eCommerce ~ A Fight Small Wineries Can Win!
Updated: Jun 1, 2020
Rethinking an untenable Three Tier model
IT ALL STARTED IN 1932!
Since the repeal of prohibition, the three-tier distribution system has dominated the way wineries sell their products. The complexity of selling wine in 50 different states, each with their own laws and structure, has challenged even the largest wine companies.
A COMPLICATED WAY OF SELLING
For decades, it has been increasingly difficult for wineries to sell their wine through the three-tier system. For small to mid-sized wineries, the ability to efficiently and profitably manage distributor networks, has reached a breaking point. With an oversupply of wine, fewer distributors and fewer distribution opportunities, the three- tier system will continue to be losing proposition for the smaller, independent winery.
ALL THAT EFFORT AND I MAKE HOW MUCH?
It’s increasingly evident that selling wine through the three-tier system is not a very profitable venture for many small to mid-sized wineries. From a purely financial perspective, the math of selling through the wholesale channel is difficult to ignore. The chart below details an example of realistic costs of selling through distributors to the trade – From discounting nearly 50% off your retail price to sell at FOB to net sale price after all the welling supports have combined:
This calculation does not include the salaries & travel & entertainment expenses of the wholesale channel salespeople that are responsible for selling your wine, which can run 5%-10% or more of gross sales. Very few wineries can afford to sell into the wholesale channel with these support levels and resulting profits.
IT WAS BAD EVEN BEFORE THE PANDEMIC!
Today, wineries with good distribution in grocery and clubs are the big winners, and those are mostly the larger wine companies. Wineries with a high percentage of distribution in restaurants and small independent retailers, will continue to struggle. There are thousands of wineries in this category that have seen their sales drop anywhere from 10%-80% from 2019, a devastating outcome!
YOU CAN AND SHOULD SELL INTO THREE-TIER BUT….
Nonetheless, selling through distributors will remain a necessary option for most wineries. To be successful you’ll need to sharply focus on states, distributors and channels that can be the most cost effective.
As a baseline, you’ll need to understand that the largest distributors and wine companies have the money, manpower and leverage to keep your wines from securing those coveted placements. Those same competitors, however, don’t have the power to stop you from acquiring customers in the DTC channel where you can compete.
DTC NEEDS TO EVOLVE
Wineries typically think of DTC business in terms of Tasting Room and Membership sales. As a result of the COVD-19 Pandemic, Tasting Room sales have been decimated and at best may take 12-18 months to fully recover due to vaccine timelines. At the same time, the traditional membership model of automated shipments has been under pressure due to changing generational buying habits. With the impact on these traditional DTC channels, it’s critical for your winery to expand its horizons.
A BRIGHT FUTURE HAS BEEN RIGHT IN FRONT OF US ALL THIS TIME!
Thirteen (13%) percent of all commercial sales in the U.S. are sold through eCommerce. In the Wine Industry, it’s less than two (2%) percent, with total DTC sales representing less than Five (5%) percent of total wine sales ($3.2B of $72B).
The Wine Industry has been slow to adapt to changing buying habits of the American consumer and realizing that customers buy almost everything online, eCommerce is KING!
ECOMMERCE IS THE FUTURE!
Selling wine online takes a very polished and well thought out look and feel for your brand. Here are the key elements to create a strong eCommerce strategy:
1. Brand Positioning – So many wineries in the US have the same boring narrative and overlook a compelling, authentic and engaging story. Wineries need to rethink their brand positioning to create a more unique and exciting story to tell both existing and potential customers, who are eager to embrace brands with a fresh and differentiated message.
2. Content Development – The same static approach to messaging (written and/or visual) will be the death of many wineries. Video is the ONLY way forward! It does not need to cost a fortune to execute a thoughtful plan. Develop fresh content that allows your brand to connect with a new range of consumers on social media platforms, as well as on your website.
3. Social Media
The Wine Industry continues to be behind the Social Media curve. If your winery is continuing to focus posts on pick-up parties, vineyard and bottle shots, that approach won’t compel followers to repost and spread the word about your brand. Check out these companies that are very effective in managing social media campaigns: Cork & Fork, Wine Glass Marketing & Laura Perret Fontana
4. Website – While you may believe your website is perfectly acceptable, most consumers are likely to be frustrated by its lack of ease in learning about the winery and its products, making an appointment and ultimately buying wines. Here are some examples from other consumer goods websites which are easy to navigate, visually engaging, with clear and concise messaging: Harry’s, Patagona, mikiya kobayashi, Feed, ETQ.
5. Email Campaigns – Your winery must have a strategic email campaign that utilizes the following best practices:
- Personalization – Customers want to be recognized by their individuality – Birthdays, anniversaries, last visits, pending visits, etc…It’s about showing them you recognize them as individual customers and appreciate their patronage.
- Segmentation of lists – Combining like customers (buying habits, age, gender, geography) and generating emails that are tailored to that specific group’s traits is essential in maximizing your conversions to sales.
- Mobile-first – Make sure your emails are created for mobile format or risk a high percentage of customers instantly deleting your messages.
- Video – Video is engaging. Drop in 30-45 second video clips of interesting content telling your story and humanizing your brand.
For specific tips and campaigns for wineries, see the San Francisco Chronicle story, Email Marketing For Wineries: 5 Campaigns Guaranteed To Drive ROI.
6. Influencer/Joint Marketing Campaigns
Successful consumer product companies learned the power that influencers have on the marketing and sales of their products through social media. Whether its creating a joint marketing campaign with a complimentary product or engaging an influential social media player in the wine industry, it’s wise to partner with others to validate your position and communicate to your customers beyond a sole focus on your wines!
7. Customer Intelligence – Understanding your current and target customers is more vital than ever. Properly analyzing your existing customer databases will inform your decisions as you dedicate more time, effort and money to actively engage your existing customers and target new ones. A few of the best companies focused on how to leverage customer data to sales are Emetry, Enolytics & Ving Direct.
IT’S SURVIVAL OF THE FITTEST!
Your winery should not and cannot abandon its wholesale business. It remains the biggest and most important sales channel, so long as sales are achieved with sustainable distributions made primarily through the efforts of your distributors. But,your winery should have its eyes WIDE OPEN when it comes to its ability to compete with the larger wine companies in America, as they seek to grow their distributions in a shrinking universe.
Don’t underestimate the importance in investing in the eCommerce sales channel. It provides enhanced margins, better engagement opportunities with your customers, and ability to improve your winery’s competitiveness in the digital future that is upon us.
Mark Evans, Triumph Advisers