Retreat... Don't Re-Tweet

Prior to class today, I already thought managing social media for alcohol-related products and offerings had its pain-points.

At both Google Express and BloomThat (where I helped manage social media as parts of my roles), we sold wine from our platforms. I remember the social media restrictions being strict, specifically around age-gating.  It was crucial for those brands that we make it clear that we weren't endorsing any sort of under-age perusal of our offerings.  Many brands follow the instructions here for how to lead the appropriate people to alcohol products on our site.

However, class today opened my eyes to see how even more complex the rules can be, specifically when tied-house comes into the picture.

As we were discussing the tweet scenarios -- can I post about a great wine as BevMo if I'm not paid? What about if I as an individual do it? -- I started to wonder about re-tweets.  If they re-tweet, that's probably a problem, we said as a class.

When I was managing BloomThat's Twitter account in particular, whenever a customer would say something positive, we'd quickly re-tweet it and move on (we did it quickly so that we wouldn't fall behind as the tweets came in).  What if, I was wondering, a grocery store accidentally does something as small as a re-tweet... what's the severity of the punishment? That seems so easy to accidentally do.  What are the repercussions?

I did some digging for a real example of when this happened, and stumbled across this article, Tweets cause trouble for Sacramento-area wineries, breweries.  For the eight "culprits," they had the option to either confess or be suspended for 10 days: "ABC sent letters threatening to suspend their licenses for 10 days, or the businesses could admit to the offense and be placed on probation for one year." 

So not "we're shutting you down," but definitely more than just a light reminder. 

In this kind of environment, retreating certainly seems easier than re-tweeting.

Red obsession

Last week's case of Domaines Barons de Rothschild referenced its expansion into the Chinese market. With the rapid economics development in the past decades, China has become one of the biggest importers of wines from the Bordeaux region of France. The red obsession is undeniable!

Among Latour, Mouton-Rothschild, and many other fine Bordeaux wines available in China is Lafite. Lafite is unambiguously the synonym word for luxury Bordeaux wine in China and a pop culture symbol of 'social status' and 'power'. The unparalleled marketing success of Lafite in China is easily proven as HK mobster films and Mainland Chinese TV shows frequently feature a bottle of Lafite in the fine dining scenes (see screenshots).

What makes Lafite truly stand out compared to other Premier Cru? The legendary vintage years (e.g., 1870. year of comet) combined with the low volume makes Lafite 'investment grade' and sought after in secondary market. In addition, my hypothesis is that 'Lafite' is phonetically an easier word for Chinese consumers to pronounce,  in contrast to other long French names. This unique advantage comes in handy for its branding success in the Chinese market.

Marketing as a Key Differentiator

Although I have not worked in the wine industry directly, I led the GSB Luxe Trek this year and worked at AB InBev last summer - through my experience in luxury and alcohol, my hypothesis is that marketing is the way to differentiate as a winery in an overcrowded space.

Over the summer, we were testing consumer appetite for dark beer. We poured the same beer (Guinness) into 4 different glasses and created elaborate brand stories and moodboards for each, spanning from established beer to exotic. We conducted this test with over 30+ subjects in our target demographic and not a single subject realized that each glass contained the same beer. They were so carried away by the brand story that they were incapable of distinguishing variation in taste. For this reason, I believe that consumers derive a sense of identity from the brands they consume based on labels, not based on flavor.

Similarly with Inniskillin or Wente wines, the brand story and history is key to delighting customers, although there are 1000+ competitors in the space. This explains why Christine Wente focused on the history of the winery and her family. This begs the question: how you get consumers' attention?

These are some marketing-based developments that I think are exciting:

• Experiences. Clos19 is LVMH's e-commerce platform for wine experiences - this platform showcases experiences that are giftable associated to wine and spirits
• Women. For beer, at least, off-trade is growing. Women own the share of wallet in the home and as a whole feel alienated by beer companies. Communicating with women effectively is key to growth in wine.
• Health Tracking. More alcohol content, fewer calories.

Grow Big or Grow Home

Last week’s theme seemed to be tradition: between the historic story of the Rothschild family and our discussion of the Wente winery, I began to think about the tension between maintaining tradition and developing an ambition of growth. At one point in her presentation, Christine made a passing comment about preferring to support mid-size family wineries over the big guys. I then raised my hand and asked whether any of the family wineries had ambitions of getting acquired, and she had trouble thinking of any examples.

Do these companies just run as lifestyle brands and ways to employ family members, or do they actually aim to be profitable in an ambitious way?

The Rothschild story obviously represented the latter category, maintaining huge growth globally throughout the decades. I’m curious: what differentiates the brands that aim to grow like Rothschild from the moderate family companies like Wente?

I’m also curious about the intra-industry perception: how do the big guys perceive the small guys, and vice versa?

I’m also curious about consumer perception: in the same way that farm to table food made its way in the 1970’s and microbreweries became popular in the 1980’s, there are now so many smaller wineries across the country. There is so much consumer consciousness about what we eat (think buzzwords like local, sustainable, etc)—are people also thinking this way about the wine they drink?

I’m also curious about why people will buy a bottle for the first time. I hypothesize that major contributing factors include: the label, price, vague guidance from whomever is selling the products, and maybe some previous knowledge or conceptions. Since the vast majority of consumers are unknowledgeable when it comes to what they drink, I’m keen to learn tactics for getting someone to purchase a new brand for the first time. How do folks like the Wente family, who don’t have the deep pockets or advertising budgets of the big distributor brands, reach consumers?

What’s the Deal with Heald?

OVERVIEW

The 2005 United States Supreme Court case, Granholm v. Heald, reshaped how wine was sold throughout the United States and affirmed a principle of federalism fundamental to the efficiency of the domestic economy. 

The case involved an impressive roster of legal figures: Kathleen M. Sullivan, the former Dean of Stanford Law School, and Kenneth W. Starr, former D.C. Circuit judge, independent counsel on the Monica Lewinsky investigation and recently-disgraced head of Baylor University, appeared on the brief for Respondents.  Eliot Spitzer even made an appearance in his capacity as the New York State Attorney General.

At issue in the case was the practice in Michigan and New York of favoring their home wineries to the detriment of out-of-staters.  Both states used the three-tiered system for wine distribution, where producers, wholesalers, and retailers were separately licensed. 

Michigan gave its approximately 40 in-state wineries the home-court advantage through a special license.  This license allowed Michigan wineries to sell directly to Michigan consumers.  Out-of-state wineries could only sell to wholesalers who would then sell to retailers who, only then would reach the consumer.  Each link in the chain increased the cost, and the price, of getting a bottle of wine into the hands of a Michiganian. 

New York had a similarly skewed system: most wine distribution in the state happened through the three-tiered system, but a winery using only New York grapes could get a license allowing direct-to-consumer shipping.

The Plaintiffs in the case included California wineries and their owners who wished to sell to consumers in New York and Michigan directly.  They did not appreciate the states’ practice of creating structural barriers against healthy competition with in-state wineries.  They decided to take this perceived injustice to the courts, relying on one of the most robust principles of constitutional law to make their case.  However, they would have to overcome one of the most popular constitutional amendments in United State’s history.

LEGAL BACKGROUND

The case pits two clauses of the Constitution against each other.  Favoring the wineries was the Commerce Clause, and favoring the states was the Twenty-First Amendment.

The Commerce Clause, (U.S. Constitution Article 1, Section 8, Clause 3), simply states, “[The Congress shall have Power] To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.”  This means that Congress (not the states) has the power to regulate interstate commerce.  As a corollary, the Supreme Court has read in a prohibition against states discriminating against or unduly burdening interstate commerce. Reading Railroad v. Pennsylvania, 82 U.S. 232 (1873).  This prohibition is captured in a concept known as the “Dormant Commerce Clause.”  Its purpose is “to prohibit state or municipal laws whose object is local economic protectionism,” and ensure efficient trade between states.  C & A Carbone, Inc. v. Town of Clarkstown, N.Y., 511 U.S. 383, 390 (1994).

The Twenty-First Amendment of the Constitution repealed the Eighteenth Amendment and ended Prohibition in the United States.  It reads in relevant part:

Section 2. The transportation or importation into any State, Territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited.

Section 2 of the Amendment is generally understood to have delegated the power to regulate the alcoholic beverage industry to the states. 

ARGUMENT AND DECISION

The out-of-state wineries in this case argued that the Dormant Commerce Clause’s prohibition against economic protectionism should trump the Twenty-First Amendment’s delegation of authority to the states.  The states conceded that in any other industry, this regulatory framework wouldn’t fly.  But they said the Twenty-First Amendment made the protectionist statutes a valid exercise of the states’ authority. 

The states also argued in the alternative, that if the dormant commerce clause did apply, their statutory frameworks fell into an exception to the rule that allowed a discriminatory statute to stand if it “advanced a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives.”  The states argued that the framework was necessary to prevent minors from purchasing wine over the internet, and that it prevented tax evasion.

The Supreme Court sided with the wineries on all claims.  It found that the Twenty-First Amendment did not confer on states the authority to defy the principles of the Dormant Commerce Clause.  States, even when it came to regulating wine, could not discriminate against out-of-state providers.  The Court found that

the current patchwork of laws—with some States banning direct shipments altogether, others doing so only for out-of-state wines, and still others requiring reciprocity—is essentially the product of an ongoing, low-level trade war. Allowing States to discriminate against out-of-state wine “invite [s] a multiplication of preferential trade areas destructive of the very purpose of the Commerce Clause.

Heald, 544 U.S. 460 at 473. 

The Court further examined whether the states’ “patchwork of laws” fell into the exception to the Dormant Commerce Clause.  They found the states failed to meet the heavy burden of so proving.

CONCLUSION

After Heald, therefore, if a state wanted to allow its own wineries to ship its wares directly to in-state consumers, it had to do the same for out-of-state wineries.  As we see in the cases, this detangled somewhat the Gordian regulation of the alcoholic beverage industry, and made competition a little a little more fair among producers.

Somm: Into the Bottle

A few days ago I watched Netflix's sequel to the popular Somm movie. The follow-up, called Somm: Into the Bottle, focuses a little bit more on winemaking and other aspects of the wine business besides tasting and the Master Sommelier credential. A few of my favorite parts involved food pairing, value wines, and high-end wines.

Food Pairing

• The master sommeliers report that "what grows together, goes together." A few of their pairings:
• Muscadet & oysters
• Chianti & lamb
• Gewurtztraminer & sausage
• Sauternes & foie gras
• Syrah & Indian
• Chardonnay & popcorn
• Champagne is generally food friendly

Value Wines

• Sommeliers generally seem to like riesling
• Beaujolais wines are considered high value right now. This wine region, just south of Burgundy in France, makes wines largely from the Gamay grape which has a thin skin and is low in tannins.
• One suggested food pairing for Beaujolais was a hot dog (interesting)

High-End Wines

• Lafite-Rothschild, from last week's case, was mentioned
• It seems that DRC wine is considered even more "exclusive" than Rothschild -- they produce primarily in Burgundy (vs. Bordeaux) and in much smaller quantities than Rothschild. Their bottles can sell for several thousand dollars
• It's interesting to consider DRC as a different strategic play than Rothschild. Rather than branch out geographically or expand production, they've elected to remain small -- and command an even larger price premium than Rothschild as a result.
• This article suggests that Lafite Rothschild produces 20,000 cases of wine annually, compared to 450 cases for DRC.

Taking Flight – Drone Agriculture and the Wine Industry

In my Creating New Ventures in Developing Economies course, we discussed how Aerobotics is using drone and satellite technology to help farmers in South Africa improve their crop yields. Aerobotics is an aerial mapping analytics company specializing in gathering aerial imagery data for use in the agricultural value chain. Our discussion with Christine Wente about the technological advancements in the wine industry, specifically how her family is thinking about these innovations, made me think about my Ventures class and how drones may or may not be taking flight in the wine industry.

So, I did my Googles and came across a few interesting things. The use of drones is rising as the wine industry embraces precision viticulture and data-based decision making.

Colorized images taken by drones alert viticulturists to various levels of health or low health in their vineyard. Data analytics companies VineView and SkySquirrel, for instance, have collaborated on drone-based systems that measure water content in leaves and detect stubborn vine diseases which can be stopped by identifying and removing infected vines. Drones can also spray vineyards with fungicide to prevent fungal diseases that affect grapes, which some would argue is more efficient than hand spraying¹.

But can drones can help wine producers produce better quality wine? Vintner Ryan Kunde, who is the winemaker and co-founder of DRNK Wines, uses drones to exploit variability. He blends grapes from multiple blocks to achieve his desired flavor profile, a complex mix of vigor and maturity.

I’m interested to hear about the new, innovative, and exciting technologies our other speakers are seeing in the industry and to see how those innovations may be applicable in a development context.

¹ Are Flying Vineyard Drones Creating Better Wine?