Three out of four economists believe there will be a recession in the United States by 2021. Some believe that the recession could happen before the next presidential election, according to a survey by the National Association of Business Economics
I have been in the wine industry for over two decades, and have seen all economic cycles. The United States has been a model of economic prosperity for the past decade, with rising wages, low unemployment and a very strong stock market. However, with the poor global outlook, trade war and political turmoil, it certainly feels as though the American economy is increasingly at risk. An important question for any alcohol beverage retailer is how to smartly prepare for things potentially taking a turn for the worse.
After serving as chairman of the Pennsylvania Liquor Control Board, I left in early 2007 to start my own wine brokerage company, primarily focusing on sourcing value wines from Napa and Sonoma for retailers. My timing was not great. The financial crisis of 2007-08 was just around the corner.
During the summer and fall of 2008, the economic climate was most uncertain. If a retailer typically bought a display of 28 cases, they would cut back to a 14-case layer to avoid getting bogged down with too much inventory. In 2009, there was more confidence in the market, and it soon became a string of years of prosperity. But in 2008, there was little confidence in the consumer’s spending patterns, and customers were trading down.
The alcohol beverage industry is indeed more protected than most luxury businesses. The adage that people drink in good and bad times is true, but consumers do trade down when they have fewer dollars for discretionary spending.
While there is no easy answer on how to weather an economic
crisis, it is important to be proactive while smartly managing your
inventory. After all, in addition to economic gyrations, our industry
faces other challenges — such as marijuana sales and trade tariffs — that will put
further pressure on market share and pricing.
It is my experience that the most important factor in surviving an economic downturn is to buy smartly.
It’s not just about buying less inventory. It’s about the turn of your inventory and the salability of your stock. I have found that savvy retailers can use an economic downturn to increase their market share from other competitors who are asleep at the switch.
Compelling wine and spirit offerings that resonate with consumers are crucial to surviving a challenging marketplace. It is important to be interactive with your sales reps and vendors to take advantage of special offers that will get your customers excited. Understand the demographics and spending patterns of your customer base. And if you find compelling deals that give you a leg up on your competition, train your staff to communicate with your consumers effectively to excite them about your special offerings.
During economic downturn, it cannot be business as usual. I found that retailers who diversified their stock, and adapted to changing business conditions, created a strong model for thriving when the economy came back. When I founded Pennsylvania’s Chairman Selection program (using our purchasing power for compelling wine buys) I discovered that consumers later returned to purchase more in state. And in the rough-and-tumble New Jersey retail market, the stores that brought in compelling specials and adapted were able to weather the storm and actually grow their base.
In a challenging economy, it is all about clearing out your stagnant inventory and focusing on building up your “good” inventory of product. Focus on whatever excites your consumers at the right price points. And well-trained staff and superior customer service become even more important when weathering tough times.
As chairman of the Pennsylvania Liquor Control Board, Jonathan Newman was once the nation’s largest wine buyer, and brought a number of popular innovations to bear, including the Chairman’s Selection program and opening of local stores for Sunday sales. Follow him on Twitter at @NewmanWine and visit his website: newmanwine.com. Read his recent pieces Forecasting Napa and Sonoma’s 2019 Vintages and How to Successfully Retail Wine Online.