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January 07, 2010

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Peter

If the direct channel saves you that 47%-50% seems like a perfect opportunity to give some of that back to the customer to "reward" them for buying direct in the form of free shipping or big case discounts. I think some wineries don't want to lose the existing revenue from their existing direct customers in exchange new ones. But then the consumer doesn't have any loyalty to buying direct as opposed to through retail. I would love to hear what wineries think about this.

rick

Peter makes one good point. Another is that a distributor provides cash flow - they might buy, say, 20 cases all of which is inventory converted back to cash.

Also don't underestimate the costs associated with direct sales - you need to 1) take the order and process it 2) fulfill it (pull and ship the wine), 3) deal with the regulatory overhead, 4) pay for shipping.

Note that some states want you to file monthly reports... if you sell a lot, fine, but if you sell a bottle or 3? Not an issue from 1 or 2 states.... but 15? Finally, since this is a topline revenue increase, your taxable income will be higher. So, by time you do all of that, the question is, what portion of that $25.50 (or whatever amount) makes it to the bottom line?

I'm not saying people shouldn't do direct sales... but remember that direct sales have their own costs and that if you move volume from distributors to direct because of high scores etc, those direct customers will mostly go away when the scores do and the distributors will have less of a reason to pick you up then too.

El Jefe

hi rick - I'll see your egg and raise you a chicken. You need to decide on a state by state basis whether the cost of entry for permits etc. is worth. Nebraska isn't going to get $500 from me for a permit any time soon, but on the other hand a $50 permit should be a no-brainer. And then you need to give it time to pay off.

A while back I got this great piece of advice: Decide what price you really need to get for a bottle of wine in a particular sales channel, and then create the situation to achieve that. Expecting to net 100% of retail per bottle in the direct channel is probably not going to be a path to success.

Greg Brumley

Let's not overlook the primary cost of sustainable direct sales: labor. A comparison to the work of bearing and rearing a child is reasonable.

The problem with Paul Mabry's argument is that he's trying to sell as fact what he HOPES will become a major player: online marketing as the primary sales venue.

For small wineries, properly-executed direct sales is the key. But a lot of sweat equity is required to turn that key.

Small winery prosperity is built on a foundation of tastings (on-site visits)and wine club memberships. Paul believes that's marginal, and that it will give way to Google ads and SEO wizardry. He wants to standardize distribution into just another online industry. Ain't gonna happen.

Standard online purchases are largely one-time or occasional buying relationships. Once I've bought my used camcorder on Ebay, I won't be buying another one soon.

The small winery depends on enduring personal relationships with customers. Web sites are important tools after the relationship has been built, or to introduce the relationship. They will not replace the relationship.

The relationship requires acquainting a customer with the winery's unique character (nothing matches a tasting visit for that because the visit imprints the bond between customer and producer). Then, it requires maintenance by website, shipping inserts, and face-to-face or voice-to-voice personal discussion. A tasting, unsupported by relationship maintenance, leads to one or two sales and then dies. Even more so, an online purchase.

To expect that a website strategy will replace that personal relationship is about the same as expecting one's delivery man to also replace the marketing and sales staff.

The future of small wineries is in direct sales. There isn't a balky Pinot Noir vine that requires more attention than the small winemaker must invest in building the relationships which lead to the direct sale.

Paul Mabray

Greg,
Let's be clear. I believe customer service is at the core of good wine sales. Period.

Let's also be clear, I think my career, my two companies, and I are clearly DIRECT advocates in all of its incarnations (tasting room, club, phone, social network, ecom, B2B/DTT).

I also have never said that ecom will be the primary sales channel but I am saying it is a significant channel that is not being paid the proper attention by our industry and we lag severely behind other industries. Also our mantra is not just ecom but the intersection of digital and wine. That includes this blog post, email, ecom, CRM, compliance, etc, etc. Technology alleviates administrative burdens allowing a winery to focus on what is important; the customer (trade or consumer).


However I firmly believe online (in its myriad of formats - your website, social networks, etailers, B2B/DTT, and marketing agents) provide a key sales and marketing vehicle that democratizes access to small and large producers for the consumers. They also reach a potentail audience that a tasting room can never achieve (you are bottle-necked by how many visitors you can attract and service). If you couple e-business with customer service (ala Zappos) you have a recipe for success despite your size.

The reason for less focus on direct has to do with many reasons the most common two are cash flow and inventory management. We need to clear the cellars for the new vintage and wholesalers pay for the wine up front (although wineries pay a high COS to ensure sell through) instead of sitting on the inventory for a longer period of time but realizing more margin. Wine production is a cost intensive industry.

Your comment about online purchasing being "one-time or occasional buying relationships" is a reflection of the myopia that stagnates online wine sales. I can tell you that to contrast your statement there are companies like Amazon, Zappos, Ebay, and many, many more etailers that experience multiple purchases. In fact, there are even manufacturing companies that benefit from repeat sales. Using the camcorder analogy is incorrect and misleading because it is not a consumable (unless of course you eat/drink your camcorders).

Please don't forget, you can be a GREAT small winery and have a good consumer direct business WITHOUT a tasting room. Period.

Now that being said, I do not dismiss the emotional connection of someone coming to the tasting room. But that is the easiest sale to make. As Vin65.com and VinTank.com believe, the "second sale philosophy" should be the target of all wineries. How do you get them to buy directly from you AFTER they have left your hospitality. Whether you use phone, snail mail, ecommerce or carrier pigeon, that is the challenge. However, on a COS basis, ecom and the digital arena have the best return and most reach. Period.

Moreover ecom extends your tasting room for fractional cost to a level that is unparalleled. Greg, we live in a Google world and we learn to adapt, or . . .

The core to the new world is customer centric strategies (both consumer and trade). We now live in a world where the consumer is not only in control, but they are armed with megaphones (social networks).

Since you didn't leave your winery I will leave you with this parting comment. One of the most valuable customers you will ever get is an online customer. PERIOD. Here are the probable facts:

1. That customer Googles (or uses winesearcher.com) your product and despite the key words above and retailers presented all around your winery with LOWER prices (because you, as the winery, want to ensure you don't do channel conflict) still chooses to click to your winery.

2. That customer endures a convoluted checkout process (there are very few great wine ecommerce platforms) and overcomes any compliance friction to continue to buy.

3. They pay shipping at a much higher multiple vs. buying from a sophisticated retailer who sees shipping not as a operational cost but as a marketing mechanism.

That customer endured way more challenges, lack of pricing incentives, poor customer experience and STILL bought from you. Moreover your COS (cost of sales) was multiples less than any other channel. How do you take care of that customer?

Customer centric strategies. That is the future of direct. The rest are tools with different costs and benefits to execute against that central them.

Andrew Kamphuis

Greg,

You are right "The small winery depends on enduring personal relationships with customers. Web sites are important tools after the relationship has been built, or to introduce the relationship. They will not replace the relationship".

However the statement about "Standard online purchases are largely one-time or occasional buying relationships" is wrong, or if it's true for a winery they should be rethinking their website and its goals.

How often do out of town guests visit a tasting room? Once a year? Twice a year? The tasting room represents a great place to start a relationship and to have some initial sales. If a winery wants to foster that relationship, and gain residual sales throughout the year the website is one of the best tools to do this. (Combine that with the occasional personal email, some social media, and an entire DTC strategy).

To reiterate Paul's comment, ecommerce is "a significant channel that is not being paid the proper attention by our industry". A website is the best place to get the second order.

Vinemetrics

The relationship with the customer and the related data set (the actual data of what/when/why/where/how/how much/etc. they did or tried to do) is the foundation for success in any business. That point is largely lost on wineries big and small.

The relationship with the customer occurs through all available channels - if you don't get that, you're out of touch.

Greg ---
I don't know you, but you seem to be arguing both sides. I believe the following is very clearly your thoughts from another post:

"If more people have easy access to a broader selection of any product, more people will buy that product. In a country where only 15% drink wine -- and most of them at less than $10 a bottle -- access and selection are the keys to industry growth."

Granted taken out of context (you were speaking of the Amazon wine sale demise) and the fall of a 3 tier market. But you can't argue that Amazon is the only one who can provide access.

And if you believe that through access sales will occur - you're contradicting yourself above about tastings/visits being the only way to prosperity.

Help me understand where you're coming from, sounds like you're talking out of both sides...

Mike Duffy

Paul: Could you give an example of a great small winery with a good direct to consumer business without a tasting room? Not arguing, just wanted a concrete example. Thanks!

Paul Mabray

You can name many of the high end wines like Kosta Browne but that would be unfair. There are cases of larger brands like Cameron Hughes has a growing constituency. Others like www.tricyclewineco.com, Fort Ross and many more little boutique brands. Also remember that remote wineries (Mendocino, Lodi, Finger Lakes, OR, Walla Walla, even sometimes Sonoma and Napa) might have tasting rooms but essentially operate as virtual brands.

Mind you, wineries with tasting room on a highly trafficked thoroughfare obviously have an greater advantage but to say that is essential would discount almost 5000 US wineries.

calgary web design

Wines in Australia have been used as a replacement to water. Well, that sounds funny but it happens naturally because wines there are so cheap.

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