Ep. 1101 Dale Stratton | Get US Market Ready With Italian Wine People

Welcome to the Italian wine podcast. This episode has been brought to you by the wine to wine business forum twenty twenty two. This year, we'll mark the ninth edition of the forum to be held on November seventh and eighth of twenty twenty two in Verona Italy. This year will be an explosively in person edition. The main theme of the event will be all around wine communication. Tickets are on sale now. So for more information, please visit us at wine to wine dot net. Thanks for tuning in to Get US Market Ready with Italian wine people on the Italian wine podcast. I'm Steve Ray, your host. And this podcast features interviews with the people actually making a difference in the Italian wine market in America, their experiences, challenges, and personal stories. And I'll be adding a practical focus to the conversation based on my thirty years in the business. So if you're interested in not just learning how, but also how else, then this bond is for you. Hello, and welcome to this week's edition of Get US Market Reddy with Italian wine people. This is Steve Ray your host, and I'm pleased to have as a guest this week. Dale Stratton. And, Dale, you have a couple of different enterprises. So why don't you give us a little background on who you are and what those three things are? You bet. Steve, thank you very much for having me. I'm excited to be able to chat with you and and, your audience members today. So I in, involved in three different enterprises, and that's probably a good word to to use for them. The first one is, I'm president of the wine market council, and the wine market council does consumer research on the wine consumer and has done so for well over twenty five years. And when I say we do research on the wine consumer, in today's world, that means you're doing, research on the beverage alcohol consumer in total because that's really where the the the today's consumer is, is that by and large, they're participating across all three different categories within beverage alcohol. My second enterprise is I work with Azure associates. We are a group of consultants, private consultants, and we do consulting work in the strategy financial planning and route to market, as well as, some M and A work located here in Napa, mostly focused on the wine industry, but we do dabble in a couple of other categories. And then the one we're probably gonna talk about most today is SIP source, and that is a data product that is, put together by the wine and spirits wholesalers of America, where we are aggregating depletion data across wine and spirits that gives us an extraordinarily good view of what's happening in the industry because it really is the only data source that I know of for three tier that is able to look at the on and off premise. And, you know, on premise data has always been such a black hole and trying to understand really what's going on in the on premise. And, never has that been more important than the last two years, as you know. Yeah. So give us some perspective about the the absence or the lack of actionable data or trustworthy data or useful data in the industry. It it seems like while we're at consumer packaged goods, we we we have nowhere near the kind of access to the information that we need as marketers to figure out what we're doing and what impacted happening. Why is that? Yeah. And and like most things, in our industry, it's because of what was it? The twenty first amendment, right, you know, that when we refilled probate Oh, I remember that. Yeah. You remember that. We were right. And and because there are fifty, really fifty one different sets of laws, that that has made a challenge. So if I'm selling Tide soap, my product is available everywhere and goes through, the the same channels. Because we're in the beverage alcohol industry, we have control states We have liquor store driven states. We have grocery states. So with all of those, that means that there's different routes to market that are really routes to the consumer, which that means it is difficult to to get that data and and try and aggregate all those data sources together. Also, because, about, you know, we'll say fifteen percent, as just kind of a guidepost, fifteen percent of volume is done in the on prem. And because the on premise is not using the UPC code as their driving identifier for product, that that means that we're just not able to get a good look at that data through most sources. So that's, again, we're, I think, SIP source comes into play and does a great job of being able to identify what's happening in neon. Interesting. On the, the percentage there, that number kinda surprised me, but I think, the differences in volume versus value. I think on premise represents a significant larger share of the value, but I was surprised at how relatively low it is, in terms of Yeah. Makes sense. So explain how this whole how SIP source got started, who formed it, what the resources are there to work with and how the data gets, accessed and cleaned and so forth. You bet. So this came out of some people who were managing data at the major wholesalers in the country. And they really realized that they needed to also look at data that was more macro than, than theirs that within looking at their depletion data, they were seeing what was happening for their brands, but they weren't able to look at what was happening for the other distributor Now we don't report it brand level data, and that's one of the tenants. We do not look at brand level. We only look at we look at category. Subcategory, we can get down by very different countries of origin. It goes in-depth, but it does not go to brand. They aggregated that data. And currently, we have thirteen different wholesalers that are aggregating, that are contributing their data. Here, this year, we'll probably get that up to a pretty close to sixteen or seventeen wholesalers. So it's very much capturing the three tier, what's happening within that. Is it is it all ten of the the top ten that, impact captures or mostly of those? It's not it's not the top. We don't have all top ten, and we think it's important that we are capturing some of the smaller wholesalers in some places. And, certainly, the Northeast is a place where you still have a pretty big distributors. And we, and we do have good participation from some Northeast distributors as well. So as we look at that, they hand their data over to VIP vermont information processing, and most people in the industry know who VIP is. They process most everybody's the police data, VIP aggregates that data attributes it, cleans it up, and then puts that into a tool, their their software tool called IDIG, and we extract the data via that. And anybody can buy access to to SIP source data. We put out quarterly reports, or you can sign up for monthly updates as well as to what's happening that gives you a top line of what's happening in the wine and spirits industries. And you guys do a good job of trade PR and, capturing some of the highlights of that, which we see frequently in the newsletters and the trade magazines and so forth. Absolutely. So give us a sample. But the first question, it was one of the first things I learned in the in the industry. This huge difference between shipments and depletions. And so for some of our foreign listeners, perhaps, you can define that. You bet. So a shipment is capturing the transaction between the supplier and the wholesaler. So that is what gets landed. That includes imports, of course. As imports land in this country, and then they get shipped off to their various wholesaver. So it'd be from importer sales to distributors is is a shipment as well as a domestic producer sale to a distributor That's correct. And then the depletion is the transaction that occurs between the distributor and the retailer or on premise operator. And that, you know, that, again, there's some variability in that when we start thinking about reporting out on that data. It's important that you understand how those transactions were. The probably the biggest thing to keep in mind when you're tracking that is days in a month. Right? Because Selling days. Yeah. Yeah. Selling days. Right? Because if you start looking at one month data, you can really get some probably not accurate data just because the previous year's month might have had two fewer selling days. And and that has a big impact. So we really you know, I I look at SIP source data and I look at three month periods, give me a really good shot of what's happening right now. I always look at I always look at three, six, and twelve, and kinda watch those trends to see what's happening across them just to make sure that there's no timing anomalies that occur in that So but you're reporting depletion data as opposed to shipment data. We are reporting depletion data. That is exactly right. You know, and again, for when we think about where product ends up in the system, especially for the on premise, you know, that that's pretty much capturing what's happening with the consumer because there's just, you know, there there's not a lot of stockpiling, happening in the, in the on premise world. For cash reasons and and accessibility reasons as well. Yeah. Just base. Let me digress with one point. There's a a term in the industry that a lot of people listening might not be familiar with and it does impact shipment and depletions. And that's bailman. Can you talk a little bit about how that impacts shipments and depletions and why it's gonna Not really one or the other. Yeah. The, the limbo of of the supply chain, and that that is that, you know, you can I have not dealt a lot with bailment, but within bailment? And transactions are really what's what's primarily triggering the recording of transactions, and this is the double edged sword of our industry. Because we're so heavily taxed, you need accurate records for the the movement of that product. So Bailment is simply a place where you're you're you're holding the product until it gets shipped out to its next location because you're holding back on paying the taxes on that until it moves to the place where you legally have to pay tax. So in control states, we see that that happening. I know Ohio works that way, but the, the shipper person, the person who's under the shipment terminology owns it while it's still in a warehouse. So even though it might have physically shipped, it doesn't count as a shipment. Nor depletion until it's moved through to the next level. Anyway, that's just to confuse people more than they they already are. And I I really don't wanna do that. For imports, that probably does happen a lot. Oh, yeah. Right? When you think about, well, for your, an import, they all meant matter. Yeah. And, do also for both of us, we're both, you know, competitors in the consulting industry, and these are things that we have to explain to people. But let's get back to what we were talking about, and and the importance of planning and the idea of real time data. One of the issues that a lot of people that I work with have is, gee, they don't get a depletion report from their importer until about forty five days after the end of a given month, which makes it really, really difficult to respond to things in a timely fashion. Yeah. And I and I think and this is also when I, you know, for us, it's SIP source. We've approached this from the standpoint that we're not the only tool that you need to understand your business. We're a very good tool to understand your business, but there are other tools out there that can help you depending on what question you're answering to to get that understanding and and understand that. With SIP source, we have about a forty five day lag period. Right? So we later this week, I will validate the July ending shipment or depletions and get that out. And and that's that's kind of the way that it is. Now VIP If it's just your depletions, they can set you up so that you're getting that in a very, very expedient manner. But also for me, this is where an I or I or a Nielsen data comes into play. They're updating those databases weekly, that is what's going out to the consumer. And you're able to really track what's happening very, very quickly with that standing. Now it might be a very different story in the on premise, so you're not capturing that. You may not be capturing what's happening in your control states or or your liquor store States, that is expedient data. And with, you know, one week lag time, basically, you were able to understand what's happening with, your brand, your items in the marketplace. So by having multiple tools and, and the scan data is just so good for being able to answer what's happening right now and what are those trends that are occurring almost real time? As I understand it then, you you're able to look at these short term changes, call them a blip and then longer term actual trends. Can you talk about that a bit? Yeah. And looking at looking at short term trends can be helpful, but don't overreact to short term trends. And I think that's one of the things that is very important to understand. If I'm making if I'm laying out my three year plan and trying to understand my three year five year plan, then I want that longer term data. I need to understand longer term what's happening. If I wanna understand how did the brand that I had on add in X retailer perform, I need that weekly date. I need to understand, right, and realistically, just probably two weeks because the ad period will cross two weeks. But that is where I need to understand. Okay. Did my ad generate the sales that I thought that it would? And now I can actually start to see, are my promotions working? Am I getting the lift that I wanted to get off that spend that I had to discount that product. Okay. So one of the areas that really defines, new brands coming into the market is the expectation, for distributors of putting, quote, unquote, feet on the street. Also called brand ambassadors, market managers, a lot of different names for them. But basically, there are people that are under the employ either subcontracted or directly of a supplier and working, alongside or parallel to the existing distributors Salesforce. How does SIP source or how can you use SIP source data to make decisions on brand ambassadors? Yeah. I think and and to me, that is a great example of an area where you don't wanna get caught up in short term results. This is somebody who, to your point, it's either an employee or it's somebody that I've contracted with. That's gonna take time to get results. So for me, when I start thinking about where I focus on that, then then I can start to see is that paying out. Now one of the difficult things with with brand ambassadors, in monitoring their effectiveness is not every market is necessarily going to be going after the same thing. Alright? And when I think about, you know, your Italian producers, I might have a market that, you know, what? I'm I'm just not performing. This market is never really caught on the pinot grigio, and we need to drive pinot grigio, where I'll go to another mark and it's like, man, pinot grigio is so well established in this market. We really need to focus on reds, and we're gonna drive reds. So being able to cut that data in in a more, regional viewpoint is something that can be very, very helpful in doing that. The most important thing in those situations for me, Steve, is understanding what your objectives are on the front end. Right? And so many times as I was working in my in my old supplier days, and and working with sales and marketing teams was you could always build a story that showed you were successful Oh, that's our little dirty little secret. Alright. That's you know, if if you need a positive story, like, like, I can I can find it for you? The the the the question is, did you achieve what you were trying to achieve? And and that that is where you really have to make sure that you've outlined. What what are you trying to achieve with that program? And and then how am I gonna measure measure the success of that? And, you know, when you talk about a new product, though, for a new product, that that should be pretty clear because you you you you need to measure distribution. Right? Step one, am I able to get distribution? How am I doing on distribution on that item? And what does that look like? Italian wine podcast, brought to you by mama jumbo shrimp. Yeah. But the challenge there is distribution that sticks. And so one of the measurements I like to to look at is velocity or sell through or repeat orders at retail to tell you that it didn't just load in inventory, that the product is actually moving. Well, let's get back to the regionality. And, you know, there's some good things and bad things about regionality when we we talk about just use New York as a market. New York really impacts three different states, Connecticut, New York, in New Jersey. Yet much of the data that we deal with that we commonly see is state oriented as opposed to regionally oriented. Can you comment on that? Yeah. And, you know, I think I always, as a doing doing analytic work, I wanna get it at the least aggregated level, I can't because I know I can aggregate it back up. Alright. So if I get it at the municipality level, I can probably make that into state. I can make state into region. I can do that. However, that's not always easy to do. And you know, for us and an opportunity for us at SIP sources, we we're and we're gonna roll out about I think we're gonna have about seven states where we're able to report at the state level. Okay. That's very, very good. That's forty three fewer than we want. But then the other one is doing that at a division level by census division. And that can give you a really good view also as as to what's happening within that. An example of that as we and still today, if you look at regionally, the on premise recovery? Well, the South Atlantic and the South Central census divisions are performing much better than the rest of the country. That's because Florida and Texas really opened early. Right? They kinda like, hey, bring it on. Come on in. We're just gonna open and, and see what happens. Well, they establish that. Now their growth rates aren't where they were, but they certainly have a establish the higher a run rate compared to where they were in February of twenty twenty for the on prem. Okay. Turning to, not US regions, but country of origin and give us kind of the hierarchy of the kind of information you're gathering there, both in terms country of origin, how that impacts varietal, and also the idea of price band. So within within, country of origin, we are breaking out every every major country. So and and major is important to say because you, at some point in time, you do get down to the all other. It's in Bulgaria is not in there. I'm guessing. Right? Bulgaria is not in there. That is correct. All of the major, countries of origins are in there. Within that, we can break it down by on and off premise. Within on and off premise, we can look at, dye like, for the on premise dining versus night club versus recreation. We can look at grocery versus liquor versus drug versus wholesale club. Wholesale club is another place where there's not a whole lot of data out there. So SIP source can kind of fill you in on that gap as to what's happening with the club stores. And then we do go down to varietal level and looking at it at the varietal level and cable versus sparkling versus other. So desserts within dessert, you can look at port, Sherry, vermouth vermouth is kind of a fun story because, when when we have the shelter in place, vermouth went off the charts. Right? Right. Right. I love that. Yeah. As the cocktail culture moved inside and, you know, I have joked that. In, like, June of twenty twenty, there were probably more households with vermouth in them than there had been since the nineteen sixties. Now is that because people are drinking the groanese? That's my favorite drink. But Yeah. Oh, and and just Martinez as well. Old fashions. Right? You know, you start thinking about that by the way, high end Italian vermouth still does pretty well. Still growing, off a small base, but it's it's it's it's growing. And then we can look at price bands. And within within the price bands, we have seven different price bands within the SIP source data. So under four fifty is one of them, four fifty to seven ninety nine, eight to ten ninety nine, eleven to fourteen ninety nine, fifteen to twenty four ninety nine, twenty five to forty nine and then fifty plus. So we're able to really break that down very, very in good accurate buckets. As to what's happening with the price bands. It's a little bit different for sparkling because the center of gravity is just a little higher for sparkling. There's just really no sparkling wine, very little sold under eight dollars anymore. It also tops out a little bit higher. It's over seventy five as opposed to over What I like about that, and I've seen this more in in spirits, I think, than in in in wine, is a lot of times you'll see, regular or premium or luxury or Ultra. And those are not specific enough that those same terms applied to Ram would be very different than those applied to Scotch, especially now tequila. Right? The the upper end of it is is dramatically changed. How do yours line up with Nielsen? I know Nielsen has a nine to eleven category, which crosses the dollar, Mark. Yeah. You're you're exactly right. Yeah. They're they're close. And, you know, as we as we built these price tiers, we we tried to keep what the other, data reporting tools we're using is that so that we could get close. But we really just had to look at where did the where did those kind of price breaks bundle and and and and and come about it naturally? And these really were where where you saw those those price breaks naturally occur. And and, you know, when I think about the wine category, we all know what the four fifty and under is. The the the the four fifty to seven ninety nine. We know what those brands are, and they occupy a space. Then then it starts to get a little bit cloudier, right, and a little bit a little bit different, especially when you start thinking about If I'm a brand that has a sauvignon blanc and a cabernet, well, my sauvignon blanc might be sixteen ninety nine, and my cabernet is twenty four ninety nine, under those same under those same labels. So it does get a little hard to do sometimes, but we we we tried to consider, you know, that we knew that people who are using this data set would be using other data sets. So how do we at least get them close to each other so that we're not talking about. That you could compare and contrast. Yeah. I mean, that that's always been a challenge of mine. I'm trying to correlate Nielsen data with some of the other sources we use. Let's turn a little bit to another area which I don't know if you guys capture it or not. You know, we talk about on premise. We talk about off premise, but now there's e premise. And whole concept of e commerce direct to consumer, there's a lot of different words out there to describe it, and they each kinda describe different things. How does SIP source handle stuff that sells over the internet? Yeah. So anything, you know, when I think about the wine industry, anything that is old directly from a winery to a consumer, direct to consumer, we don't capture that at all. That's domestic. Which is a domestic sales to consumers is the only way that you can bypass the three tier system. Correct. A lot of people ask me, well, how do I do that? Well, you can't if you're an important Yeah. So that's that's what I call DTC and what a lot of other people call DTC. Even though DTC can be construed as being something broader. Yeah. And I and I think, you know, you hit it. And when when you start talking about this, you have been in conversations. I have been in conversations where I hear people using the same terms, and they're talking about wildly different things. Yes. Right? And, you know, DTC, there's and there's a portion of DTC that is, you know, e commerce. It is digitally enabled, but really what we're seeing, and and the growth on this is really to me the e commerce portion of brick and mortar retailers. So a total wine and more. They're doing a substantial amount of business that is e commerce related. Obviously, drizzly has done very, very well in this space. All of that data is captured by SIP source Now, like that drizzly transaction, that's not gonna be captured as an e commerce transaction. That depletion goes to that independent proprietor who owns that store. It's just another depletion. We capture it within SIP source, but we don't know if it went e commerce or not. Okay? Now with somebody some other ones where they are giving, they are identifying that. We can see some e commerce. And there are some pure play e commerce retailers out there. Right? Go puff was until they started buying brick and mortar stores. Now they own bad mold. Yeah. Yeah. Alright. And so, so within that, we're capturing within SIP stores. We're capturing that data. We're just not always able anything that goes through the three tier. Or capturing the transaction. It's reported in the data. We just may not be able to break it out as being e commerce. And so I've I've done a bunch of interviews with some other people involved in the e commerce side where you can get down to the nitty gritty, but I like to differentiate things by inter and intrastate sales by a retailer to a consumer. So it may be to a consumer in your own state, which you can do in New York state or to separate state, which you can't go from New York and out. And most people would say you can't do that in Florida as well. But the other variation is what we call, PTF third party facilitators, and that's where drizzly and some of these others fit in that They don't necessarily take ownership of the product. They're just facilitating the sale between the retailer and the consumer. It's another, what, confusing aspect of this, and it makes it a lot harder to measure the impact of online sales. You know, to me, that goes back to kinda where we started on this, is within our industry, there's a lot of things that are just hard to get information on. Alright? That that's one of them, that that and, you know, for us, because that because it's an independent liquor store who purchased the product. Right? So, they bought that from a whole from a wholesaler. We have that depletion, but they're not doing anything necessarily to designate what went out, the front door. And what went out via a drizzly delivery person or a third party provider. And yet, we've all been working along with you and I have been working in this for many decades, and we've managed our way through, and we're getting better and better information, better and better insight, and more and more timely information. SIPsource is one of the one of the providers of that. So, kudos to you and your team for putting all that together. It's good. Yeah. It it it it has been helpful. And, you know, for me, I think that, you know, and and I think there there's a a number of things that we always believe to be true. We are able now to validate that they are true and understand the magnitude of that truth. And, you know, for me, that's when you start thinking about different categories and they're relying on on premise. And, you know, so for vermouth, vermouth was very reliant on the on premise. Saki, very reliant on the on premise. In the sparkling world, Champagne, high degree of that product is sold through the on premise, a very high degree. You mentioned earlier on the Spirit site tequila. Tequila. Right? I always have said that name another drink, another cocktail that you go into a restaurant and order by the kitchen. Margaritas. Douglas tequila. God bless the fuel. So when you start to look when you start thinking about that, really now understanding the magnitude of how important the on premise is for those for those products, low end Sparkling wine, the bottomless mimosa promotions, the the sparkling wine brunch where they're pouring it as part of your brunch. Those things are going through, a lot of product in this country, and now to understand the magnitude of the below eight dollar you know what? On premise is pretty if you have an an under eight dollar sparkling line, the on premise is very important to that. Boy. And that's a tough one to do. Certainly by the traditional method and even by the Charmot bulk. Yeah. Okay. So let's kind of bring this thing around. I I like to end each interview with a question out of all the things that we've discussed. What's the big takeaway for listeners? For people who are trying to understand the US market and are getting some insights into the US market, and most of our listeners are are the trait. Is there one thing that we talked about that they can kinda take away and put to use immediately? Yeah. To to me, it's get the right tool to understand the business that you're going after and get the right data sources that can help you answer the questions that you need and that can monitor your success rate. Along the way. And I think SIP source is a very, very good tool to do those. It's not the only tool, but we're able now to you as you said, we're able to get better, and more accurate data It's more important now to use that data and apply that data to be successful than it ever has. The retailer is more sophisticated than they've ever been. They're only going to get more sophisticated. You know, in the on premise, we have definitely seen a reduction in the number of items carried. On premise is still still a difficult difficult channel to to survive it, and those operators are doing everything they can, and they're they're using information and they're using data, you need to show up with that data as well. That's part of the value add as a supplier that you can bring to the party is to, you know, I've always been a a believer in. People don't wanna buy your products. They they they wanna buy your products so that they can sell drinks to consumers and make money at it. That let's not lose focus on what we're doing here. Having a wonderful product is is not the the end goal here. The end goal is to to make people happy and come back and tell their friends about it. And so the the intermediary, the retailer, in the off premise and the on premise account benefit. We tend to lose sight of that, but I think that's important. Okay. SIP source. If people wanna know more about it, what's the URL? W w dot sipssource dot com. Well, that makes that easy. Okay. And if and if people wanna reach out to you directly and engage in a conversation would you be kind enough to share your email address? Absolutely. Dale dot stratton at a z u r dash associates dot com. Dale Stratton. Thank you very much for being my guest. It's always enjoyable, to to talk to you and see what you guys are doing. I think we're all kind of part and parcel of the same thing as moving this whole thing forward. I'd like to share the story of friend of mine once told Nathan. We get asked this all the time. What's the best bottle of wine or what's the best bottle of tequila, and the answer is the one I just sold. That's what we're in the business all about is moving product. So thank you much for, sharing your time with us. I appreciate it. Thank you very much. Look forward to chatting with you again soon. And, hopefully, we'll see each other at w s w a. It looks like that's gonna happen this year. Right? It's gonna happen. That's right. A convention is going to occur. So it's gonna be and I think they're they're doing a great job. It's gonna be a new format. Yeah. So information on that would be at w s w a dot org, and it's called the annual convention. It's gonna take place in Florida this year. And I believe it's April second through fifth, if I'm not mistaken. That is correct. You must have recently purchased your ticket. Alright. Once again, Dale. Thank you very much for joining us and, for those of our listeners tune in next week, and we'll have another very interesting conversation with someone from the beverage alcohol industry, in the United States on get US market ready with Italian wine people. This is Steve Ray saying goodbye until next week. We hope you enjoy today's episode brought to you by the wine to wine business forum twenty twenty two. This year, we'll mark the ninth edition of the forum to be held on November seventh and eighth twenty twenty two in verona Italy. Remember, tickets are on sale now. So for more information, please visit us at wine to wine dot net. Hi, guys. I'm Joy Livingston, and I am the producer of the Italian wine podcast. Thank you for listening. We are the only wine podcast that has been doing a daily show since the pandemic began. This is a labor of love and we are committed to bringing you free content every day. Of course, this takes time and effort not to mention the cost of equipment, production, and editing. We would be grateful for your donations, suggestions, requests, and ideas. For more information on how to get in touch, go to Italian wine podcast dot com.