I've gotten several questions recently on why we choose to use the
wine club model while other California wineries choose to sell their
wine to their supporters through a mailing list. As I have been
answering these questions, I thought that it might be interesting to
delve a little into the strengths and weaknesses of each from the
perspective of a winery -- and from a consumer.
The wine club model should be familiar to most fans of Tablas Creek, since it's what we use. In our VINsider Wine Club we send out six bottles of wine twice a year, typically in March and September. Wine club shipments are generally sent out at a discount (ours is 20%) off of retail price. Many wineries offer some basic customization options such as red-only or white-only; some also offer different tiers, such as three bottles, six bottles, or a case at each shipment. A few offer significant customization options, or even allow their members to choose any collection of wines to make up their shipments. While wineries may allow members to skip a shipment, in our experience few members choose this option, preferring to cancel their membership and perhaps rejoin later. And most wineries avoid sending large amounts of any one wine in their club shipments, preferring to use them to expose their members to the breadth of the wines that they make, and focusing on small-production wines that are typically different from those in general release. Members who are interested can order more of their favorite wines, sometimes at an even-greater discount.
The traditional mailing list model works a little differently. Members receive allocations each ordering period (one to three times a year). Newer members receive smaller allocations, or allocations of less in-demand wines. Members who have been on the list longer receive larger allocations and/or better wines. Members do not usually have to take their full allocations each time, but anyone who passes entirely, or who takes only a portion of their allocation repeatedly, tends to get either dropped from the list, bumped to a less desirable allocation, or just not progressed to more elite levels. Very often, the mailing list wines are not otherwise available, and are viable commodities on the resale market, so members are able to take allocations of wines they may not necessarily want for themselves and then resell them to other interested buyers. Typically, mailing list wines are not discounted per se, but the price for these wines on the resale market is higher than the release price, so non-members have to pay the higher prices on the secondary market.
From a producer's standpoint, there are advantages to each model. A wine club allows you to build loyalty and expose a relatively wide audience to limited-production wines. However, it is not a great way to move larger quantities of any one wine. For example, at Tablas Creek, we have about 3500 wine club members. Sending a bottle to each member requires roughly 300 cases of a wine. But members may feel that as they are already receiving a case of wine over the course of the year, they may not need to order more. We also have to create enough different wines each year to fill the slots in the wine club, which can be challenging in vintages with short crops.
A winery can target the offers to their mailing list to reflect the quantities of the different wines they have to sell. So, if they have a lot of a particular wine (let's call it "Merlot") they can set the allocations of the Merlot higher for that vintage. With 3500 mailing list members, they might set the allocation of that wine to 2 bottles for the lowest-heirarchy 2000 members, to 4 bottles for the mid-tier 1000 members, and to 6 bottles for the elite 500. Assuming that their members take their allocations, In the end, they will have moved over 900 cases of Merlot to their members. Members are going to be encouraged to take the wine, even if they don't particularly want it, because of the implied threat of loss of priority on the list and hopefully because they can always turn it over and at least make their money back on the secondary market.
For a winery, the mailing list model is typically a more lucrative way of selling its wine, since they can sell increasing allocations to their longest-term members. Some wineries get up to sending 5 or 6 cases, or more, to their elite members. And because they can tailor their offerings to their production, they can always match up supply and sales. Plus, they typically sell at full retail price. Some wineries (Turley is a much-mentioned example) can sell tens of thousands of cases through their mailing lists. But, mailing lists really only work when demand outstrips supply. I wonder if there are any wineries out there who began with a wine club model, and as their demand grew, switched to a mailing list model? I haven't heard of it, but it must be tempting for wineries who've built up sufficient excess demand.
Wholesale Distribution Consequences
A wine club, because it contains mostly small-production wines, is largely noncompetitive with a winery's wholesale distribution efforts. Still, it's always a juggling act for wineries to make sure that club members are getting best prices on wines, and we are careful that our club member discounts bring the prices of even our more distributed wines down to levels comparable to what the same wine might be sold for by the most aggressive discount retailer. We have lost club members occasionally when a local discounter cuts their prices below our wine club members' prices.
Mailing list wines are rarely available in the wholesale market, or, if they are, are typically either restricted to restaurants (whose higher markups raise the price comfortably above mailing list prices) or sold at mailing list cost to retailers, who then mark up the wine and resell it. Of course, if the demand on the secondary market falls so that members with higher allocations can't unload their extra, or the winery decides it needs to move wine into the wholesale channels, a mailing list system can fall apart quickly. So, many wineries who use mailing lists have their hands tied when demand falls. Wine clubs chug along in times of economic stress, and ours has continued to grow (albeit more slowly than in past years) throughout the current recession.
A Consumer's Perspective
For a consumer, I can see advantages to each. A wine club is typically a less extravagant commitment than a mailing list membership. And you tend to get additional discounts for additional ordering, and a wide range of offerings. But wine clubs are often less flexible than mailing lists, and many wines may be made in quantities so small that it's unlikely you'll be able to get more even if you want to.
I have increasingly started to hear consumers refer to mailing lists where you're required to buy ever-larger quantities of wine to maintain your priority, or to buy quantities of wines you're not particularly interested in to maintain access to the wines you want, as "hostage" lists. But most members seem to stay members, at least as long as they can re-sell (or "flip") their unwanted wines. I understand this frustration, and we've always tried to make sure we're not overloading our VINsiders with too much of any single wine. Anyone who wants more is welcome to order more, and lots of members do each year.
I'd be interested in feedback from anyone who is a member of both wine clubs and mailing lists. As a consumer, do you have a preference? Are there practices you'd like to see the wineries you patronize adopt?