The Whale is Gone

This is an article I wrote in January of 2009 in the full swing of the economic crisis. I wonder if it still rings true today.

Boy has wine retail changed since September. More in New York than the rest of the country but the rest of the country is not off the hook. Why has it changed? Well…duh…the recession. But this recession as has been said is not like any other. It has a ripple effect, as I like to call it and runs deeper than any other recession of the past 100 years.

Now the wine retail stores I am talking about are “destination stores.” What are destination wine stores? Simply put they are stores that you make a special trip to go to or order from because they have items that your normal neighborhood joint does not have. Anybody reading this blog post knows what a destination store is as I am sure all my readers shop at them.

What is a whale besides the obvious definition of the largest mammal on earth? They are the lifeblood of these destination wine stores. These are the guys who buy those 2 cases of DRC or 1st growth Bordeaux every month and pay your bills so you, as the buyer/owner, can buy the wines you really care about. Every store I have ever worked in lived and died by the whale. They spent their money easily as they made it. Even though behind closed doors, retailers sometimes bitched about the whales, we all were thankful that they existed.

Now who is the whale? In New York they typically came from Wall Street or the real estate game. Sometimes they were lawyers or doctors, but as a result of the real estate bubble and the stock market bubble of recent years, the Wall Streeters and the real estate guys were the major players during the wine boom. Obviously there were exceptions to the rules, but these were the major players in the market.

As a retailer I was always aware of the whale but had little interest in selling to them as it was much more rewarding to me to sell Riesling to college professors or book publishers. I started off my retail journey in Boston, maybe that’s where my tendency to prefer selling wine to academia came from. The whale existed in Boston but not to the extent it did in New York City. At my first retail gig, I was shocked to see huge orders from random people I would never see for huge amounts of Bordeaux, Burgundy, Rhone, high scoring Parker Italians, Aussies and California wines. The whale did not like to be seen and did most of his shopping over the phone with the owner of the store. The whale likes to be coddled. If they are spending 10K on wine they need to feel good about it. It does not matter what they buy as long as they feel good about it. In itself, spending 10K on wine for personal consumption is folly anyway.

The more stores I moved to the more I saw the whale was actually the key to business. Yes walk-in and Internet business were and are important but that $30,000 order for 19 bottles of wine was pretty sweet. Everybody would celebrate and maybe a special bottle would be opened for the staff. Happy happy joy joy.

Eventually I started selling to whales. I was quite good at it. There was really not much to it. I tried to keep the ass kissing to a minimum and make them feel good by making them think they were buying wine from someone who actually knew what they were talking about. They were!

Soon whale sales started to become bigger and bigger and become the foundation for many retail stores in NYC and the rest of the country. It was a joyous time for retail and many stores rode that wave very successfully. No one thought it would end. The money was easy and you could almost price the wine at whatever you wanted. It would still move. Of course 2005 in Burgundy and Bordeaux helped. I’m not sure what happened but market conditions went crazy. Real estate and wine almost mirrored each other. People were wowed by $1,500 per square foot numbers, as they were by DRC 2005 trading at $15K a bottle only months after release. There was promise it would never end or people never wanted it to end, as they were in such denial that it could end. The whales were important in 2000, 2001 and 2002 but not nearly as important as they were in 2005, 2006, 2007 and the first part of 2008. There was acceleration in the market for the whale. They were also being marketed towards more. Whales were happy, retail stores were happy and everyone was on top of the world. Boy, how things can change in a New York minute.

September 2008. A month that will go down in infamy. Lehman dies. Market goes down 777 points in one day. The whales go into hibernation. They still haven’t come back. As the recession became worse and worse a new fiscal reality was thrust onto wine stores. The good times were over. The whales were losing money, houses, jobs and much more. Then the ripple effect started. The whales could not justify spending $500 on a bottle of wine much less a case at $500 a bottle. That business vanished right during a time of the year, the holiday season, when sales were expected to grow and many retailers were thirstily awaiting a record breaking holiday season. They were ready to get all those corporate gift orders and pound on the whales. They had to spend their bonuses somewhere and what is more fun than dropping 50K on wine? Records were broken, but not the ones retailers wanted to break. With no whales, sales dropped in record numbers. There was also a tremendous backlog of high-end inventory that was eating away at retailers’ bottom lines.

Then a cultural shift began to happen. With the economy in tatters and getting worse by the day excess started to be frowned upon. Junkets to Vegas, expense account dinners, Brioni blazers, weekends in St. Bart’s were looked upon as unnecessary excesses in this time of grave crisis. This trickled down to wine retail in that the over $100 category pretty much died. I mean honestly speaking the over $30 category died, but those people who spent $30 - $100 on a bottle were trading down. So that category at least was being replaced by other purchases. But over $100 was hurting and over $1,000 was just unheard of and still is.

Why is the whale gone? Right now there is an expendable income paradigm shift happening in this country. It is becoming less acceptable to spend outrageous sums of money on fetishistic objects like wine, clothes, food, etc. The longer this goes on, the harder it is for things like $1,000 bottles of Harlan to come back into fashion. The longer this goes on, the more embedded this thought process becomes in our minds and the less and less acceptable it becomes to engage in the behavior of the past previously thought of as acceptable. The more recent the past is, the easier it is to recapture that vibe of excess. These are minimal changes compared to what will happen in the future when the children of today do not have social security when they retire. So the longer this recession goes on, the bigger the risk of the whale completely disappearing. What does that mean for wine retail?

Well one thing it means for wine retail is that people like me, who bring added value to a store, will no longer have jobs or will have a significantly reduced role in their current retail situation. At my last retail job I was hired with the idea that I would get a cut of the profits from the whales I would bring to the store. I thought this was great. I made a lot of money and was happy selling wine to these whales. Never did I think in my wildest dreams that I would lose my job as the economy went in the tank. But I had a high salary and a high bonus structure and as a result, I was not bringing added value to the store anymore. I was a money vacuum. So I was rendered jobless.

I also have a friend who has a wholesale license in Massachusetts, but his specialty was buying from auction and Europe and selling to wealthy collectors. The regular wholesale part of the business was really not his deal, but he more than added to the bottom line with all of his sales that exploited the inefficiencies of the market. Now, since the economy is in the crapper, may you ask what he is doing? Dating a lot. Looking to get into the music management business as his business died. He dealt with the ultra high end aspect of the market and that is all about dead right now.

A new business model has to be developed. A result of this business model change will affect everybody in the distribution chain all the way up to the producer. If there is less high-end wine to sell then the producer will eventually make less high-end wine. We are years from that but I predict that will happen. There always will be people with money and there will always be expensive wine for them to buy.

Retailers will also have to change. They cannot depend on those 2 or 3 big sales that make the month easy. There needs to be a new strategy, as the whale is not coming back for a long time, if ever. I do not have solutions but I suspect it will be a combination of more aggressive marketing, less high-end wine in inventory and a return to the back to basics approach used before the money became this easy. It won’t get easier for the retailer but I am sure it will be more rewarding as they will have to work harder for their money and know that the wines they believe in are putting a roof over their heads.