OPPORTUNITYThere overtake the Boomers by 2021 to become

OPPORTUNITYThere is an overlooked opportunity within the US wine industry in the Premium Red Blend category for an influential, neglected target market .Wine Industry. Total wine sales in the US from October 2016 to October 2017 including imports was $62 billion and 5% growth, domestic US wine sales were $41 billion, and a growth rate of 4% over the same period (ref 2). “The wine industry experienced a compound annual growth rate (CAGR) of 1.9 percent from 2011 to 2016” (ref 8).  The top five varietals in US wine sales accounted for $8.745 billion dollars over the past 12 months. Chardonnay number one at 29.2%, Cabernet Sauvignon number two at 26.4%, and red blends are number three with 18.8% followed by Pinot Grigio and Pinot Noir at 14.1% and 11.5%, respectively. Premium Wine Category. In 2016, the US premium varietal table wine ($8-$14.99) volume was $10.1 billion, an increase of 5.4%, and 122 million cases, a 2.7% increase over the previous year (ref 1).  “2016 saw 10% growth in red blend sales from 2015. And that wine trend doesn’t seem to be slowing, only picking up steam” (ref 10); it is predicted to grow 10-14% in 2017. Shrinking Customer Base.  The US wine industry is losing it largest consumer segment, Baby Boomers, as they retire, consume and spend less, and pass away. According to recent Pew Research data, the US population has 77 million Baby Boomers, 65 million Gen X, and 83 million Millennials.  As of 2015, Boomers accounted for 41% of wine purchases, while Gen X and Millennials accounted for 32% and 16%, respectively.  “The GenXers are the center of the teeter-totter,” Rob McMillan, EVP and Founder of Silicon Valley Bank’s Wine Division says. “They are holding up the retail sales. As we see boomers retiring, the same number of financially-disadvantaged millennials are coming into the potential market, who by every measure are not expected to have the same opportunities as boomers had. Due to delays in careers, there is a pothole in consumer spending” (ref 11).  It is estimated, Gen X will overtake the Boomers by 2021 to become the largest consumers of US fine wine, and will hold that position until at least 2026. Currently, Gen X is already spending more per bottle than either Millennials or Baby Boomers (ref 9). “Generation X includes everyone from ages 32 through 53. It’s the most influential living generation. These are our decision makers at both the professional and political levels. They wield more spending power than Boomers or Millennials and they are the most inclined to use that power” (ref 8).Competition. The wine industry is an extremely competitive space and wineries are looking for opportunities to expand their consumer base focus on millennial completely overlooking the large potential in Generation X. All leading brands in the premium red blends category are millennial-focused, like leaders Apothic and Ménage à Trois, and one of the fastest growing brands, 19 Crimes. Unmet Consumer Needs. There are two unmet needs: first, there is an absence of wine brands speaking to Gen X, and second, the absence of wine brands that fulfill higher-level needs of esteem, social interaction, and self-actualization found at the top of Maslow’s Hierarchy. Generation X already drinks premium wines, but they are missing one that they can feel good about choosing.  “90% of consumers surveyed say they are likely to switch brands to support a cause if both brands are similar in price and quality. More startling is that 57 percent would purchase a product of lesser quality if it was better for the environment or society” (ref 8).  Both Gen X and Millennial consumers want brands with authenticity and not just advertising or marketing campaigns; they want to feel good about the purchases that they are making.SOLUTIONOverview. The Rally Point Company (RPC) will be a purpose-based wine company offering  a wine option in the premium red blend category, branded as Yellow Ribbon Wines that targets Generation X. Gen X in highly-populated military-friendly regions will be the company’s super consumer. RPC will raise awareness for military veterans and issues that affect them and their families, partner with organizations and events supporting our military veterans, and will make donations from every wine sale to those organizations. Wine with a higher purpose provides consumers a point of difference over the brands that dominate the category.Product. Top quality premium wine and packaging materials sourced from qualified suppliers. Red Blend wine that is fruity, smooth, and slightly sweet in 750ml glass claret bottles with screw-cap closures, pressure sensitive labels, and printed corrugated carton shippers. Wine will be sourced from throughout the state of California then blended and bottled in Healdsburg, California.Features & Benefits. The wine features the same profile and attributes of other premium red blend wines that customers will equally enjoy . The quality is equal to or better than wines in the category so consumers can trust the brand and enjoy the wine over and over again. The price is competitive to the category and current leaders so consumers will not feel any financial sacrifice. However, it is the purpose of the brand that is the key feature and provides an emotional benefit because consumers get to feel good about their wine purchases, what their purchases say about them, and something they can feel good about sharing. By drinking and sharing Yellow Ribbon Wines they are helping veterans. Additionally, the brand provides information and opportunities to individuals for community involvement and active participation in efforts supporting veterans and their families.Unique Selling Position. Yellow Ribbon Wines brand will use a long-established symbol of supporting veterans which is the yellow ribbon. The company will specifically target Generation X with an affordable, high-quality wine, an authentic purpose (military veterans), in highly-populated military-friendly regions, and support or sponsor large events in those key areas.Target Market. They are employed men and women with white and blue-color jobs, ages 37-52, home-owners, with children living at home (if they have them).  They are easy to reach and consume traditional media (newspaper, radio, and television) but also keep up with digital technology and social media; they use YouTube for nostalgia, how-to videos, and sharing memories with their children. They are nostalgic to the time from teens to late-20s especially in music, movies, and television, but to some degree with cars, and fashion. They are health-conscience, and want to be fit. They like to go shopping, and watch college football.  They give to charites and are willing to fundraise for a cause, pledge, and volunteer their time (ref 13).Gen Xers are high-frequency wine drinkers who “consume wine daily or several times per week (Wine Market Council, 2015)” and some are occasional wine drinkers who “consume wine once a week or less (Wine Market Council, 2015).”  They purchase their wine predominantly at grocery and wine shops.  They live  in highly-populated military-friendly regions like Washington DC, Dallas/Ft. Worth, Austin, Houston, Charleston, Baltimore, Colorado Springs, and San Diego. They are likely to switch brands to one that supports a good cause, and would buy a product with a social and/or environmental benefit if given the opportunity, given similar price and quality (ref 12).MACRO-SOCIETAL ANALYSISThe wine industry faces constant external macroeconomic and micro-societal forces. A detailed PESTLE (Political, Economic, Social, Technological, Legal, Environmental) analysis was conducted to evaluate those factors.  Political Factors. The wine industry is highly regulated and has to deal with arcane post-prohibition laws that are different for nearly every state in the union.  The US is broken down into two categories for states: Open States and Control States. There are 33 open states and they are defined as “any company with a valid license to distribute alcohol has the power to do so” (ref 15).   “Seventeen states and jurisdictions in Alaska, Maryland, Minnesota and South Dakota adopted forms of the ‘Control’ model. They control the sale of distilled spirits and, in some cases, wine and beer through government agencies at the wholesale level (ref 14).” Most of these state have state-owned liquor stores most commonly known as ABC stores (Alcohol Control Board).Economic Factors. The US economy is bullish and seems to be in a boom mode, but there are still lingering memories of the 2008 financial crisis. GDP was $19.501 trillion in the third quarter of 2017, and is estimated to grow by 3.15% in the first three months of 2018. The lift from the fiscal stimulus, which includes a sharp reduction in the corporate income tax rate to 21 percent from 35 percent, is likely to be modest as the stimulus is occurring with the economy operating almost at capacity.  For all of 2017, the economy created 2.1 million jobs, below the 2.2 million added in 2016. It was the seventh year in a row that the economy generated more than 2 million jobs. The unemployment rate was unchanged at a 17-year low of 4.1 percent. Economists believe the overall unemployment rate could drop to 3.5 percent by the end of this year, which would be the lowest since the late 1960s.  Consumer confidence hit 122.1 in December, slightly below the 17-year high set in November, 128.6. In December 2017, the federal government passed the Tax Cuts and Jobs Act of 2017, the first sweeping tax reform since 1986 during Reagan’s presidency.  The new tax bill took effect on January 1, 2018. For businesses, the new law has a permanent flat 21% corporate tax rate, bonus depreciation deductions from 50% to 100% for five years then gradually fading out, and many common business deductions and credits. For the wine industry, the bill has changed the excise tax to $1.07 per gallon for wines up to 16% alcohol, but this is only for two years unless renewed or made permanent.  Previously, wine was taxed at $1.07 per gallon up to 14% alcohol and $1.57 per gallon for wines above 14% alcohol; the 14% threshold was arbitrary and not understood by the wine industry. The law was billed a growth driver and boon to businesses.  “On December 22, In response to the tax cut bill that passed, John Jordan, owner of Jordan Winery in Sonoma County, California, announces that he will give all eligible winery employees a $1,000 bonus as a result of the passage of the 2017 tax reform bill. Jordan challenges fellow business owners to pledge their $1,000-per-employee commitments before the end of 2017 at a new website, www.1Country1K.com” (ref 19). The goal of that challenge is for businesses to collectively give $1 billion worth of $1,000 bonuses to their employees.Despite all of the favorable factors, some economists are concerned that the economy could overheat. Commerce Department has said the trade gap widened 3.2 percent in November 2017 to $50.5 billion, the highest level since January 2012. The low unemployment rate is causing some workforce shortage in some areas of the country. Natural disasters have had an economic impact over the past decade and we have seen an increase in both the occurrences and effects. “Extreme weather events caused a total of $306 billion in damage in the United States last year, making 2017 the most expensive year on record for natural disasters in the country, the National Oceanic and Atmospheric Administration said Monday (ref 16).”The key takeaway is that the economy appears to be booming, consumer confidence is very high, and Americans are feeling confident about the economy, jobs, and income. They are spending more, and will make larger purchases like appliances and cars. However, there are factors at play that are concerning, for example, the impacts of a workforce shortages or more natural disasters that could erode that confidence.Social Factors. The baby boomer generation is aging and retiring, and their spending is decreasing. American lifestyles are changing as people become more health-conscious and active. Despite positive evidence and feeling about the economy, 2017 has seen a significant amount of social anxiety.  Major social fears are jobs, income equality, available affordable housing, healthcare, race and gender equality, and immigration.  While the acceptance and consumption of US wine has increased over the past two decades, it is most often experienced in a social context or a “guilty pleasure” versus the perception of a common staple like milk or soft drinks are in Europe.Technological Factors. We are witnessing technological advancements in the speed of information, communication, and data.  According to Technology Review there have been advances in areas such as facial recognition for payment, facility access, and finding criminals; quantum computers with unimaginable power; connectivity and the internet of things; self-driving cars and trucks; and reversing paralysis through brain implants. Over the past decade, there have been significant advances in wine compliance companies and software (e.g. ShipCompliant.com) that allow wineries to ship direct-to-consumer (DTC) in a manner that “helps businesses meet the demands of their unique tax, compliance, and reporting obligations” (ref 17).  The industry has benefited from very sophisticated customer relationship management software (CRM) that allows businesses to “manage interactions with current and potential customers. It uses data analysis about customers’ history with a company” allowing them to “learn more about their target audiences and how to best cater to their needs” (ref 18). Wine businesses are benefiting from continuous improvements in wine bottling equipment allowing for increases in quality and speed. For consumer packaged goods, perhaps one of the greatest improvements over the past decade is in the area of digital printing which has allowed businesses almost unlimited design flexibility, and the ability to print custom labels quickly of the highest quality at the best prices even including short-run labels (small quantity) rather than bulk orders looking for the best prices. Lastly, while prolific technological advances and web-connected systems, there is also greater risk to cyber security. Companies are dedicating significant resources in personnel, hardware, software, and other equipment in order to secure their IT systems, and their internal and external data. There are several threats to businesses, for example from viruses, third-party attacks, ransomware, and denial-of-service (DDoS) attacks. Blockchain is a newly developing, revolutionary technology that many experts consider the most secure, and could be the answer to effective cyber security. Blockchains are “a real-time ledger of records stored in a distributed, peer-to-peer fashion independent from any central authority. Since every record is encrypted and time-stamped and users can only access and edit the block they ‘own’ through a private key, it’s very secure. Every block is linked to the one before and the one after it, and whenever a change is made, the entire chain gets updated” (ref 19).Legal Factors. The wine industry is regulated by the Alcohol and Tobacco Tax and Trade Bureau (TTB) and is a branch of the US Department of Treasury.  The TTB is part of the treasury department because of the excise taxes that are collected. At state-level, every state has regulatory and compliance requirements, and no two states are exactly the same.  The three-tiered distribution system entails Distilleries, Wineries, Breweries, and Importers as Tier 1 Manufacturers/Suppliers; Importers, Wine and Spirits Distributors, Beer Distributors, and Control Boards as Tier 2 Wholesalers; and On-Premise (bars & restaurants) and Off-Premise (grocery & liquor stores) as Tier 3 Retailers.  Federal excise taxes are collected on Tier 1 from Manufactures/Suppliers, state excise taxes on Tier 2 from Wholesalers, and state sales taxes on Tier 3 from Retailers. Distribution is costly and does not favor small wine brands, and is becoming more difficult because of mergers and acquisitions of the distributors. According to a Wines & Vines report, the top three distributors represent 50% of all US wine sales (ref 2), and the number two and three distributors are merging (ref 5). Alcohol advertisement requirements for the wine industry add another level of consideration versus other consumer goods. Environmental Factors. Climate change has been uniformly endorsed by scientists worldwide despite the denial of some fringe skeptics. Businesses and the wine industry are impacted by climate change through regulations, rising annual temperatures, extreme weather events, and variations to crop sizes and quality. Over the past decade, the wine industry experienced several extreme weather events like large fluctuations of temperature, unseasonably cold or hot, drought, flooding, and wildfires. Sustainability has seen significant focus and growth, and most of the wine industry has adopted those tenets, as well as certification through various third-party organizations. Wineries are evaluating and reducing energy and water consumption, plus the waste generated throughout their manufacturing process, supplier sources, and packaging waste both at the winery and consumer levels.