Like Warren Buffet: If other brands are scared and slashing marketing budgets, you know that every dollar you spend on PR, digital marketing, and social media will be, 1) seen in a less crowded, less noisy marketplace; 2) more effective at driving depletions and pull-through; and 3) likely less expensive to purchase than pre-recession as media companies lower prices.
- Partner with Vendors to Help Improve Cashflow: As a follow up to the previous recommendation, tap your partners’ expertise – ask them to present some optional budget levels. We’ve time-shifted activations, switched ad optimizations from awareness-building or Page Likes to retail-driving ads, and other actions that seek to maintain cashflow and market share in tough times.
THE SILVER LINING: EXIT THE RECESSION STRONGER
So, what happens when companies effectively manage through a recession?
- Maintain Cashflow: Temporary price promotions move inventory and can maintain working capital.
- Grow Market Share: Delicato grew 30%, as mentioned above.
- Deepen Brand Loyalty: Get your loyal consumers to purchase your whole product range, including the lower price tiers that may not get as much attention from marketing.
- Build Brand Awareness: More efficient and effective marketing spend.
- Stay Relevant: A more differentiated brand helps your 2nd and 3rd tier partners.
We end on a more personal note. Less than 2 years after Benson was founded, we had a client that represented 35% of our revenue abruptly cancel our contract one month after 9/11. We quickly doubled down on broadening our service offering to both new and existing clients. Within 6 months we replaced that 35% hit, exiting the experience a much stronger company that set up rapid growth in the ensuing years. (And we’ve never had a client represent such a large share of the business.)
Additional Articles: Here are some sources and articles on this topic we found useful.
California Wine Shipments by Year: https://wineinstitute.org/our-industry/statistics/california-wine-shipments/
It may sound counterintuitive, but many successful companies started during recessions, and even depressions – to name one: E. & J. Gallo (1933).