Weathering the Economic Storm

Most of what I’ve read concerning consumer spending on wine points to reduced sales in ultra-premium (as I’m using it here, >$20 a bottle). For the ultra-premium producers out there, what strategies are you pursuing to get through the downturn? I’m obviously not looking for trade secrets - just curious to hear if the tendency will be towards “down market” bottlings which get you under $20 or if it’s easier to shift perceptions and persuade consumers to buy the more expensive bottles.

I will watch this thread closely, as this applies to ANY retailer or near-direct supplier to the consumer, as many US wineries are.

There are strategies to be learned from all industries to weather this mess. I’m working on some strategies I’ve never before employed in my company (also in non-essential retail) - some are working, some are not, but in all cases, the buyer psychology has definitely shifter…

I’m but a lowly winemaker, so I have little to offer from a general brand management POV. My contribution in the whole deal is to keep costs down. Manage fixed and variable costs as much as possible. I can help with the revenues, but only in small doses. I’m not a foot soldier in that regard.

It’s new territory for me. I just started in this business around the last downturn, which was relatively brief. I do know a lot of old-in-the-tooth types who have weathered many ups and downs. They remember the early '90s, when things were very slow and they were trying to sell some pretty bad vintages ('88 - '89). A lot of people went belly-up.

It’s difficult to say what one does. Discount? Often seen as circling the drain in our business, rightly or wrongly. Offer incentives to your distributors/brokers? Not sure how gray that area is or even how legal it is, but chances are most producers y’all talk about can’t compete with the big boyz in that area anyways. Reach out to your customers, both consumers and distributors? I think that’s the ticket.

Probably a good time to ramp UP your travel, etc budget. Hit the road, accept lower margins because of it, and hand-sell the stuff to whoever will listen. Make your own placements and develop your own relationships so your reps don’t have to. Maybe not be so picky about where the wine is placed, but be happy that is placed at all? Off-premise, on-premise, anywhere will do.

I’ve never worked for a winery that does more than ~33% of its business direct. I’m not sure how they handle it? You offer wine to people and if they don’t buy it, then what? I really don’t know…if your business is built on certain margins, can you stomach going to FOB/wholesale? I’m not privy to any of this sort of info, so I can’t say.

In my specific situation, we are hard at work building a brand. Not the best time to be doing so, but we are grape sellers first, in the midst of a large replant, and not sitting on much inventory. We didn’t have momentum to begin with, so we didn’t feel the wind fall off if you know what I mean. I kind of feel we’re in a good spot right now, coiling ourselves up like a cobra ready to strike when things turn around (if they turn around? gulp).

It’s difficult to say…what was once cool to buy to show off to your friends is now uncool. Thrift is cool. Permanent paradigm shift? We’ll see.

Great post, Nate.

After 9-11/01, we were dropped by nearly all our east coast distributors except Martin Scott in NY, but even they weren’t pushing the wine. Looking at our direct to consumer sales, we noticed that we have some customers that purchase AS MUCH WINE as some of our distributors! Shouldn’t customers who buy 17 cases at a time be rewarded? So we expanded our wine club to include different levels of commitment with progressively deeper discounts, and although it isn’t prominently featured on our website, we also have a loyalty ladder; the more you spend, the deeper the discount you can earn. Big Dogs get a wholesale discount, but they have to spend approximately $10,000 to get there. We now have great retention in our direct shipment program and our list is hovering at the ‘Full’ mark.

We also reduced our distribution on the east coast because of the cost of maintaining inventory and providing sales support (transport, warehousing, damaged cases, special case labels, travel and entertainment) and began strengthening our distribution closer to home. Our current CA distributor, HarvestGate, is absolutely rocking for us and almost all of the wine available for wholesale is now sold through HG from Monterey to San Diego. We also ship 30-40 cases annually to to a boutique distributor in NY.

• I’ll be following up personally with key accounts that have supported our brand in the past but where we may currently have no distribution or active rep. Although our wholesale allocations are tight I think this is a good time to revisit and cement old/new placements, especially if it ramps up visibility to consumers.
• We’ve always made all of our wines available to every retailer and restaurant, whether or not those wines are listed in the distributor portfolio. Special orders may be placed through our distributor and are always welcome.
• We are doing some aggressive price shopping: we just saved almost $10,000 on labels and glass ~ $4 a case.
• I’m going to ramp up my email blasts to wine club members to 4 a year and encourage more followup sales.
• I am also ramping up our email blasts to our open mailing list to 6 a year, and aiming at the newly adrift market segment that has been spending $40-$100 a bottle and now wants to spend $20-$50.

I’ve found that while many are buying less, some are using the downtrend in prices to buy. This is where I have to work twice as hard (verifying provenance, checking availability, really knowing my clients), but have found that I’m still getting by. Really scouring the offers I’m getting and making sure my guys are getting the best is making me valuable and probably gaining market share (even though it doesn’t always feel that way).

EK- good questions. NOTHING is going down in price for wineries: there have been significant increases in every aspect of running a business- rent, utilities, salaries (except mine), taxes, insurance (liability and Comp), glass, labels, corks, capsules, bottling costs and on and on. The only decreasewe have seen is some (not all) fuel surcharges were rolled back, but base costs keep escalating. Since 2004, our average grape price per ton is almost double. Our barrel prices doubled. We just got hit with a 20% increase in our already high sewer and water fees in healdsburg. And on and on.

Meanwhile, you’d have to be an idiot not to know that there is some real financial pain out there in America- and while I suppose someone is immune to the economy- it’s nobody I know or that I deal with. And in these economic times, luxury items are the first to go. People don’t stop drinking, but they change their pattern, just like they change other aspects- they drink what’s in their cellar, they drink less, they move to “value” wines, they drink beer, and on and on.

I don’t worry about hearing someone say “I don’t like your wine, so drop me from your list”. Fortunately, that hasn’t happened. or maybe it has and they just didnt tell us! But we do know that our buying habits, and those of our friends have been impacted, we have seen our restaurant friends struggling mightily, our friends who sell wine for a living (not for us) being in real trouble financially because restaurants are so slow.

So, how to survive? We held prices this year as much as possible- which meant already small margins got tighter. Our SVD’s Pinots didn’t change- our Russian River went up $1/btl. and we talked long and hard about it before doing it. Our Syrah hasn’t gone up in years. We lowered our prices on desert wines. Can we lower prices further? Hard to see it happening. (and FWIW-my colleagues who have raised prices are hardly greedy fools who did so without thinking it necessary- and I wholly understand their decisions turned on different criteria than ours)

I know guys with way more business savvy than me say cost is unimporant and lots of businesses run at a loss, but while that may work in some instances, it doesn’t when you have to personally underwrite a loss, while working two jobs and raising two kids you hope will go to college someday. Go into lower price-points?That has issues- including altering the image of your brand (yes, I know Siduri does an excellent job with their Somona County Pinot without damaging their exellent image- but they are an exception not a rule)-. And then you are competing against some big dogs for market space, and you have to make a lot more wine to generate the same revenue. Which means sell a lot more wine to generate that revenue- which is not as easy as it sounds- especially when you are raising two kids, working two jobs, have a wife, a dog and a girlfriend. Plus, the lag time means you’d start making it now (fall 2009) and realease it in 2011, at which time the market could be totally different. Lots of economic stuff I just don’t pretend to really know- I make wine, I don’t have an MBA.

But this is what it boils down to for me. In December I was commiserating with a friend about bleak times i was experiencing in several endeavors/pursuits. He was equally down about some things. And a few days after we vented over a series of cocktails, we learned a mutual friend was going into chemotherapy for the second time, with a bleak prognosis- for him, and for his wife and three children.

And you know what? I have nothing to complain about. My family is healthy and safe, and we have a home. And the economy, while weak, will recover- even if our friend does not. And even if I lost my winery- I still know how to make wine, I still understand wine, I can still hear music, and (most importantly) I still have two kids who are safe and warm at night. And I still have friends. And I still have the chance to live today, and hopefully tomorrow- and my family isnt wondering what will happen to them if this next round of chemo doesn’t work.

So fuck it. I know these are tough times for many, and I empathize, hell, I worry for those who have lost everything- because I know well what it is to have nothing. But I’ve quit worrying about what I cannot control (the economy), and I’m focusing on enjoying the things that are life’s richest rewards: family, friends, good health and great wines. And I’m going to see what tomorrow brings. And I’m going to bed tonight certain it will bring something good- for me, my family, my friends, and hopefully the world at large. Call it positive mental attitude, call it delusional- but I never accomplished anything by having a defeated attitude and I’ m not starting now.

Probably not the best answer to your post- but it’s what I’m going with.

Nicely put, John…

Man you are busy! [heat.gif]

…and the girlfriend’s allowance keeps going up.

Retail POV:

My store is located in Central/Northern Jersey just about 25 minutes out of Manhattan and 15 mins from Staten Island. We have not seen business turn down. We have seen the consumer trading down. Average item price has dropped but number of items on a purchase remained the same or went up, i.e. Sam buys $12 Blah Zin instead of $20 Zip Zin, but he buys the same amount of bottles and sometimes more.

This is the only so called vice industry that is not really taking a hit at the retail level. My thoughts and prayers are with you producers. I understand you have it much harder than I.

We are going with the current in planning strategy. We push value added items like the $15 Napa Cab that drinks like $30, lots of high QPR wines that sell for $10 or less. We push the in-store samplings and pour very nice wines as a loss leader to the wines I need to sell. But we never sell lame product in order to make a short term buck. This will turn around and we want that customer base to be there when it does.

not to situate on your nutsack but the 07 RRV PN Blend is just a spectacular value from a consumer’s POV.

And that’s just what he ADMITS to!

If nothing else, it had a strong Jules vibe.

/No, I don’t have your wallet.

My wife could explain this better than I, but by doing precisely that, you make it happen. The world is an energy field; point it where you will.
Best, Jim

Great post John!

By the way, are your ****

desert wines

dry?

It’s the one that says “bad motherfucker” on it…

The truth is you’re the weak. And I’m the tyranny of evil men. But I’m tryin’, Ringo. I’m tryin’ real hard to be a shepherd.

It’s as slow as I’ve ever seen here in Indy. We always get 10 6-packs of Opus One in October and gone by Christmas, this year we have sold one…bottle.

Have yet to sell an 05 Insignia either.

Lots of automatic sell-outs sit on the shelves. [imnewhere.gif]

This year, or you mean this last Christmas?