Winery owners must have solid financial management in place, says Barbara Insel, and that would include cutting out wines that are not profitable.
With a backlog of wine inventories clogging wine distribution channels, direct marketing offers wineries a chance to supplement sales and keep cash flow moving. A wine business consultant was recently in Washington State, offering tips to help turn tasting-room visits into wine sales.
Many winery owners thought that direct marketing would protect them from problems associated with wine’s three-tier distribution system, said Barbara Insel, president and CEO of Napa, California’s Stonebridge Research Group. But not all direct marketing efforts are profitable, she acknowledged during the Washington State Grape Society’s annual meeting.
Sales at higher-end wine-tasting rooms are actually recovering faster than those at midpriced wineries, she noted, adding that appointment-only wineries are doing better than open-to-all wineries because customers come with the intention to buy something. And, wineries being run like a business are also holding their own. “If you’re not being cold-blooded in running your business, then this is a very tough time because the downturn hit very suddenly,” Insel said.
Insel offers some basic rules for wineries to follow to improve the profitability of their direct sales:
1. Operate the tasting room as a profit center. It’s a retail location, not a hotel, theme park, or souvenir shop. If visitors take something home, it should be wine, not a hat.
2. Traffic is not the same as sales. Lots of visitors who don’t buy anything only increase the cost of operating the tasting room. Food samples divert customers from buying wine. “It’s like a free restaurant. And if the food is good, it can overshadow the wine.”
3. Emphasize the customer’s experience of being in the winery’s tasting room. Customers come to the tasting room for the experience and buy because of the relationship they form with the winery.
4. Hire, train, and pay tasting room staff as sales agents. The tasting room generates wine club membership and winery sales. Pay employees well enough so that they make money for you, rewarding staff for signing up club members. “Hospitality training is nice, but sales training is better.”
5. Reward your customers for loyalty. What are you doing to reward your wine club members and loyal customers? Special luncheons or dinners in the winery or vineyard, offering exclusive direct wine sales, winemaker events, and even a simple thank-you note are examples of showing appreciation to your customers and making them feel part of the inside crowd as well as reinforcing the relationship.
6. Go where your customers are. Take the winery experience and relationship on the road, allowing customers, wine club members, and their friends to connect with the winery (winemaker, family owner, grower). “But it has to be one of you, not the distributor. People feel special when they meet those who make and are part of the wine.” Word of mouth is the first reason people buy wine; the second is the relationship they have with the winery.
7. Collect and mine data about customers. Find a way to record and retrieve customer data (address, e-mail, notes about wine preferences, purchase history). Data can be kept in a notebook or software system, but staff should use data every time the customer comes in. Explore and analyze data to discover meaningful patterns.
8. Track where your customers come from. Target your most profitable customers, taking events on the road to locations near your customers. Collecting physical addresses, not just e-mail, allows you to target regions.
9. Ask how your customers heard about you. Reward those who are your ambassadors and are helping to drive new customers to your winery.
10. Build relationships with your customers. Staff should be learning about customers, not just signing them up for newsletters or clubs. “It all helps you customize and tailor your messages to your customers. This is about retailing, not about producing the wine.” Information she recommends collecting includes:
- Why did they visit?
- Where are they from?
- What did they buy?
- Did they join the wine club?
- What wines do they like?
- What foods do they like?
- If they cancelled their wine club membership, why?
She believes it is critical that winery owners have solid financial management in place and thoroughly understand their costs—which wines are making money, which are not, cash flow, and most importantly, their cost of sales. “What does it cost you to make those direct sales?” she asks.
Most assume that direct sales are free and have no idea what the costs associated with direct sales are. “In reality, direct sales often represent only about 70 to 80 percent of the retail price.”
Financial planning is a key part of being a profitable winery, Insel said, adding that the wine industry doesn’t do enough.
“Wineries have product choices,” she said. “You have to be cold-blooded and cut your unprofitable lines.” In this down economy, margins might be higher on a $20 bottle of Cabernet than a $50 bottle because the grapes can be bought for less, she noted.
She warns wineries against cannibalizing older, established labels, and suggests that wineries use a different label if the price must be lowered. “But be careful of too many brand extensions because you don’t want to dilute the quality of your brand.”
Another option to move wine inventory is to provide private-label bottling for retail or restaurant chains. In the United Kingdom, private labels comprise about 80 percent of the market, but only 2 percent in the United States. However, the private-label trend is growing, she said, noting that big chains like Wal-Mart are now selling private labels.