There are people that don’t understand the all in cost?
Maybe this is too obvious to be worth stating, but rejecting mailing lists in favor of retail because of shipping only makes sense if all or most of your increased retail purchases are local. Are they? For me, a lot of my retail purchases are WS-Pro finds that I have shipped anyway.
And even if they are local, how much does the mileage, gas and the value of your time cut into the savings you had from not ordering direct? If I saved $80 on shipping 8 bottles but instead drove 30 minutes each way to buy a different 8 bottles at a store, did I really save that much? $15 gas, the value of 50 miles on the odometer, 90-120 minutes of my time.
And if those retail bottles are corked, will the retailer replace them no question asked like the winery would have? Even if they would, do you have to save the bottle and go over there and deal with them about it?
I’m not trying to say everyone should buy off lists, but a real comparison of retail vs lists would include a lot of factors, not just the winery shipping cost in isolation.
6 Likes
Perfect timing on your second question @Brian_G_r_a_f_s_t_r_o_m . I was already answering here.
A couple of things:
First, if you think I am not loyal to Al Osterheld, you’re crazy. What Al wants, I will find if we have it, and get it to him. That goes for quite a few people on our list. Many, many people that buy dtc from me are people we know, so the idea that a winery has loyalty to them personally is not ridiculous at all. See my last sentence in this post, it will expain clearly why winery loyalty to long term DTC supporters is a very, very real thing.
Second, the magic of dtc is not the margin. It’s which wines people buy. Our mailing list and BD supporters purchase the terroir based wines in a way that distribution based sales NEVER will, the UK excepted. We send 1000 cases of WV Pinot to distribution that functions primarily to maintain cash flow. Literally, even in a normal or generous set vintage there is no positive margin on that wine. In light vintages like 2021 and 2022, it’s a distance from profitable.
It competes with larger scale wineries big tank Pinot Noirs (Cloudline, A to Z, Willamette Valley Winery’s entry level, and the array of Union Wine Company wines). A to Z has two pulse air tanks they ferment 32 tons in over a 7 day period, with an intern pushing a button twice a day for a week to flip the cap on the tank, and then they rack it out.
By contrast we do 2 punchdowns per day on 25 fermenters (about 32 tons) and it takes 3 people two hours per punchdown to manage the cap. We do punchdowns for, on average, 20-25 days. In just that small bit of production our costs are more than 18 times that of A to Z. Though they do spend a lot of money on fancy printed boxes and reps to support distribution around the country.
But with dtc, we get to make the wines that really are what I want to make.
As I said, FOB on the 2021 WV is not a profitable number ($168/case). Seriously. But that’s the price point it sells at through distribution (roughly $28). I raised it from $12.50/bottle for the 2019 due to low yields and inflation. On the 2020 wines, you can guess at how negative the margin was, no?
We don’t actually sell the WV much at dtc, I can’t subsidize shipping on a wine where our COGs and the amount of extra time and costs we spend on that wine simply isn’t in a $25.50 bottle($30 subtract 15% case discount). So the biggest cuvee we make is only a cash flow mechanism.
Margin on the single vineyards is average if costs are normal. But if we see 2.75-3.0 tons per acre in a vintage like 2022, it’s a lot better than if we see 1.8 tons per acre(our average in 2023, but only because Temperance Hill had a normal set and Durant rebounded a bit on Pinot Noir). It covers all the costs, including things like accounting fees, contracts, maintenance work, and salaries. Margin on the block bottlings and Heritage is enough to cover reinvestment in equipment (just bought a new forklift for $36K with interest) and be able to survive vintages like 2021 and 2022. But make no mistake, if we have any serious disaster in 2023 as fruit comes in this year, Goodfellow will be a thing of the past.
We wouldn’t have survived 2020 if it wasn’t for our mailing list and Todd’s quarantine thread selling library wines.
Megan and I both work for sub-industry standard salaries because cash flow is always a challenge in wineries and, as owners, if the winery ties up all of the money at least technically we have the value. Provided there’s no more forest fires close by…
This is an industry where the financial truism is that it takes a big fortune to make a small one. That’s not specifically true, but if I was 33 again I would not actually go ahead and start the winery.
My salary from the winery is as follows:
2002-2010: annual salary $0
I worked a full time job for 9 years, with days off at the restaurant filled with winery work until 2005, then a job as the winemaker for Bishop Creek alongside my own wines, and then working for a distributor from 2008-2010 so I could always be selling wine during the recession).
2011: $28,000
it was supposed to be $36K but that wasn’t in the cards. I worked 359 days in 2011, most of them full 10-12 hours between winery work, sales, bookkeeping, compliance, marketing, and managing tenants in our winery space.
2012-2016: $36,000 (rarely working less than 340 days and in two years more than 355 days)
2017-2018: $44,000
2018-2023: $48,000
My taxes show a different number because we’re an S-corp and profits show up as income. But COGs are not deductible until the wine sells (often 2 years to many years after it was made) so any growth in production doesn’t show as an expense until it cycles through to sales.
I enjoy what I do, and to be able to focus what I have learned over 20 years on trying to make the very best wines is a gift. But the sacrifice in the first 10 years was more than I would ever have done if I knew what it would be like ahead of time.
Why did I keep doing it? Because when you have the value of wine tied up in barrels, if you bail out without being a highly valued name, you are going to take a bath. And I had worked far too hard to do that.
Let’s also talk about what you mean by dtc profitability. In 2007 we had the most established critics in America declaring the vintage in the Willamette Valley a disaster before I had picked a single grape. 6-7 years later there were a number of mea culpas about the wines that did little to fix the damage to profitability that occurred that year. Bob Wood’s “another sh**ty 07” thread did kore than any critics shift in perspective to remind people that the 07s are actually good wines. But I was sold out long before that, and most definitely at cut-rate pricing.
You have one chance each year to successfuly navigate the production process, and with the number of wineries and regions producing wine going up, there’s no margin for error any more. And selling for 99% of wineries is grueling because there is no room for error. Selling is also expensive so the more you have to go pound the pavement, whether it’s dtc or fob, the lower the profit margin.
It’s worth noting that my salary reflects my ownership and I was growing the business, but even if you invest financially in the infrastructure in the beginning that is ferociously expensive and will take a considerable length of time to pay off. And for a lot of wineries, they begin by making too much wine and on top of their initial investment in equipment, facility, barrels, etc. they have to start paying for someone to sell for them and get them into new markets to get their inventory out the door.
Sell through is everything. Because lets face it, if you make 400 cases of $100 bottles, but sell 165 FOB at $50, and 78 via dtc, then you have 157 cases with 100% cogs invested and no return.
Do you discount? That will make your original release price from the previous year hard to acheive for the 243 cases you did sell. Maintaining momentum is a challenge, there’s always a new producer, a new region, etc. etc.
It’s worth noting that Lingua Franca, the winery headed by Larry Stone and Dominique Lafon (so some serious star marketing power) and a very good winemaker in Thomas Savre just sold to Constellation last year because the investors were concerned. I’m sure 2020 made them very nervous, most people don’t invest in a project to watch it skip a year’s inventory and sales.
So does dtc have a better margin than FOB for me. Absolutely. Goodfellow wouldn’t exist without dtc. FOB sucks.
46 Likes
Really good points.
3 Likes
Thank you for pulling back the curtain and giving us an insight into what it is like to be an artist in such a competitive market place 
7 Likes
Could not agree more - with the caveat that distribution/trade does allow a winery to gain more name recognition in a crowded marker - which in turn hopefully leads to more DTC.
For me, getting a wine place BTG in the Santa Barbara / LA / OC markets allows me to ‘increase my reach’ in terms of potential recognition, so when folks come up to my area, I’m hopefully able to get them into my tasting room vs one of the others in my area, including many that are much better known than I am.
Do I ‘make money’ having wines poured BTG? No . . .
Cheers
5 Likes
I only order from wineries that I can’t buy locally. The only list I’m still on is Moe Ayoub.
3 Likes
Which is why I buy your wines Marcus. I want you to stay in business for a long time.
4 Likes
Couldn’t agree more. Between the knowledge bombs here on WB and the care and passion that goes into making incredibly high quality product, I’ll happily buy direct and ensure Marcus and Megan take the full margin, shipping costs be damned.
3 Likes
Great post, @Marcus_Goodfellow ! That must have taken lots of time, and is filled with thoughtfulness — thank you! 
A few quick comments/questions:
-
The loyalty you and Megan show customers is the exception, not the rule. And when wineries do extend themselves in such fashion customers tend to reciprocate, and then everyone is happy. That said, I could very easily make the argument that wineries often are not “loyal” to their customers; hence the use of my word “arguably.”
-
A couple times in your post you mentioned producing a bottling or two for which there is no positive margin – sounds like you break-even, at best. You mention these being useful for “maintaining cash flow.” Questions for you (because I don’t understand the dynamic of which you speak, apparently): If a bottling literally loses you money, that says to me the costs of making and selling exceed the amount of money coming in when it sells. Assuming that to be true (and maybe it’s not?), why produce these bottlings? (this is where I must not be understanding “cash flow” dynamics … this question right here -->) Couldn’t a winery “maintain cash flow” simply by not spending money producing and selling a bottling that loses them money? There must be “costs” that are not “cash,” right? Some of the “costs” associated with these bottlings must already be baked-in to the annual situation, no? (I’m thinking of grape ownership, as an example (i.e.: "we already own and grow these grapes, and they’re worth something, somewhere, to somebody, and we’ve determined we get the most cash out of these grapes not from selling them, not from ripping them up and planting something else, but rather by making our own wine from them, and then selling that wine)). Am I barking up the right tree with these surmises, or no?
-
“Big fortune to make a small one”. I don’t think anyone who has participated for a decent length of time on a forum such as this one would argue that trying to run a (meaningfully) profitable winery isn’t incredibly difficult. Pretty much everyone has a general sense how difficult it is for a restaurant to “make it” — seems like it might be even more difficult for a winery.
-
Your answer – although individual to you/Goodfellow – makes it sound like a winery is best-off with a blend of DTC and FOB sales. But maybe this isn’t a one size fits all answer? It sounds like DTC makes-up for FOB shortcomings, and also operates as an investment in FOB sales. (or maybe I’m misinterpreting what you said, or extrapolating in a wrong direction … )
-
Wrapping-back around to the main point of this thread: shipping expenses for DTC sales. It’s still not clear if, for a given wine, a winery makes more money selling that bottle DTC or FOB.
… re: “FOB”: I’ve always understood that term to mean Free On Board, and to be used in conjunction with a location to define when ownership of a product transfers from seller to buyer. I’ve never seen/heard it used as an apparent stand-in for “through distribution”. Interesting.
1 Like
I assume he is spreading his fixed costs accross all the bottles he sells. If he sold less wine the fixed cost per bottle would go up, and his margin on the SVD/Heritage would be even smaller (or negative given the volume of WV compared to SVD). Also guessing here, but I assume he can’t purchase only the fruit that goes into the Heritage blends without taking the rest (I doubt he even knows before vinification). The winery job is to make wine and seperate out afterwards the sales channel. High volumn/low margin wines cover fixed costs and allow for the creation of the special bottles which would not be profitable on their own.
This is why your question about which channel provides more profit doesn’t really make sense. It’s not an either/or operation. If they were all sent out to distribution then the SVD and Heritage bottles wouldn’t make sense. Who cares which avenue makes more money on the last bottle sold when the entire enterprise relies on DTC.
4 Likes
Interesting possibilities, Brian! The fruit bundling situation certainly would make sense. If a high-volume/low-margin wine is covering ALL fixed costs, then that makes it sound like it’s contributing to the profitability of other bottlings, making it – perhaps – a “profitable” bottling. 
I didn’t read Marcus’s post that way — maybe he’ll clarify.
As for my question as to whether selling DTC or through distribution makes more money: the question makes sense to me. And, yes, the answer could be much more complicated (and it appears that it is) than simply “DTC” or “FOB.” But a complicated answer does not a bad question make.
… interesting conversation! And, let’s not forget – we’re just talking here. I don’t see anyone here looking for an argument or debate.
1 Like
Thank you for being so open about your business’ finances. I’m a small business owner too, so I’m always curious about how other businesses operate. But I know that other business’ finances are none of my business, so I would never ask about them. This peek at the realities of the wine business was enlightening.
5 Likes
Anyone want to start regional Berserker Hubs to consolidate orders? More money for wineries and less for FedEx. Perhaps with bonus monthly pickup parties?
3 Likes
I agree that this is a conversation rather than an argument, and in that vein:
-
agreed, though I feel there are quite a few of my peers that feel about regular dtc customers as I do.
-
the easiest way to to illustrate this is that free run and press wine come from the same fruit. You could skip bottling the press wine, but you’ve paid for the fruit and processing already (it’s literally from the same fermenter). The break even or lose a bit pricing on the Willamette Valley is still better than bulking out press wine.
But as Brian pointed out, I also don’t have a sure idea of how each fermenter will ultimately turn out.
Some wines are high achievers and some are less so. And while I could get in there with the mega-purple, enzymes, and tannins…I don’t think the wines those choices produce are better.
That entry level wine serves a lot of purposes even if it doesn’t aid your profitability. As Larry pointed out, it functions as a business card. Your distributor partners want that wine above all else. There’s no real money for them in delivering 3-6 bottles of anything except ultra-high end wines. And how many accounts order a 6-pack of Krug every week? When the shit hits the fan for weather, and in Oregon it does, it’s an established channel for where a higher amount of fruit than normal can go if the situation demands it.
But particularly because press wine simply isn’t the same level as free run, you can’t really just skip making it. Though some wineries with elite pricing just bulk it out, I think my blue collar origins make that unpalatable to me.
-
I agree that a blend of FOB and DTC is the healthiest option for a winery. We’re really lucky to be where we are. When I say FOB sucks, it’s because it’s very low margin. The people we work with are really wonderful. But I can see how financial success works for them (as well as the reality that with 200-500 other wineries in their sales book, that I can’t really expect them to be pushing our wines more than a few days a year) and it leads to the Willamette Valley…which is literally the least wine we make. Don’t get me wrong, we work hard to have a great version of a wine that makes us no money. I hate bad wine (tannic, acidic, tight, linear, coiled, unapproachable…those are fine), so our WV is a very good wine but imagine if you had someone who agreed to represent your work and then only ever showed the work of the least tenured person on your staff(who, as noted, can still do excellent work).
-
we make a living on DTC, and DTC makes us a healthy business. FOB is like an 800 calorie a day diet (England excepted). But DTC is our 1300 extra calories. In clear words, we make more on DTC but there is a ton of work that makes DTC happen. So it’s not that we make more margin (after extra costs) but that DTC buys the Heritage wines and the Richard’s, and FOB buys the WV.
FOB is usually Freight on Board but I see no difference between that and Free on Board. It’s the Ex Cellars price, where the distributor pays all costs from pick up onward. That’s the only tier we sell through where this is the case. It’s a good way to illustrate the difference between distribution and the other tiers (wholesale and direct).
2 Likes
I feel like many posters here are looking for the truth in wine. Whether it’s terroir, cellar, or finances I think we all want to see how this crazy thing works. It’s a cool but somewhat unforgiving business, and I made myself a promise that I would just post the truth (as I see it) about what we do.
It’s a strange analogy, but I liken owning a winery to being a mixed martial artist. You may train all the time every day. But you fight once a year, and how you do in that interaction defines your future, both near term or long term. You do really well…you start with a fight bonus (this may be paid to a winery in time rather than currency, but time is money). Then you know that you will move up the roster, your opportunities improve. Fight media seeks you out, etc. The only issue is that you set the bar higher for your work from then on. Anything lesser is a setback. So along with the good comes the pressure and more demands on time.
If you lose, you’re situation devolves. The promotion is less likely to feature you. The money goes down. You face weaker opponents, so even a win will have less positive impact. A lot kind of mirrors the nature of being a winery.
M
10 Likes
@Marcus_Goodfellow, you’ve mentioned twice now what an outlier the UK/England is with regards to the kinds of wines that are distributed there. I’m curious: Do you have any explanation for why your higher tier wines sell better through retail in the UK than they do in the United States? Is it just a quirk of your UK importer? Fundamentally different preferences between UK and US consumers? Or is there some economic reason your more expensive wines get distributed in the UK?
A&B Vintners do an excellent job, and really present the wines well. They do sell to quite a few private clients, and that, IMO, is at the heart of why they sell the vineyard designates and micro-lots.
But the emails they write up to present the wines are exceptional and offer a really good look at what makes Oregon special, and why the people they work with are producing some truly exceptional wines.
2 Likes
Interesting, A % B sells most of the Oregon wine I buy.
1 Like
Marcus’s details on costs and DTC vs FOB are incredible and spot on. (Who knew this would be in a thread on shipping : ).
On the FOB side, I was completely naive but perhaps it worked to my advantage. As a small winery with a couple a great vintages, I didn’t really have any barrels that I thought needed to be declassified to WV non-Vineyard Designate (and I love my press fractions— especially since I don’t like using new oak). So as I acquired a hand full of distributors across the US, they are used to me offering no WV, only great wines. That said, the naive part, is that they are only selling a half or full pallet per State, per year (56 cases per pallet). Hmm.
For the 2022 vintage, for whatever reason, I did find more than a few barrels that needed to be declassified to WV. So I am literally needing to decide tomorrow on price. I thought $12.50 would be as low as low can go, but they really want $10/bottle for a retail of $19.99 to $25 depending on retail markups. And also, this apparently is the top end pricing for most by-the-glass programs at restaurants. (Restaurants are doing no favors to us on their glass markups. They could have much better offerings and sell more, or at the very least have more satisfied customers. Also BTG is often the introductory wine for younger consumers and the offerings at most places are just abysmal. No wonder these folks are preferring cocktails!)
For sure DTC is way, way, more time intensive for all the reasons listed above. I have a couple of colleagues who just don’t have the time, or they don’t enjoy it. I love it. The direct interaction and feedback are the reward. But I can see a day when I just won’t have time for WV deliveries, making packages, checking on shipping dates with clients, etc. I certainly hope I will always have time for tastings at the winery! Does DTC give us a higher return? It depends on how you value your time, but Marcus is spot on: I think it is difficult to sell higher end wines without a tasting room or other form of DTC.
Tasting rooms are the most common form of DTC— hasn’t been discussed here too much. I worked in a TR for four years part-time as I was learning the trade, and because I enjoyed it. The downside is that as a wine maker you become a personnel manager. I know more than a few colleague winemakers who (given the time sink) unintentionally have turned into TR managers and they don’t seem very happy…. Constant turnover, etc. You also need just the right spot/real estate by the way. And so, I have peeked at the balance sheets for two TRs and they really don’t pencil out too much with the exception of the fact that you can tell a story to more people, and make and sell more top-end wines. The real trick is getting the the twice-a-year wine club mailings and pickup to 200-300 cases per, minimum. That’s the profit margin and the all-important inventory management piece (the winery choses which wines are sent out, woohoo!) But the downside is that, as @CFU said on his Chateau X podcast interview, I think both younger and high-end clients want to chose their shipments… automatic shipments are passé. (Great job on those interviews, Charlie!)
6 Likes