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WINES AND VINES:
Finding the Direct Route to Higher Profits - Experts at Wine Direct 2006 Advise Wineries on Consumer Sales
By Jim Gordon
August 23, 2006
SONOMA, Calif.-The potential for wineries to profit from greater use of direct sales is large and immediate, according to speakers at last week's Wine Direct 2006 conference at Cline Cellars. But few wineries have begun utilizing the direct sales channel to its full extent, and most are blowing opportunities every day to build this highly profitable part of their businesses.
Speakers pointed out a number of success stories, however, that show the possibilities of direct sales, which include sales from a winery's tasting room, wine club, e-commerce and mailing list. Tom Shelton, president and CEO of Joseph Phelps Vineyards in Napa Valley, said that 10 years ago, only 1% of his winery's gross revenue came from direct sales. The figure now is 35%.
St. Supéry Vineyards and Winery, also in Napa Valley, counts direct sales as just 5% of its sales revenue, but 34% of its profits, added Barbara Insel, managing director of MKF Research. She reminded an audience of about 160 industry professionals at the half-day session sponsored by New Vine Logistics (NVL) for its customers, that MKF's 2004 survey of wineries doing direct sales found that micro-wineries, those making 5,000 cases or less, sell 39.5% of their wine direct. And the largest wineries account for only 1.7% of all direct channel sales.
It's clearly an area of sales that suits small wineries, said Jean Arnold Sessions, president of Hanzell Vineyards in Sonoma, Calif., and founder of the Jean Arnold Group, but they could be doing it much more strategically. Many small wineries now project 50 to 100% of their sales will come from the direct channel. But to make it effective, she and other speakers said, wineries need to do several things:
- Keep direct shipping squeaky clean. Don't risk sending a single package that might violate a state law or other compliance rule. "The attitude that you're not going to get caught no longer applies," Sessions said.
- Provide exemplary service, personal and individual attention and a unique experience on the winery property or through other contact with the customer.
- Take names, addresses and e-mail addresses in the tasting room, on the road and at every other opportunity. Sessions described one winery that hosted winemaker dinners every week for a year and didn't collect a single consumer name.
- Promote your direct sales programs actively. Insel said fewer than 20% of wineries promote their programs on their labels, at events or on third-party websites, and only the smallest of wineries ask for referrals.
Tom Shelton of Phelps took the audience through a 10-year history of the battle to open more states to direct shipping, and noted how far the industry has come, particularly since the landmark Supreme Court victory in early 2005. (At least 45 states now allow visitors to California wineries to ship their tasting room purchases home, while that number was only 28 one year ago, said Deanna Leon, VP of Business Development for New Vine Logistics and the firm's co-founder.)
"I see nothing but opportunity for wineries, distributors and retailers," Shelton said, but he added that it remains unclear how the industry and the wine trade will come together or divide further on direct sales in the future. He foresees wholesalers selling direct to consumers, for example. "The lines of the three tiers are getting blurred. I have to ask myself, 'Am I really in the same business as a volume producer from Australia or the U.S.?' I am not, but I am served by the same system."
Shelton suggested that the United Kingdom-where two virtually separate channels exist, one for artisan brands and one for volume brands-might be the best example of how the U.S. wine distribution system could develop.
The CEO of NVL, Kathleen Hoertkorn, was the event's welcoming speaker. Other experts on the program were Nancy Light, director of communications at Wine Institute; Robin Baggett, president of Alpha Omega Winery and owner of Tolosa Winery; Jim Hagler, VP of operations, NVL and Nancy Gugliemotto, manager of client services, NVL.