Sure, consumers are cutting back. And sure, sizzle is out in favor of substance. But it is my belief that the wholesale wine market is perpetuating and strengthening the much-trumpeted phenomenon that consumers are only buying the least expensive wines. The mechanism is that of the self-fulfilling prophecy. How has it happened? Read on.
First some background. Those of us out selling wine in this recession hear, again and again, things like "no one is buying now" and "the only price categories that are working are under $15". Yet, I have spent more time the first six months of the year out in the market than I have in years and have never had the wines so well received or seen such great sales result from my work. Our least expensive wine retails for about $20, with the rest in the $30's and $40's. I just got back from two days working in Northern California, where our sales declined more than 30% in the first six months of the year, and sold multiple wines into nearly every stop we made in the dramatically different markets of Monterey, the East Bay, and San Francisco.
So, what gives? According to Wine Industry Insight, retail sales of wine in the $20-and-above price category rose five of the first six months of 2009 compared to the same months in 2008. Of course, restaurant sales of wines have declined, although I have not been able to find anywhere which has quantified by what number. Overall, the consensus seems to be that higher-end but not luxury wine (say in the $20 to $50 price level) has softened but not collapsed.
I've begun to suspect that there is more than organic reduction of demand at play in the wholesale sales declines I've seen. Four principal factors have made me suspicious.
- Our tasting room sales continue on an upward trajectory. So far this year, our tasting room sales are up 5% off of a substantial base, and we've continued to gain wine club members (we have about 200 more now than we did at the beginning of the year). So, clearly our customers are not abandoning buying Tablas Creek.
- Our wholesale sales results have varied dramatically depending on how much time we have spent in that market. Markets where we have visited, or where we have worked out programs that ensure that the wines are being shown to prospective buyers, are flat or up compared to 2008. Markets which we have not visited and where we have not worked out independent programs are down, often sharply.
- Wholesale accounts that I visit mostly report that they have not been shown Tablas Creek as much in the past 9 months as they were being shown previously.
- We've had more issues than ever before with our wholesalers running out of stock of our wine.
All these factors lead me to suspect that the major culprit in the sales decline of mid-tier wines is what might be called gatekeeper nervousness. As I mentioned in my post on succeeding in a poor economy back in February:
For a wine to sell in the wholesale market, the distributor manager has to believe in the product enough to maintain a healthy inventory, the distributor rep has to believe he or she can sell the wine enough to pull a sample and show it to his or her accounts, and the buyers at the accounts have to have enough confidence to buy the wine in a crowded and nervous marketplace.
All these gatekeepers have the power to block a prospective consumer from receiving the opportunity to purchase your wine. If any tier worries that their customers are only interested in inexpensive wines, it's easy for them to focus most or all of their attention on those wines. And if they do, they contribute to the creation of the environment that they fear. As an example of how this fear of any but the least expensive wines can become a self-fulfilling prophecy, my dad came back from a sales trip through Connecticut having sold wine at every stop except for one retailer who said that as his customers are only buying wines under $15, he's only stocking wines under $15 in his store. If he's only stocking under $15 wines, of course that's what his customers are buying!
The tendency to focus on only the least expensive wines is even more of an issue when it is your distributor or agent who is supposed to be advocating for you who is the reluctant gatekeeper, because in general you have hundreds or thousands of potential retail and restaurant accounts in each state but only one wholesaler.
This is why, in the wholesale market, our principal focus as we move into the second half of this year is to make sure that our distributors are pulling enough samples of our wines to show. I honestly feel that as long as this is happening, everything else takes care of itself. And as we have pushed our distributors to show our wines more often, I have begun hearing from numerous distributor reps and managers who have been surprised with how well received the wines have been, and how many sales they have made, when they've shown Tablas Creek to buyers.
If you're a winery, how do you make sure your wine is being shown? I have some suggestions.
- Make sure you're receiving samples use reports from your distributors. You can't know what to do if you don't know what's happening. Even the act of running this report can spur a commitment to action from distributors whose performance on your wines has declined.
- Be prepared to ask that your wines be included in promotions or contests that your distributors are holding. Most distributors are running at least one competition for their salespeople at any given time. Unsurprisingly, this dictates what is top-of-mind for the salespeople.
- Focus on distribution goals rather than sales goals. This may not be intuitive, but if you are judging your distributor's success on sales of cases, it's usually easier for a manager to set up one or two larger retail drops rather than twenty new placements. But these big drops have gotten harder to set up in an economy where everyone is trying to move volume, and don't usually have the lasting impact that broader distribution has.
- Don't be reluctant to provide some samples at your expense. Sample budgets have definitely tightened in this recession, and you may need to, in effect, seed the market to convince the distributor that the wines are viable to sample.
- Make sure you are out in the markets working with your distributors. They have to focus on your wines when you're there, and if you have good success in the market, it breeds more success. Plus, working with a distributor is a cooperative effort. If they see that you are supporting them, they're far more likely to support you even when you're not there.
Will these ideas work for everyone? I don't know. And are they relevant for wines that are in the true luxury category (over $75 retail)? Maybe not. But they at least give you a fighting chance, which is the minimum that you should be asking for. And as the economy slowly climbs out of recession and consumer confidence begins to rebound, we need our wines on lists and on retail shelves to have a chance of taking advantage of the improved public mood. And it's reassuring to remember that self-fulfilling prophecy can work in your favor as well. If accounts and distributors see that your strategy has been successful, they're likely to expect that success... and redouble their efforts.
Now that's something to look forward to in the second half of what has been a very challenging year in the wholesale realm.