May 28, 2024 • 27 mins
Join host Brandon Amoroso as he delves into the fascinating world of the alcohol industry with Michael Cella, a seasoned expert in consumer investment banking. In this episode, Cella shares valuable insights into the macroeconomic landscape of wineries and alcohol, challenging prevailing narratives with a contrarian perspective. From the impact of COVID on online alcohol sales to the rise of experiential retail, Michael and Brandon explore the trends shaping the industry's future. With a focus on resilience and innovation, this conversation offers valuable takeaways for entrepreneurs and investors alike. Join the conversation today to stay ahead in the ever-changing landscape of the alcohol industry.
Mike Cella:
LinkedIn - https://www.linkedin.com/in/michael-cella-54a49a2
Brandon Amoroso:
LinkedIn - https://www.linkedin.com/in/brandonamoroso/
Web - https://brandonamoroso.com/
Instagram - https://www.instagram.com/bamoroso11/
X - https://twitter.com/AmorosoBrandon
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:04):
Hey everyone, thank you for listening to the
Drinkscom podcast the businessof online alcohol.
I'm your host, brandon Amoroso,and today I'm talking with
Michael Cella, managing DirectorGroup Head of US Consumer
Investment Banking atOppenheimer Co.
Thanks for coming on.
Speaker 2 (00:25):
Great to be here.
Thanks, Brandon.
Speaker 1 (00:27):
So before we jump into some of the topics we want
to cover today, can you giveeverybody just a quick
background on yourself?
Speaker 2 (00:34):
Yeah for sure.
So, again, great to be here.
I'm a managing director and Irun the Consumer Investment
Banking Group at Oppenheimer.
I've been here for about a year, overall 20 years investment
banking experience, spent mostof my time working in the fun
(00:54):
subsectors of alcohol andcannabis, and so, as it relates
to alcohol, wine is one of theareas that I specialize in as
well.
So, based in San Francisco,wine is one of the areas that I
specialize in as well, so, basedin San Francisco, wine is an
industry that I care a lot aboutand have some family history in
as well.
Speaker 1 (01:12):
What's your family history in the wine?
Speaker 2 (01:23):
Yeah, so my grandparents were in the wine
business, actually sold wineduring Prohibition to the
Catholic Church, moved from NewYork to California, started in
the Central Valley andeventually sold their business
and moved up to NorthernCalifornia.
I also have a sister who's awinemaker in South Africa, so
we've kept that tradition going.
Speaker 1 (01:39):
Nice, I had no idea.
That's really cool and makesthis even more relevant for our
talk today.
So, pulling back from that,given that you're obviously on
the investment side, what doesthe macroeconomic environment
look like for wineries and justthe alcohol industry as a whole
(02:00):
in 2024?
And how does it differ from theCOVID period and even before
that?
Speaker 2 (02:07):
Well, I'll start by saying if you're reading the
headlines, there's a lot ofnegativity on the industry.
But maybe I'll take acontrarian view and look longer
term.
I don't think alcohol is goinganywhere.
I think the headlines for winein general have been California
(02:28):
wine industry is hurting.
There's some view of pain forspecific operators in the
industry.
Today, a lot of people consumeall the time.
If you compare it to the COVIDtimes, I think everyone was
(02:49):
pantry loading and buyingalcohol and consuming it on a
pretty regular basis.
I think we're now getting backto a new normal, which is the
kind of pre-COVID time, and sowe've seen some pullback in
terms of consumption.
I do think that there are someinteresting trends as it relates
to alcohol, where non-alcoholicoptions are growing, and I
(03:16):
think that that's an interestingdynamic.
But I still think that alcoholbroadly and wine specifically
are going to be consumed quiteregularly over time.
I will say the way thatconsumers are consuming is
changing a little bit too.
During COVID, online that'swhere you did your shopping that
(03:39):
took a lot of share from thetraditional brick and mortar
operators.
But we've had some more returnto normalcy in the last couple
of years where online hasn'tgrown as fast, but I think, if
you think about yourself andI'll speak for myself too I
generally trend towards buyingonline these days, and I think
(04:01):
that that's only going tocontinue over time as well.
Speaker 1 (04:03):
Yeah, I think the time and convenience factor,
especially as cities are gettingmore and more populous, it's
getting more and more difficultto even just get around and
commute.
The thought for me of going toa brick and mortar store is it's
almost impossible.
I don't even know when I woulddo it during the day, because I
(04:24):
basically have to block a fullhour and a half chunk to be able
to get in the car.
Drive there, find parking, getinto the store, go through the
selection process which is moredifficult, I would argue,
in-store than it is onlinebecause you don't have access to
all this information at yourfingertips and then you've got
to make the whole return tripback too, all this information
(04:46):
at your fingertips, and thenyou've got to make the whole
return trip back too.
And if you're in Miami, thebridge will probably go up
because there's a boat passingthrough, so then you'll sit
there for another 25 minutes.
That's the convenience thatpeople are getting familiar with
, especially with Amazon.
I mean, I can literally ordersomething you know tonight and
(05:07):
it'll be at my doorstep at 7 am.
Why would I ever you know everleave the house to go out and
get something like that?
So I think long term.
It's definitely going tocontinue in that direction.
But there were some, I think,overreactions in COVID.
From your perspective, whatwere some of the mistakes that
were made during the COVID sortof boom when it comes to online
alcohol and maybe not mistakes,because you know there's a lot
(05:28):
going on at that time and nobodyreally knew what was going on.
But looking back and obviouslyhindsight is 2020.
What were some of the misstepsthat have led to this being
worse than it would have beenotherwise, because obviously a
lot of industries are cyclicaland still there might have been
a downturn here even if itwasn't for COVID.
But what were some of thethings that happened during that
time period that have made it alittle bit more harsh in 2024?
Speaker 2 (05:52):
Yeah, I think that there are two key aspects.
One is expecting that revenuegrowth would continue
indefinitely.
I think businesses are right toprepare for upside and if you
look back, the last 20, 30 yearsin wine consumption has been
(06:13):
pretty consistent in going upand to the right and, you know,
preparing for the chance that itwouldn't do that, I think,
would have been a good thing todo.
The other is the cost dynamics.
We see inflation continues tobe challenging and building in
(06:37):
costs going up.
I don't think every company didthat.
I think that there was somehope that on the cost side
things could stay flat orefficiencies could be gained,
and so ultimate marginexpectations, I think, were
probably too high for some.
So I would say, both on therevenue and on the margin side,
(06:58):
being prepared for what is nowproving out to be a more
challenging time.
I think that could have beensomething that with hindsight
you know, kind of makes sense.
Speaker 1 (07:09):
Yeah, I think there's a lot of companies that are
sitting on quite a bit ofinventory right now.
It feels like as but not justin the alcohol vertical either.
I see it across the board wherethere was a mad dash to order
during that COVID boom and then,because of the supply chain
issues, a lot of the productdidn't get there until the
(07:30):
demand was already starting tosubside because regulations were
getting lifted.
And now there's quite a fewcompanies with too much stock on
their hands and are trying tofigure out ways to get through
that.
Speaker 2 (07:43):
Yeah, and with wine in particular, you know you
generally want to sell the mostcurrent vintage that's available
, whether it's a red or a white,the most current vintage that's
available, whether it's a redor a white, and so having too
much of a stockpile for priorvintages, it's going to be
costly to move through that.
Speaker 1 (08:00):
And when you're speaking with wineries and
alcohol companies at large, whatare some of the things that
they're thinking about or thatthey're focused on moving
through this period?
Speaker 2 (08:13):
I think it's being careful, making sure that the
companies have the financingthey need to be able to operate,
have a bigger cushion andbigger financial flexibility.
That said, we see this not justin wine, but I think you're
going to continue to see thehaves and the have-nots, where
some companies are doing justfine, and so I think, where
(08:37):
there's strength in the industry, those companies can continue
to grow and in some cases, theymay take advantage of other
companies that are having aharder time.
But look, in terms ofvaluations, we're not seeing
fire sale prices at this stage.
Um, I suppose it could come tothat, but even even if you just
(09:03):
look at the headlines, you knowyou think things are tough.
Valuations are holding updecently well and I think that
that's a testament to thestrength of the industry and the
overall long-term approach thatsome of these stronger
operators in the industry aretaking.
Speaker 1 (09:24):
And the thing that's pretty unique about at least the
wineries and some of the publiccoverage I've seen is that in
the case of most of the Shopifybrands we work with, you know
they're totally digitally native.
They have no retail presence.
They don't have any land.
They don't really have anyassets, it's just the products
that they're trying to sellthrough, whereas most of the
(09:45):
wineries out there, you knowthey own the land that they
produce on, they have thephysical, you know tasting room
where they're selling out of.
So they do have other thingsaside from that online sales
channel.
And I think you see it, withsort of the D2C brands that only
have D2C, they've been impactedthe most, whereas the ones that
(10:07):
do have those other channelsthat they've already been
selling through and they'reseeing more and more traction
through those.
Speaker 2 (10:14):
Yeah, and I take Napa or Sonoma as an example, we're
seeing consumer trends continueto be strong with what I'll call
experiential retail.
People are still traveling,people want to visit and so, to
your point, I think, having atasting room, people that are
(10:35):
going to wine country here inCalifornia and things are, I
think things are challenged butthere's still reason for
optimism as the consumer wantsto travel and have those sorts
of experiences have those sortsof experiences.
Speaker 1 (10:54):
Actually, on another podcast unrelated to alcohol
that I recorded literally justthis past Friday, all we talked
about was experience, retail andhow, as the younger generations
are getting older and older,they value experiences
significantly more thangenerations previous to them,
and that's starting to reflectitself in the way that they
(11:16):
purchase, but also in the waythat brands and retailers are
trying to market and, you know,create these experiences around
the products they sell, becauseit's not, you know, it's not
enough to go off of hype aloneor to have, you know, a product
that you're able to marketeffectively online.
I think the stats for somethinglike Gen Z and younger is
(11:41):
really frugal, like rather tightwith where they spend, except
when it comes to things likeexperiences, and a lot of that
has to do with the socialcomponent of it, because when
you go to that experience, youknow it's almost like social
signaling or status signaling,because you're posting about it
on Instagram, you know you'reshowing it to your friends.
It's more like an experiencebased economy than it is hyper
(12:03):
consumerism, trying to buylabels and things of that nature
.
That was sort of the way oldergenerations shop previous to
that, the way older generationsshop previous to that.
So I think it'll be curious tosee how wineries and alcohol
companies try to tap more intothat, because from my
perspective, you havealternative products or
alternative product formats thathave been entering the market
(12:25):
that are doing a better job ofthat, whether the branding
perceives more to the youngergeneration or, you know, they're
more focused on experientialpop-ups and things like that.
There's companies like Nomadicaor Bev or a lot of these other
like you know, sort of startupwine companies I mean Gary Vee,
like had his that, I think, soldto CBI and they are, I think,
(12:51):
pushing the industry forwardfaster than it would be moving
otherwise because of the waythat they're able to tap into
the younger audience throughsome of the things that they do
in that, in that front, yeah,that's an interesting dynamic
and wine, I think, in particularis is such a heritage driven
industry historically and Ithink it's been slower to move
(13:13):
and adapt than perhaps someother industries.
Speaker 2 (13:17):
But, to your point, there are new brands that are
exciting, that are speaking tothe next generation consumer,
and generational change in wine,I think, is a really important
dynamic that's going on rightnow and it'll be interesting to
see how it plays out.
Speaker 1 (13:34):
Yeah, and you have the low-alk and no-alk folks
that are starting to take moremarket share.
I think Athletic Brewing is afascinating company that
continues to seem growing anddoing really well though I don't
know if they actually are, butit feels like that category is
taking up a lot of steam andI've also heard from some
(13:55):
wineries that they're worriedabout cannabis as well, because
that is being viewed as analternative for some, especially
as cannabis moves into otherconsumption methods.
It's not just smoking it.
You can take tinctures, there'sdrinks, there's literally a
thousand different ways that youcan consume it now and it
actually is typically cheaper,like on a price per.
(14:17):
I forget what the term is, butif you're looking at even like a
canned beverage, it's typicallycheaper.
The cannabis alternative tolike wine in a can have you been
hearing that at all in terms ofa shifting in consumer trends
towards that as an alternativeversus alcohol?
Speaker 2 (14:37):
Absolutely.
There's no hangover, generallyno calories for cannabis and, to
your point, the amount of buzzthat you can get per dollar
spent, it's a pretty good dealif that's what you're looking
for in terms of consumption.
So, yeah, I think that thoseare all real dynamics that are
(15:02):
occurring.
What I would say is cannabis inthe United States, it remains
federally illegal.
There's been a lot of talkabout change and opportunity for
that to change in the future,but the reality is it's already
an industry that exists.
It's a $50 billion industry andthe way that people are
(15:25):
consuming cannabis is going tochange and I think the
regulatory environment is goingto change over time.
And if you, if you look atgenerationally, the number of
consumers that have triedcannabis of younger generations,
you know you might see more ofa preference shift for them to
(15:47):
wine.
But you know wine hashistorically been something that
can be aspirational and so, asyounger generations, you know,
advance their careers in theworkforce and build their wealth
, I think that there is anaspirational aspect to wine that
(16:07):
maybe doesn't exist in the sameway for cannabis, doesn't exist
in the same way for cannabis.
So, um, you know, I wouldn't, Iwouldn't be surprised if, um,
you know there's some initialpullback in consumption for
younger generations of in inwine.
Um, except for, maybe, thebrands that are really speaking
to them, uh, like, like thebrands that you mentioned
earlier.
Speaker 1 (16:27):
Yeah, I don't really know why, but it feels like, uh,
cannabis has sort of beenturned a little bit into a
commodity, uh, when there's it'svery difficult to have that
brand differentiation.
I mean, that's an industry thathas been hit really hard over
the past two, three years, whereit feels like companies are
just going out of business leftand right.
(16:49):
I mean there's obviously a fewwinners, but the market is
saturated with with supply.
There's still that aspirationalaspect to wine that I haven't
seen in cannabis, where there'sthat sort of legacy and history
and especially at the higher end, above a certain price point.
I think that'll continue topersist and, you know, as long
(17:12):
as they're able to maintain thatnot only the quality itself but
the perception of quality andvalue, I don't see them really
going anywhere and I think thatthat subset of the market hasn't
really been impacted that muchthroughout any of this, because
those are relatively consistentconsumers.
Speaker 2 (17:30):
Yeah, I think you bring up a good point.
There's not a national brand,or there aren't really national
brands in cannabis yet that havethe same sort of share that
other product categories outsideof cannabis have.
Part of that again is theregulatory environment, where
every state has a say as to whatthey want their cannabis market
(17:51):
to look like.
So there are a few examples ofbrands that have pretty good US
coverage, brands that havepretty good US coverage, but
what you see a lot of isindividual states with brands
that don't necessarily traveloutside that state yet, and so
alcohol has the benefit ofnational branding in a way that
(18:14):
cannabis doesn't.
So you're not wrong.
In terms of wholesale flowerprices in cannabis, those have
faced some pretty significantdownward pressure, and then,
moving away from the concept ofis this a commodity, is going to
be important if those companiesare going to build a brand over
time.
Speaker 1 (18:34):
Yeah, the brand differentiation, I think leads
itself into the experiencecomponent that we were talking
about earlier.
I think leads itself into theexperience component that we
were talking about earlier,Because the brands that really
can build out thatdifferentiation, it's all based
off of their customer base and,whether or not, you know, the
customer base is able to connectand relate to the brand.
(18:55):
And one of the best ways to dothis, to do that, is through the
experiences, which, sure, therethere is that component in in
cannabis, um, but it isdefinitely not as prolific as
the concept of going on a winerytour or going for a wine
tasting.
Um, maybe they'll change in 50years, but but I don't think
(19:17):
anytime soon.
Speaker 2 (19:18):
Yeah, I think it's going to take time.
The concept of going to a bar,enjoying alcohol at a meal,
doing a wine tasting, those areall very natural things.
There hasn't really been builtan equivalent in cannabis at
this stage and I think, to yourpoint, it may take decades to
(19:40):
get there.
Speaker 1 (19:41):
Given the current climate, would you say now is a
good or bad time to start analcohol business.
Speaker 2 (19:49):
Yeah, maybe I'm a contrarian and I think of the
Warren Buffett quote be greedywhen people are fearful and be
fearful when people are greedy.
I think we're in that marketwhere people are fearful right
now.
I think some of the M&Aactivity that happens in this
market is going to be reallylucrative for those buyers
(20:13):
because they're able to buy abusiness at a fair price rather
than maybe at a premium pricewhen things are better In terms
of starting a business.
I think that there will begreat businesses started right
now and I think in part becausethere are folks that are pulling
(20:36):
back and reading the headlines.
So, yeah, I'll be an optimistright now when people are
pessimists and say now is a goodtime.
Speaker 1 (20:45):
Yeah, I think I read an article somewhere and it
wasn't related to alcoholspecifically, but some of the
best businesses, and some ofeven the ones that we all
interact with today, werestarted downtimes or recessions,
and it's almost can be viewedas an opportunity, especially, I
(21:08):
think, coming off of the heelsof a big boom where a lot of the
existing players are maybereeling from some of the
missteps that they took duringthat uptick.
You could really, you know, bewell positioned, both from a
cash standpoint, but also just amarket opportunity standpoint,
to be able to take up some share.
But I feel like now would be agreat time to have a lot of
money to take advantage of someof these opportunities.
Speaker 2 (21:30):
Yeah, and I think you're going to see some parties
do that.
There are some recentacquisitions by Constellation
and Gallo Um.
You know these are some of thelargest uh wine businesses out
there and you know they'retaking advantage of what's uh uh
.
You know what, what's availablein the market.
Speaker 1 (21:53):
And alcohol is is not going anywhere, at least not
anytime soon.
So, um, it will always comeback.
I've got a couple of uh funquestions for you, uh, stepping
back from the the nitty grittyof the uh of the finance world.
But first, what is your yourfavorite wine memory, or it can
(22:15):
be alcohol memory.
Speaker 2 (22:17):
Yeah, great question.
I'd say wine tasting in Napa.
I did a tasting at Opus One foran anniversary recently and it
was fantastic and it reminds mewhat's so great about Napa.
(22:40):
I've probably done I don't knowover 100 wine tastings in my
life and it doesn't get old, andso I think the recent one that
I'm thinking of is one that is agreat memory.
But I think what makes it greattoo is it's a reminder of all
the other great memories of winetasting in wine country in
(23:04):
California.
Speaker 1 (23:06):
I think that's one of the unique things about wine
and alcohol in general is thatthere's typically you know, a
setting, an environment, aperson or a group of people that
you're with when you'reenjoying it, and that lends
itself to you know more thanjust being a product, because
there's memories associated withit.
You know you don't remembernecessarily the best bottle
(23:29):
you've ever had.
You remember the bottle becauseof who you're with, where you
were, what you were doing andall the other components that go
into it.
Speaker 2 (23:37):
Absolutely.
Speaker 1 (23:40):
Last one if you could share a bottle with anyone, who
would it be and what would youdrink?
Speaker 2 (23:46):
Ah, good question.
Um, I mean, I I feel like Imade the wife comment earlier so
that that that's the obviousanswer um, as I was referencing
my, my anniversary, but I'll,I'll, I'll, maybe I'll use a
more aspirational um idea.
Uh, in the future, um, you know, I think it would be really fun
(24:09):
.
Um, I, I have a, I have aposter of um, my grandfather
being in the, uh, one of the,the early italians in the, the
california Italians in theCalifornia wine industry, and
it's with all, all, the, all thenames that you still recognize
today.
I think it would be really coolto do a tasting with, kind of
(24:29):
the next generation winemakers.
You know big, bigger event andbe a part of.
You know what's going to be thenext hundred years of wine.
You know, in terms of bottle ortype of bottle or type of wine.
Maybe I'll give a crazy answer.
Rather than focus on the cultwines, I do think that
(24:52):
technology has an opportunity toimpact wine in the future.
So maybe something that UCDavis is doing around creating
flavor profiles for wine thatcan match what nature can do.
I think that that would be fun.
So I'm going to take afuturistic approach and maybe a
wine that doesn't quite existyet.
(25:12):
That could be made in the likesof a I don't know a Screaming
Eagle or a Colgan, but maybeit's done with more technology.
Speaker 1 (25:22):
That is an interesting point that you bring
up.
You know, if at a certain point, you can basically just
engineer wine to taste exactlylike the really high end stuff,
you know, is there a point wherethat has some sort of impact on
them?
Or is it similar to like havingan original painting versus
(25:45):
having copies of it?
I think that'll be aninteresting, interesting next 50
years.
Speaker 2 (25:53):
Yeah, yeah, and I think that there's always going
to be a place for the real thing.
You know, having a copy orsomething that's modified I
think will be really interesting.
But you know, take plant-basedmeat.
You know people are stilleating steaks, and people are
still eating high-end steaks,even though that there are
options that are, you know,interesting alternatives to that
(26:16):
.
So, alternatives to, uh, tothat.
Speaker 1 (26:19):
So yeah, agreed Well.
Thank you so much for joiningme.
Um, before we hop off here, uh,if anyone wants to uh connect
with with you?
Speaker 2 (26:32):
uh, where's the best place to find you?
Um, online?
Yeah, I'm on LinkedIn, um, soMichael Chella is is my name.
Feel free to connect and lookforward to talking about alcohol
, wine or anything else thattouches on the consumer.
So appreciate the plug.
Thanks, Brandon.
Speaker 1 (26:51):
Awesome.
Thanks for joining, as alwaysfor everybody listening.
This is Brandon Amoroso and youcan find us at drinkscom.
We will see you next time.
Hey everyone, thank you for listening to the
Drinkscom podcast the businessof online alcohol.
I'm your host, brandon Amoroso,and today I'm talking with
Michael Cella, managing DirectorGroup Head of US Consumer
Investment Banking atOppenheimer Co.
Thanks for coming on.
Speaker 2 (00:25):
Great to be here.
Thanks, Brandon.
Speaker 1 (00:27):
So before we jump into some of the topics we want
to cover today, can you giveeverybody just a quick
background on yourself?
Speaker 2 (00:34):
Yeah for sure.
So, again, great to be here.
I'm a managing director and Irun the Consumer Investment
Banking Group at Oppenheimer.
I've been here for about a year, overall 20 years investment
banking experience, spent mostof my time working in the fun
(00:54):
subsectors of alcohol andcannabis, and so, as it relates
to alcohol, wine is one of theareas that I specialize in as
well.
So, based in San Francisco,wine is one of the areas that I
specialize in as well, so, basedin San Francisco, wine is an
industry that I care a lot aboutand have some family history in
as well.
Speaker 1 (01:12):
What's your family history in the wine?
Speaker 2 (01:23):
Yeah, so my grandparents were in the wine
business, actually sold wineduring Prohibition to the
Catholic Church, moved from NewYork to California, started in
the Central Valley andeventually sold their business
and moved up to NorthernCalifornia.
I also have a sister who's awinemaker in South Africa, so
we've kept that tradition going.
Speaker 1 (01:39):
Nice, I had no idea.
That's really cool and makesthis even more relevant for our
talk today.
So, pulling back from that,given that you're obviously on
the investment side, what doesthe macroeconomic environment
look like for wineries and justthe alcohol industry as a whole
(02:00):
in 2024?
And how does it differ from theCOVID period and even before
that?
Speaker 2 (02:07):
Well, I'll start by saying if you're reading the
headlines, there's a lot ofnegativity on the industry.
But maybe I'll take acontrarian view and look longer
term.
I don't think alcohol is goinganywhere.
I think the headlines for winein general have been California
(02:28):
wine industry is hurting.
There's some view of pain forspecific operators in the
industry.
Today, a lot of people consumeall the time.
If you compare it to the COVIDtimes, I think everyone was
(02:49):
pantry loading and buyingalcohol and consuming it on a
pretty regular basis.
I think we're now getting backto a new normal, which is the
kind of pre-COVID time, and sowe've seen some pullback in
terms of consumption.
I do think that there are someinteresting trends as it relates
to alcohol, where non-alcoholicoptions are growing, and I
(03:16):
think that that's an interestingdynamic.
But I still think that alcoholbroadly and wine specifically
are going to be consumed quiteregularly over time.
I will say the way thatconsumers are consuming is
changing a little bit too.
During COVID, online that'swhere you did your shopping that
(03:39):
took a lot of share from thetraditional brick and mortar
operators.
But we've had some more returnto normalcy in the last couple
of years where online hasn'tgrown as fast, but I think, if
you think about yourself andI'll speak for myself too I
generally trend towards buyingonline these days, and I think
(04:01):
that that's only going tocontinue over time as well.
Speaker 1 (04:03):
Yeah, I think the time and convenience factor,
especially as cities are gettingmore and more populous, it's
getting more and more difficultto even just get around and
commute.
The thought for me of going toa brick and mortar store is it's
almost impossible.
I don't even know when I woulddo it during the day, because I
(04:24):
basically have to block a fullhour and a half chunk to be able
to get in the car.
Drive there, find parking, getinto the store, go through the
selection process which is moredifficult, I would argue,
in-store than it is onlinebecause you don't have access to
all this information at yourfingertips and then you've got
to make the whole return tripback too, all this information
(04:46):
at your fingertips, and thenyou've got to make the whole
return trip back too.
And if you're in Miami, thebridge will probably go up
because there's a boat passingthrough, so then you'll sit
there for another 25 minutes.
That's the convenience thatpeople are getting familiar with
, especially with Amazon.
I mean, I can literally ordersomething you know tonight and
(05:07):
it'll be at my doorstep at 7 am.
Why would I ever you know everleave the house to go out and
get something like that?
So I think long term.
It's definitely going tocontinue in that direction.
But there were some, I think,overreactions in COVID.
From your perspective, whatwere some of the mistakes that
were made during the COVID sortof boom when it comes to online
alcohol and maybe not mistakes,because you know there's a lot
(05:28):
going on at that time and nobodyreally knew what was going on.
But looking back and obviouslyhindsight is 2020.
What were some of the misstepsthat have led to this being
worse than it would have beenotherwise, because obviously a
lot of industries are cyclicaland still there might have been
a downturn here even if itwasn't for COVID.
But what were some of thethings that happened during that
time period that have made it alittle bit more harsh in 2024?
Speaker 2 (05:52):
Yeah, I think that there are two key aspects.
One is expecting that revenuegrowth would continue
indefinitely.
I think businesses are right toprepare for upside and if you
look back, the last 20, 30 yearsin wine consumption has been
(06:13):
pretty consistent in going upand to the right and, you know,
preparing for the chance that itwouldn't do that, I think,
would have been a good thing todo.
The other is the cost dynamics.
We see inflation continues tobe challenging and building in
(06:37):
costs going up.
I don't think every company didthat.
I think that there was somehope that on the cost side
things could stay flat orefficiencies could be gained,
and so ultimate marginexpectations, I think, were
probably too high for some.
So I would say, both on therevenue and on the margin side,
(06:58):
being prepared for what is nowproving out to be a more
challenging time.
I think that could have beensomething that with hindsight
you know, kind of makes sense.
Speaker 1 (07:09):
Yeah, I think there's a lot of companies that are
sitting on quite a bit ofinventory right now.
It feels like as but not justin the alcohol vertical either.
I see it across the board wherethere was a mad dash to order
during that COVID boom and then,because of the supply chain
issues, a lot of the productdidn't get there until the
(07:30):
demand was already starting tosubside because regulations were
getting lifted.
And now there's quite a fewcompanies with too much stock on
their hands and are trying tofigure out ways to get through
that.
Speaker 2 (07:43):
Yeah, and with wine in particular, you know you
generally want to sell the mostcurrent vintage that's available
, whether it's a red or a white,the most current vintage that's
available, whether it's a redor a white, and so having too
much of a stockpile for priorvintages, it's going to be
costly to move through that.
Speaker 1 (08:00):
And when you're speaking with wineries and
alcohol companies at large, whatare some of the things that
they're thinking about or thatthey're focused on moving
through this period?
Speaker 2 (08:13):
I think it's being careful, making sure that the
companies have the financingthey need to be able to operate,
have a bigger cushion andbigger financial flexibility.
That said, we see this not justin wine, but I think you're
going to continue to see thehaves and the have-nots, where
some companies are doing justfine, and so I think, where
(08:37):
there's strength in the industry, those companies can continue
to grow and in some cases, theymay take advantage of other
companies that are having aharder time.
But look, in terms ofvaluations, we're not seeing
fire sale prices at this stage.
Um, I suppose it could come tothat, but even even if you just
(09:03):
look at the headlines, you knowyou think things are tough.
Valuations are holding updecently well and I think that
that's a testament to thestrength of the industry and the
overall long-term approach thatsome of these stronger
operators in the industry aretaking.
Speaker 1 (09:24):
And the thing that's pretty unique about at least the
wineries and some of the publiccoverage I've seen is that in
the case of most of the Shopifybrands we work with, you know
they're totally digitally native.
They have no retail presence.
They don't have any land.
They don't really have anyassets, it's just the products
that they're trying to sellthrough, whereas most of the
(09:45):
wineries out there, you knowthey own the land that they
produce on, they have thephysical, you know tasting room
where they're selling out of.
So they do have other thingsaside from that online sales
channel.
And I think you see it, withsort of the D2C brands that only
have D2C, they've been impactedthe most, whereas the ones that
(10:07):
do have those other channelsthat they've already been
selling through and they'reseeing more and more traction
through those.
Speaker 2 (10:14):
Yeah, and I take Napa or Sonoma as an example, we're
seeing consumer trends continueto be strong with what I'll call
experiential retail.
People are still traveling,people want to visit and so, to
your point, I think, having atasting room, people that are
(10:35):
going to wine country here inCalifornia and things are, I
think things are challenged butthere's still reason for
optimism as the consumer wantsto travel and have those sorts
of experiences have those sortsof experiences.
Speaker 1 (10:54):
Actually, on another podcast unrelated to alcohol
that I recorded literally justthis past Friday, all we talked
about was experience, retail andhow, as the younger generations
are getting older and older,they value experiences
significantly more thangenerations previous to them,
and that's starting to reflectitself in the way that they
(11:16):
purchase, but also in the waythat brands and retailers are
trying to market and, you know,create these experiences around
the products they sell, becauseit's not, you know, it's not
enough to go off of hype aloneor to have, you know, a product
that you're able to marketeffectively online.
I think the stats for somethinglike Gen Z and younger is
(11:41):
really frugal, like rather tightwith where they spend, except
when it comes to things likeexperiences, and a lot of that
has to do with the socialcomponent of it, because when
you go to that experience, youknow it's almost like social
signaling or status signaling,because you're posting about it
on Instagram, you know you'reshowing it to your friends.
It's more like an experiencebased economy than it is hyper
(12:03):
consumerism, trying to buylabels and things of that nature
.
That was sort of the way oldergenerations shop previous to
that, the way older generationsshop previous to that.
So I think it'll be curious tosee how wineries and alcohol
companies try to tap more intothat, because from my
perspective, you havealternative products or
alternative product formats thathave been entering the market
(12:25):
that are doing a better job ofthat, whether the branding
perceives more to the youngergeneration or, you know, they're
more focused on experientialpop-ups and things like that.
There's companies like Nomadicaor Bev or a lot of these other
like you know, sort of startupwine companies I mean Gary Vee,
like had his that, I think, soldto CBI and they are, I think,
(12:51):
pushing the industry forwardfaster than it would be moving
otherwise because of the waythat they're able to tap into
the younger audience throughsome of the things that they do
in that, in that front, yeah,that's an interesting dynamic
and wine, I think, in particularis is such a heritage driven
industry historically and Ithink it's been slower to move
(13:13):
and adapt than perhaps someother industries.
Speaker 2 (13:17):
But, to your point, there are new brands that are
exciting, that are speaking tothe next generation consumer,
and generational change in wine,I think, is a really important
dynamic that's going on rightnow and it'll be interesting to
see how it plays out.
Speaker 1 (13:34):
Yeah, and you have the low-alk and no-alk folks
that are starting to take moremarket share.
I think Athletic Brewing is afascinating company that
continues to seem growing anddoing really well though I don't
know if they actually are, butit feels like that category is
taking up a lot of steam andI've also heard from some
(13:55):
wineries that they're worriedabout cannabis as well, because
that is being viewed as analternative for some, especially
as cannabis moves into otherconsumption methods.
It's not just smoking it.
You can take tinctures, there'sdrinks, there's literally a
thousand different ways that youcan consume it now and it
actually is typically cheaper,like on a price per.
(14:17):
I forget what the term is, butif you're looking at even like a
canned beverage, it's typicallycheaper.
The cannabis alternative tolike wine in a can have you been
hearing that at all in terms ofa shifting in consumer trends
towards that as an alternativeversus alcohol?
Speaker 2 (14:37):
Absolutely.
There's no hangover, generallyno calories for cannabis and, to
your point, the amount of buzzthat you can get per dollar
spent, it's a pretty good dealif that's what you're looking
for in terms of consumption.
So, yeah, I think that thoseare all real dynamics that are
(15:02):
occurring.
What I would say is cannabis inthe United States, it remains
federally illegal.
There's been a lot of talkabout change and opportunity for
that to change in the future,but the reality is it's already
an industry that exists.
It's a $50 billion industry andthe way that people are
(15:25):
consuming cannabis is going tochange and I think the
regulatory environment is goingto change over time.
And if you, if you look atgenerationally, the number of
consumers that have triedcannabis of younger generations,
you know you might see more ofa preference shift for them to
(15:47):
wine.
But you know wine hashistorically been something that
can be aspirational and so, asyounger generations, you know,
advance their careers in theworkforce and build their wealth
, I think that there is anaspirational aspect to wine that
(16:07):
maybe doesn't exist in the sameway for cannabis, doesn't exist
in the same way for cannabis.
So, um, you know, I wouldn't, Iwouldn't be surprised if, um,
you know there's some initialpullback in consumption for
younger generations of in inwine.
Um, except for, maybe, thebrands that are really speaking
to them, uh, like, like thebrands that you mentioned
earlier.
Speaker 1 (16:27):
Yeah, I don't really know why, but it feels like, uh,
cannabis has sort of beenturned a little bit into a
commodity, uh, when there's it'svery difficult to have that
brand differentiation.
I mean, that's an industry thathas been hit really hard over
the past two, three years, whereit feels like companies are
just going out of business leftand right.
(16:49):
I mean there's obviously a fewwinners, but the market is
saturated with with supply.
There's still that aspirationalaspect to wine that I haven't
seen in cannabis, where there'sthat sort of legacy and history
and especially at the higher end, above a certain price point.
I think that'll continue topersist and, you know, as long
(17:12):
as they're able to maintain thatnot only the quality itself but
the perception of quality andvalue, I don't see them really
going anywhere and I think thatthat subset of the market hasn't
really been impacted that muchthroughout any of this, because
those are relatively consistentconsumers.
Speaker 2 (17:30):
Yeah, I think you bring up a good point.
There's not a national brand,or there aren't really national
brands in cannabis yet that havethe same sort of share that
other product categories outsideof cannabis have.
Part of that again is theregulatory environment, where
every state has a say as to whatthey want their cannabis market
(17:51):
to look like.
So there are a few examples ofbrands that have pretty good US
coverage, brands that havepretty good US coverage, but
what you see a lot of isindividual states with brands
that don't necessarily traveloutside that state yet, and so
alcohol has the benefit ofnational branding in a way that
(18:14):
cannabis doesn't.
So you're not wrong.
In terms of wholesale flowerprices in cannabis, those have
faced some pretty significantdownward pressure, and then,
moving away from the concept ofis this a commodity, is going to
be important if those companiesare going to build a brand over
time.
Speaker 1 (18:34):
Yeah, the brand differentiation, I think leads
itself into the experiencecomponent that we were talking
about earlier.
I think leads itself into theexperience component that we
were talking about earlier,Because the brands that really
can build out thatdifferentiation, it's all based
off of their customer base and,whether or not, you know, the
customer base is able to connectand relate to the brand.
(18:55):
And one of the best ways to dothis, to do that, is through the
experiences, which, sure, therethere is that component in in
cannabis, um, but it isdefinitely not as prolific as
the concept of going on a winerytour or going for a wine
tasting.
Um, maybe they'll change in 50years, but but I don't think
(19:17):
anytime soon.
Speaker 2 (19:18):
Yeah, I think it's going to take time.
The concept of going to a bar,enjoying alcohol at a meal,
doing a wine tasting, those areall very natural things.
There hasn't really been builtan equivalent in cannabis at
this stage and I think, to yourpoint, it may take decades to
(19:40):
get there.
Speaker 1 (19:41):
Given the current climate, would you say now is a
good or bad time to start analcohol business.
Speaker 2 (19:49):
Yeah, maybe I'm a contrarian and I think of the
Warren Buffett quote be greedywhen people are fearful and be
fearful when people are greedy.
I think we're in that marketwhere people are fearful right
now.
I think some of the M&Aactivity that happens in this
market is going to be reallylucrative for those buyers
(20:13):
because they're able to buy abusiness at a fair price rather
than maybe at a premium pricewhen things are better In terms
of starting a business.
I think that there will begreat businesses started right
now and I think in part becausethere are folks that are pulling
(20:36):
back and reading the headlines.
So, yeah, I'll be an optimistright now when people are
pessimists and say now is a goodtime.
Speaker 1 (20:45):
Yeah, I think I read an article somewhere and it
wasn't related to alcoholspecifically, but some of the
best businesses, and some ofeven the ones that we all
interact with today, werestarted downtimes or recessions,
and it's almost can be viewedas an opportunity, especially, I
(21:08):
think, coming off of the heelsof a big boom where a lot of the
existing players are maybereeling from some of the
missteps that they took duringthat uptick.
You could really, you know, bewell positioned, both from a
cash standpoint, but also just amarket opportunity standpoint,
to be able to take up some share.
But I feel like now would be agreat time to have a lot of
money to take advantage of someof these opportunities.
Speaker 2 (21:30):
Yeah, and I think you're going to see some parties
do that.
There are some recentacquisitions by Constellation
and Gallo Um.
You know these are some of thelargest uh wine businesses out
there and you know they'retaking advantage of what's uh uh
.
You know what, what's availablein the market.
Speaker 1 (21:53):
And alcohol is is not going anywhere, at least not
anytime soon.
So, um, it will always comeback.
I've got a couple of uh funquestions for you, uh, stepping
back from the the nitty grittyof the uh of the finance world.
But first, what is your yourfavorite wine memory, or it can
(22:15):
be alcohol memory.
Speaker 2 (22:17):
Yeah, great question.
I'd say wine tasting in Napa.
I did a tasting at Opus One foran anniversary recently and it
was fantastic and it reminds mewhat's so great about Napa.
(22:40):
I've probably done I don't knowover 100 wine tastings in my
life and it doesn't get old, andso I think the recent one that
I'm thinking of is one that is agreat memory.
But I think what makes it greattoo is it's a reminder of all
the other great memories of winetasting in wine country in
(23:04):
California.
Speaker 1 (23:06):
I think that's one of the unique things about wine
and alcohol in general is thatthere's typically you know, a
setting, an environment, aperson or a group of people that
you're with when you'reenjoying it, and that lends
itself to you know more thanjust being a product, because
there's memories associated withit.
You know you don't remembernecessarily the best bottle
(23:29):
you've ever had.
You remember the bottle becauseof who you're with, where you
were, what you were doing andall the other components that go
into it.
Speaker 2 (23:37):
Absolutely.
Speaker 1 (23:40):
Last one if you could share a bottle with anyone, who
would it be and what would youdrink?
Speaker 2 (23:46):
Ah, good question.
Um, I mean, I I feel like Imade the wife comment earlier so
that that that's the obviousanswer um, as I was referencing
my, my anniversary, but I'll,I'll, I'll, maybe I'll use a
more aspirational um idea.
Uh, in the future, um, you know, I think it would be really fun
(24:09):
.
Um, I, I have a, I have aposter of um, my grandfather
being in the, uh, one of the,the early italians in the, the
california Italians in theCalifornia wine industry, and
it's with all, all, the, all thenames that you still recognize
today.
I think it would be really coolto do a tasting with, kind of
(24:29):
the next generation winemakers.
You know big, bigger event andbe a part of.
You know what's going to be thenext hundred years of wine.
You know, in terms of bottle ortype of bottle or type of wine.
Maybe I'll give a crazy answer.
Rather than focus on the cultwines, I do think that
(24:52):
technology has an opportunity toimpact wine in the future.
So maybe something that UCDavis is doing around creating
flavor profiles for wine thatcan match what nature can do.
I think that that would be fun.
So I'm going to take afuturistic approach and maybe a
wine that doesn't quite existyet.
(25:12):
That could be made in the likesof a I don't know a Screaming
Eagle or a Colgan, but maybeit's done with more technology.
Speaker 1 (25:22):
That is an interesting point that you bring
up.
You know, if at a certain point, you can basically just
engineer wine to taste exactlylike the really high end stuff,
you know, is there a point wherethat has some sort of impact on
them?
Or is it similar to like havingan original painting versus
(25:45):
having copies of it?
I think that'll be aninteresting, interesting next 50
years.
Speaker 2 (25:53):
Yeah, yeah, and I think that there's always going
to be a place for the real thing.
You know, having a copy orsomething that's modified I
think will be really interesting.
But you know, take plant-basedmeat.
You know people are stilleating steaks, and people are
still eating high-end steaks,even though that there are
options that are, you know,interesting alternatives to that
(26:16):
.
So, alternatives to, uh, tothat.
Speaker 1 (26:19):
So yeah, agreed Well.
Thank you so much for joiningme.
Um, before we hop off here, uh,if anyone wants to uh connect
with with you?
Speaker 2 (26:32):
uh, where's the best place to find you?
Um, online?
Yeah, I'm on LinkedIn, um, soMichael Chella is is my name.
Feel free to connect and lookforward to talking about alcohol
, wine or anything else thattouches on the consumer.
So appreciate the plug.
Thanks, Brandon.
Speaker 1 (26:51):
Awesome.
Thanks for joining, as alwaysfor everybody listening.
This is Brandon Amoroso and youcan find us at drinkscom.
We will see you next time.
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