Customer service lessons from an overcrowded restaurant

On the Monday between Christmas and New Year's, I called into a favorite local restaurant from my 8-year-old's soccer practice to get takeout. I had volunteered to provide dinner that night for the large group of extended family who were in town for the weekend, who were relaxing and watching football back at my house while I collected Sebastian. The restaurant I chose isn't fancy, but it's the kind of solid neighborhood place that forms the backbone of a lot of communities. Good food, an unfailingly helpful staff and no fuss. We eat there (or order from there) a lot.

FC797B68-F820-4860-9EE3-24DFA6F07B09

This experience was pretty much a nightmare. When I called, I was asked if I could hold. Sure, no problem. But when no one came back to the phone for a minute, then two, then five, it became clear that whoever had answered had put down the phone to take care of whatever else she was working on, and then forgotten about me. I hung up, and called back. Busy. I tried again. Busy. Over the next twenty minutes, I called another half-dozen times, getting a busy signal each time. The phone was evidently still off the hook. I was about to abandon the attempt -- worried at this point I wouldn't have any food for the assembled dozen people, but without a plan B I could think of -- when the phone rang through, and was picked up. I ordered, and she let me know that because they were so busy, I should count on a half-hour for the food to be ready.

I had been planning to pick up the food on my way back home from practice, but at this point, the ordering had taken so long that I figured I should drop Sebastian back home to play with his cousins and then head back out to get the food. And it's a good thing I did. I arrived at the restaurant about a half-hour after ordering, and it was absolutely slammed. Every table was full, there were people waiting at the entrance, and the bar was full of patrons waiting for orders they'd called in. It took another twenty minutes (which felt like an hour, at this point) before I got my food and headed home to a very hungry household.

I'm a regular customer, and knew enough to cut them some slack after dozens of good experiences. But, I thought, what if I had been one of those people in from out of town, and this was my first visit? I wouldn't be writing this blog; I'd be writing a review on Yelp (if I were that sort of person) or at least telling my dozen or so assembled friends and family what a disorganized mess the restaurant was.

I realized later that this experience held two clear lessons for restaurants, winery tasting rooms, or really any other retail business with an ebb and flow of customers.

  1. Keep good records, and use them. Clearly, the restaurant was surprised by the traffic they saw on this Monday night. Should they have been? Probably not. That week is always one of our busiest of the year in the tasting room, with what feels like an entire week of Saturdays. The restaurant has been there for several years, so they should have data from past Christmases. Maybe they had someone call in sick. Or maybe things sequenced badly for them, with several big groups arriving all at once. Things happen. But they're a lot less likely to take you by surprise if you're looking at past history. This year, we saw 931 people at the Tablas Creek tasting room that very week. That was a lot. But since we had 836 the same week last year, we were prepared. Similarly, after being blindsided by exceptionally busy weekends thanks to other wineries hosting wine club events, we started a calendar in conjunction with other wineries out near us that we all share. Now, we know when to expect the overflow from an event at Justin, or Halter Ranch, or Adelaida.
  2. Staff for your peak times.It's easy and logical to look at your staffing costs and decide you can save a little by aiming to be appropriately staffed when you're averagely busy. But I think it's usually a mistake. Customer traffic rarely comes in an even flow. It comes in rushes and pauses, and a rush when you're unprepared can put you behind for some time after. But, more importantly, if you're staffed for your average traffic you're guaranteed to be providing the worst service when you have the most people there. Far better, in my opinion, is staffing for when you're busy, and being creative with your staff so they're not unproductive when customer traffic is light.

These lessons were always important. Research has shown that a bad customer experience gets retold many more times than a good one. But with the increasing popularity of review sites like Yelp and TripAdvisor, and the easy sharing of information over social media, it's more important than ever. Go back to my initial experience. If I had written this up on Yelp, how many customers do you think would have read it and decided not to chance a first visit? How many of those customers might have become regulars? Suddenly, the cost of the extra person to work the floor, or answer the phones, doesn't seem so substantial.


Dry Farming in California's Drought, Part 3: How We Got Here (and Where We Go Next)

I was struck by a quote from Tegan Passalaqua, the winemaker at Turley, in a recent article on JancisRobinson.com.  In an interview with Alder Yarrow, Tegan said "In a Mediterranean climate like we have, vertical shoot positioning and 3 by 6 vineyard spacing is basically farming hydroponically".

Hydroponic farming, with its overtones of bland supermarket tomatoes, seems an unlikely candidate to provide the intensity and ripeness that a winemaker would expect from California.  But in its essence, that the farmer is providing everything that a plant needs to bear fruit, I don't think he's far off.  It's worth taking a few moments to understand how grapevines came to be so widely irrigated in California.  In the first part of this 3 part series, I looked at how our understanding of California's climate dictated changes versus what had been done in the Mediterranean.  In the second part, I detailed how we have been farming our vineyard since the beginning to wean it off of irrigation, and what changes we've made in recent years to adjust to the likelihood of a drier future.  In this third part, I will explore how viticulture evolved in California to rely so heavily on irrigation.  If you missed the earlier parts, this article will make more sense after you've read them.

According to Jancis Robinson1, wine grapes were likely first domesticated from their wild progenitors somewhere near where modern-day Armenia, eastern Turkey, and north-western Iran meet, sometime before 4000 BC.  That area is a relatively arid climate, averaging around 400mm of rainfall per year (about 16 inches).  There, grapevines, along with similarly rugged crops like olive trees, were planted on dry, rocky hillsides where the more useful grain and vegetable crops couldn't survive.  This took advantage of grapevines' genetic predisposition to search out scarce water sources, delving dozens of feet deep if necessary.

By 2000 BC, wine grapes had been brought to areas around the eastern Mediterranean, including Egypt, Mesopotamia, southern Greece, Crete and the southern Balkans.  Expansion to areas north and west came over the next two millennia, brought by the exploring and colonizing Phoenicians, Greeks, and (later) Romans.  

High quality winemaking requires the concentration of flavors, achieved through stress on the grapevines and the maturity of fruit.  This happens naturally in the hot, dry climates where grapevines evolved.  But as viniculture moved north through Europe, into climates cooler and wetter than where wine grapes originated, the grapevines faced different challenges. Instead of not enough water, grapevines were challenged with too much water, threatening to dilute flavors.  And the cooler climes meant that lack of ripeness was a significant threat.  The solution to both these problems came in a new way of planting: spacing vines much more closely, so they competed against each other for the available water, and reducing the yield per vine so that the clusters ripened more rapidly.  For contrast, look at the differences in the old world.  An old vineyard in a warm Mediterranean climate (in the example below, Priorat, taken as a still from a promotional video on the Priorat DOQ Web site) might see grapevines three meters apart or more from their nearest neighbors (500 vines per acre, or less):

Priorat

By contrast, a Burgundian vigneron in search of maximum concentration and character might plant grapevines as close together as one meter by one meter (over 4000 vines per acre), and reduce yields per vine from 20-30 clusters per vine to just 3 or 4.  The example below (from Wikimedia Commons) is of a vineyard near Gevrey-Chambertin, in Burgundy, where vines are so close together a tiny tractor can barely fit:

Vineyards_near_Gevrey-Chambertin_(7309858246)

The net result is a can be a greater yield in tons per acre, with increased intensity and a better chance of getting the grapes ripe before the first frost.

It is perhaps useful to think of a grapevine as a small machine, whose roots act as pumps to wick water and nutrients out of the ground.  A vine's leaves absorb solar energy to power this machine. The water that is pulled from the ground is used during photosynthesis as the vine respires through the pores of the leaves, and is also trapped in the plant's tissues and fruit.  Planting more vines into a given plot of land requires more water for photosynthesis to be successful.  If there is enough (or too much) water, this extra density is beneficial and even important.  If there is not enough water, this extra density requires more irrigation to keep photosynthesis going.  And if irrigation becomes a major source of water for the vines, they change their root system to better capture that water source, growing more rootmass under the irrigation drips and less exploring deeper. 

So, is California's climate more like that of the Mediterranean, or more like that of Burgundy?  It depends on what you look at.  In terms of temperatures, you can find both, as evidenced by the success California's winemaking community has had with a a wide range of grapes, from the cool-loving Sauvignon Blanc and Pinot Noir (with origins in the north of France) to the late-ripening Grenache and Mourvedre (with origins in the hot, dry Spanish plateau).  But in terms of rainfall, it should be clear that except for perhaps in extreme north and coastal regions, our total precipitation more resembles the warmer, drier Mediterranean. In fact, many parts of California receive significantly less annual rainfall than the classic Mediterranean climate.  Relatively arid areas like Priorat receive more rainfall than most of the Central Coast, and the rainfall distribution in Paso Robles actually looks more like the Bekaa Valley in Lebanon than it does like Priorat, let alone anywhere in France.  The fact that we receive nearly all our precipitation in the six-month period between November and April only adds to the stress on the vines, and the need for planning if we're going to try to grow grapes without having them dependent upon regular irrigation.

You might wonder why plantings of grapevines in California look more like those in Northern Europe than they do like those of the Mediterranean.  That they do is a relatively recent phenomenon.  A paper on vine spacing presented to the American Society for Enology and Viticulture (ASEV) in 1999 by two winemakers from Robert Mondavi Winery makes for fascinating reading.  Before the late 1980's, most vineyards in California were planted at around 450 vines per acre.  The first large-scale (35 acre) high-density (2170 vines/acre) planting came in Oakville in 1985.  Since then, the paradigm has shifted rapidly, as winemakers found that they could translate the higher density into earlier-ripening, more reliably yielding crops of good intensity.

The downside? It hasn't seemed like there was much of one. More reliable yields, more reliable ripening, and increased intensity all seem like a good thing.  If I find that many of the wines that come from high-density irrigated plantings have a sameness, a fruit-driven thickness and relative lack of soil expression, this doesn't seem to be a complaint shared by many.  And separating out the preference for increasingly ripe flavors that developed over a similar timeframe is difficult (many connoisseurs of Bordeaux, where irrigation is prohibited, have described a similar development over the last two decades). But these higher-density crops can only survive in most parts of California through the regular application of irrigation.  When that irrigation water was cheaply and easily available, the fact that our natural rainfall distribution more resembles the Eastern Mediterranean than Burgundy or Bordeaux didn't seem to matter much. From an environmental standpoint, planting an irrigated vineyard was often a responsible choice for a farmer, as the high efficiency of drip irrigation and the relatively little water that grapevines need compared to a crop like alfalfa offered sustainability in both resource use and economics. But with all of California's agricultural communities engaging in a new level of soul-searching after four years of drought, it's clear to me that the calculus is changing.

Perhaps the solution for a drier future begins with a look at the past.  The old vineyards planted by immigrants in the 19th and early 20th centuries, many of which survived decades of neglect during prohibition and continue to produce a century later, were planted with the densities common to the warm Mediterranean climates (from where, of course, most of the settlers came).  Given our success in recent years replicating these older planting styles, I would hope that one benefit to come out of our current drought will be a renewed interest in low density plantings on deep-rooting rootstocks, requiring at most a fraction of the water of "modern" vineyards. That the wines have turned out to be so good is icing on the cake. 

It doesn't get more sustainable than that.

Footnotes
1 Jancis Robinson's "Wine Grapes" (Penguin Books, 2012) is an incredible resource for anyone interested in the history or characteristics of different grape varieties.


Dry-Farming in California's Drought, Part 2: Looking Forward to the Past

In the first part of this 3-part series on farming in California's drought, I looked at how our climate here in California differs in crucial ways from that in the Mediterranean, and what lessons we took from these differences in how we would choose to farm.  In this second part, I pick the story back up with how we planted and trained our vines in the early days to allow us to dry-farm them now, and what changes we've made in recent years as we adjust to what is likely to be a drier future.  The third part is more historical, looking at how grapevines -- which should be one of the easier crops to dry-farm -- came to be so widely irrigated in California.  If you missed Part 1, go read it now.  OK, welcome back.

In the Beginning

When we began planting, we used a hybrid of the planting methods of modern California and the traditional Rhone.  At Beaucastel, vines are planted head-trained but closely spaced on their relatively flat terrain.  They cultivate these vineyards using tall over-the-vines tractors as the spacing (roughly 1.5 meters square) doesn't allow tractors to pass in-between.  On our steep hillsides, these tractors wouldn't work, so we matched the overall vine density, but moved the vines into rows, planting more closely within the rows (3 feet) and spacing the rows either 8 feet or 10 feet apart, depending on our terrain. We achieve a similar vine density at around 1600-1800 vines per acre, but can cultivate mechanically, essential for our organic techniques:

Tournesol Tractor

Our decision to plant at similar density to Beaucastel was grounded in our initial belief that in our broadly similar environment we should use the techniques that they had developed over the years as a starting point, and then learn from our experiences here and adjust gradually over time.  

The first choice we needed to make was what rootstocks to use. Wine grapes need to be grafted onto rootstocks to be resistant to the root parasite phylloxera.  These rootstocks are descended from different species of American wild grapes, and have inherited differences in level of vigor, rooting configuration, tolerance for soil chemistry, and affinity for various varietals from their progenitors. [For a good technical overview of rootstock science, see this piece in Wines&Vines.]  

Modern fashion in relatively water-rich areas (including Napa Valley, which has a fairly stable water table on the valley floor) suggests the use of low-vigor, shallow-rooting rootstocks, to keep the vines from growing too much canopy and from setting high quantities of low-intensity fruit.  But it was clear to us that we should focus instead on higher-vigor, deeper rooting rootstocks because of the high-stress nature of our climate and topography.  We chose deep-rooting, relatively high-vigor rootstocks to graft to (principally 110R and 1103P).

Our next decision was if and how to irrigate the blocks we would be planting. After speaking to local growers, it became clear to us that in order to get our young vines through the dry summer months, we would need to be able to irrigate at least in the early years.  Grapevine roots grow down fairly rapidly, about a foot and a half per year when the vines are young, slowing as they age.  To determine the length of time we'd need to supplement, we did some trench cuts in the vineyard, digging down a dozen feet through the topsoil and the top layers of limestone, to see where the water was by late summer.  These showed that even with the water-holding capabilities of our calcium-rich soils, we needed to dig down 6-8 feet to find layers that still had moisture in September.  So, we figured we would need to irrigate for the first five or so years, if all went well, and if we were able to encourage the deep root growth that would eventually allow us to get the bulk of the root mass down where water could be found.

Our technique was infrequent but deep irrigation.  This should be intuitive.  Grapevine roots grow where water is present.  If you water frequently but shallowly, roots continue to grow near the surface, where water can be found.  If the only water to be found is deep, roots grow deep.  Watering infrequently (twice per summer, and eventually only once) but deeply causes the soil to dry out from the top down in between waterings, and encourages root growth in the deeper areas that have moisture.

It didn't work as smoothly as we had originally hoped.  We lost so many vines to gopher predation that we had to replant in some cases as much as 25% of our blocks with young vines.  These vines needed to be irrigated when they were young, and even longer, as they grew more slowly due to competition from the older vines nearby.  It wasn't until the wet years of 2005 and 2006 that we felt able to wean our established blocks entirely from supplemental irrigation, but when we did, we were rewarded by consecutive great vintages.

Now, we feel that our older blocks are able to go not just through a normal rainfall winter without needing to be supplemented, but can go one year into a drought cycle (as in the 2012 vintage) without needing additional water.  When we get multiple years into a drought, as we have been since 2013, we are able to supplement, again using the infrequent but deep watering that will discourage the vines from the bad habits of excessive shallow root growth.  We supplemented most blocks once in 2013 and twice during the 2014 vintage, and feel that these are going to be two of our greatest vintages ever.

Recent Adjustments

In addition to the continuing work that we've done easing our original plantings toward water self-sufficiency, the last decade has seen us look to even older models to plant vineyard in ways that won't need to be supplemented even in droughts.  As early as 2000, we had planted some of our low-lying blocks in relatively deep soils head-trained, dry-farmed.  These areas most resembled, to our minds, the terrain at Beaucastel.  We also looked at old vineyards in the Paso Robles area, many of which date back to the years before Prohibition.  These vines, mostly Zinfandel, were head-trained and widely spaced, and had made it nearly a century still in high quality production.  Our first block that we planted in this manner was the small block of Mourvedre near our front entrance, just to the east of where our tasting room is currently located.  We spaced the vines 8 feet apart in a square pattern (a density of 680 vines per acre).  A recent view of this block (with the vines and their solar panel backdrop) shows how well established they've become in the last 15 years:

Mourvedre with solar panels behind

The success of these never-irrigated vines encouraged us to plant most of our former rootstock fields in this manner between 2003 and 2005.  Though these worked well too, we weren't sure yet whether we could translate these successes to hillside blocks with less topsoil and less water.  In the end, it was the logistical challenge of getting well water pumped to our one block on the south (opposite) side of Tablas Creek that pushed us to give it a shot.  We planted that thirteen-acre block, which we call Scruffy Hill, head-trained and dry-farmed in 2006 and 2007. Scruffy Hill presented some new challenges.  It was (is) one of our most rugged blocks, on a very steep slope, with at the top just a foot or so of topsoil.  Cultivation was also going to be a problem, with slopes as steep as 35% making it unsafe to cultivate across the hills, so after speaking with locals we decided on a 12 foot by 12 foot diamond pattern, reducing the vine density to about 340 vines per acre and creating two mostly-vertical avenues we could use to cross-cultivate safely.  We weren't comfortable leaving these vines to fend for themselves entirely, so we bought several 5-gallon plastic buckets, drilled a small hole in the bottom of each, and then used our water truck to give each vine a single bucket of water in the late summer in years one and two. Scruffy hill is now thriving:

Scruffy Hill 2

We've also been experimenting with our rootstocks. The rootstocks that we have used, from the beginning, have needed to be relatively high in vigor and tolerant of Calcium.  This has meant that we use predominantly 1103-P and 110-R.  In recent years, we've planted a few blocks of Grenache on the famously deep-rooting St. George rootstock, the standard in California before irrigation, though in more recent decades largely replaced by lower-vigor, more shallow-rooted crosses.  We are hopeful that these experiments will allow us to develop healthier, more vigorous vineyards without needing supplemental irrigation.

The Upshot: Forward to the Past

All told, in the last decade we've planted over 30 acres head-trained, dry-farmed, in the manner vineyards would have been planted (per force) a century ago.  And while it may not be intuitive, in our recent dry years, the vines in these blocks have shown less signs of stress, and the production from these blocks has declined less, than in our trellised blocks.  But perhaps it shouldn't be so surprising that 340 vines in a dry-farmed acre can thrive with the roughly 15 inches of rain we've received each of the last four winters, while the 1800 vines planted in a trellised acre really need something closer to the 28 inches that is our average.  While a 24-hour irrigation session can keep them going through a dry summer, it's still not making up the difference between a normal rainfall winter and what we've averaged during our drought.

Would we make the same commitment to dry-farming if we needed 4 or more tons per acre off of our vineyard?  Perhaps not.  Our dry-farmed blocks tend to produce between 2 and 2.5 tons per acre, even in the most productive years. But given that we're only aiming for between 2.5 and 3 tons per acre even from our trellised blocks, we're not sacrificing much production.  And given how much less expensive it is to plant, prune, cultivate and thin 340 vines per acre than it is to do the same work on 1800, it may not be costing us more per pound of fruit even with the lower yields.

Even more important, the quality of the wine lots from these dry-farmed vines has been among the best in the cellar both of the last two years. Take into account that these are still among our youngest blocks and you can see why we feel it's a win-win situation for us, and why we're planning to plant our entire new parcel -- all 55 acres -- this way over the next decade.

So, if we're so happy with these old-fashioned techniques, how did the paradigm in California become so dependent on irrigation?  I explore the history in part 3.


Is Facebook Even Worth It Anymore?

In late 2013, I wrote a blog piece titled What Facebook's News Feed Changes Mean for the Wine Community.  In it, I shared Facebook's warning to the owners of their pages that they were going to be reducing posts' organic reach, in order to prioritize friend-to-friend content over business content.  Of course, page owners who wanted to reach more of their fans would be able to pay for that reach.

It's clear, a little more than a year later, that Facebook's changes are in full effect. At any given level of engagement (measured by Facebook) the percentage of our page's fans who we reach with a given post is roughly half what it was in 2013. For our image posts:

Facebook Post Reach by Engagement 2015

It also seems like it's getting worse.  Looking at our image posts with our most common levels of engagement (11%-14%) the percent of our fans we've reached has gone down steadily each month so far in 2015:

Facebook Post Reach by Engagement by Month 2015

It also seems that Facebook has changed which sorts of posts get higher reach.  It used to be that images, which offer the easy opportunity for interaction through a simple click, got good reach compared to links or text posts.  Our experience in recent months has been that images have been increasingly difficult to have reach a high percentage of your fans.  Text posts, which are hard to interact with, are equally difficult to spread widely.  Links are harder to get high engagement totals on, but it appears that when you do, Facebook gives those posts signficantly broader reach.  The below post that we shared this week reached nearly 42% of our total fans, our highest total of the year, at a 14% engagement rate.

We're in good company in this picturesque piece in Palate Exposure: "Top Fifteen Wineries of Paso Robles"

Posted by Tablas Creek Vineyard on Monday, March 23, 2015

Two sorts of posts appear to be easiest to get served to those who have liked your page.  First is video.  We've posted seven videos so far this year.  They have garnered an average 10% engagement rate, and have reached an average of 22.6% of our fans: more than double the reach, on average, of our image posts with the same engagement.

The second type of post that seems to get good reach is the multi-image post, where fans are encouraged to click between the images to see the full content you've posted.  We've posted seventeen such posts this year, and they've achieved an average 16.2% engagement rate and have reached an average of 14.6% of our fans per post.  And yet this is discouraging in its own way.  We had six multi-image posts that achieved at least 19% engagement.  These posts reached, on average, 18% of our fans.  Facebook has decided that even these all-star posts, interesting enough to engage a massive 20% of the people who saw them, aren't worth serving to 82% of the people who have self-declared as your fans.

So, if you're running a Facebook page for your company or your organization, what should you do?  It seems to me you have three options, not mutually exclusive. 

  1. You can continue to work to make great content, and resign yourself to the reach of this content in most cases growing smaller over time.  This has the advantage of being free, except for the opportunity costs and staff time of producing this content. Just adjust your expectations.
  2. You can invest more significantly in video.  A glance at your own Facebook feed should demonstrate that Facebook is interested in serving more video to its users as it focuses on cutting into YouTube's head-start in the video arena.  These posts are typically somewhat more involved to make, but Facebook is rewarding them with greater reach.
  3. Finally, you can pay to sponsor your posts.  Even at relatively modest levels, doing so gives you much greater access to your fans and to those who you target, whether they be friends of your fans or others that fit specific demographics or interests.  We've paid to promote four posts so far this year, and have had these posts served something like 5000 extra times for each $20 we've spent.  Given that our average post is reaching something like 800 of our fans organically, if we were to choose to promote one post a week, at $20/post, we might be able to double the total number of views of our content at an annual cost of around $1000.  That's hardly exorbitant. 

Sadly, I don't see Facebook making changes that allow for a return to the conditions of a few years ago, where businesses and organizations could pay to acquire new fans, or to target connections of their fans, while taking access to those fans for granted.  But given that there is no other social network that has remotely Facebook's user base, and that the changes that the company has made aren't likely to drive those users away, it's worth deciding the appropriate level of investment for your group to remain in the Facebook game.  Sure, you can -- and should -- continue to post to Twitter and Instagram, but doing so is not a replacement for engaging the 1.2 billion active monthly users on Facebook.  Just know that the era when a small businesses can treat Facebook as the centerpiece of a no-cost marketing plan is over, and it's not coming back.


Are direct-to-consumer sales really failing to lift the wine industry?

Last month I was surprised to read a headline on the industry portal Wine Industry Network titled Direct to Consumer Sales Fails to Lift the Wine Industry.  As a winery whose business model works only because of direct sales, I was curious to learn more about what the author Brian Rosen, consultant and former proprietor of Sam's Wine & Spirits, meant by the headline.  I posted my thoughts on Twitter:

Direct sales tweets 1

After which, he and I shot a few tweets back and forth, elaborating our positions:

Direct sales tweets 2

Brian's article was particularly interesting to me because it plays against the dominant narrative right now, that direct sales are on an inexorable rise, and that wineries should do everything that they can to make sure they're well positioned in this channel. What's more, that dominant narrative certainly jibes with our own experience here at Tablas Creek.  When we started, we believed that we would sell all our production through the wholesale channel.  Between the reputation of Beaucastel and the marketing muscle of Vineyard Brands, we thought that we could focus on grapegrowing and winemaking and the rest would take care of itself.

Five years of experience taught us that our initial expectations were unrealistic, and we made the decision in 2002 to take a much more active role in our marketing and sales.  We opened our tasting room, started our wine club, began participating in a wider array of events, worked harder and more closely with our distributor partners, and started participating more consistently in the promotional efforts of the regional and varietal organizations to which we belonged.  Little by little, we clawed our way out of what was a dangerous period when we were bleeding cash each year and became profitable.

In the steepest period of this climb, where we went from selling just under 4000 cases of wine in 2001 (all in wholesale) to nearly 20,000 cases of wine in 2007 (split between wholesale and direct) we saw significant growth in all our channels.  Our wholesale sales increased more than 250% over that period, to some 11,000 cases.  Our direct sales grew from nothing to some 9,000 cases.  But each year, as we looked at our financial reports, it became clear that our growing wholesale sales, far from driving our profitability, were only about a 50/50 bet to cover the cost of selling our wine in this channel.  As a company, all the profit that hit our bottom line came from the direct sales.

The greater profitability of direct sales should be intuitive, but it's likely even more important to wineries than you think.  Most wineries aim to achieve the same price out in the wholesale market and in their direct sales.  For product destined for the wholesale market, wineries back out the expected wholesaler and retailer markups, leading to a wholesale sell price half of full retail price.  Given that the cost of producing a wine is likely half or more of the wholesale sell price, the profit of selling a case direct isn't double that of selling it in the wholesale market; it is several times greater.  It is this disparity that means that a winery can offer good discounts to its wine club members and still come out far ahead. 

Further increasing the relative attractiveness of direct sales is that most wineries find, as we have, that the mix they sell direct skews toward their higher-end wines, while the mix that sells in wholesale skews toward wines that are less expensive, both because the wholesale market is naturally more price-competitive and because of the practical limit on wholesale price for wines that restaurants can pour by the glass.  When we did the math we realized that 75% of our revenue was coming from the 45% of our wine we sold direct, while just 25% of our revenue came from the 55% of the wine sold through the wholesale channel.  In simpler terms, we sold our average direct case for three and a half times what we sold our average wholesale case for.

OK, that was a lot of background.  But it gives you what you need to understand why I took objection when I read in Brian's piece, "I can tell you with 100% certainty that the DTC movement is not what you think it is and will not provide the added revenue that wineries around the globe are seeking."

The crucial question, and one that Brian himself addresses later in the article, is which wineries will benefit from direct-to-consumer sales, and which won't.  A winery's direct sales is limited naturally by its cachet, its tasting room traffic, and its perception of scarcity.  Even with high traffic, high cachet, and the perception of scarcity, there are only a handful of wineries selling more than 25,000 cases direct.  And most wineries' direct customers are far fewer than that; even established wineries I speak to around Paso Robles typically count a few thousand wine club members.  So,  imagine the challenge that faces a winery making a million cases a year, trying to have direct sales matter on the bottom line.  Even if they are able to build up to 25,000 direct cases per year (likely difficult given the challenge of creating the perception of scarcity) and able to sell those direct cases for 3.5 times what they sold their wholesale cases for, the direct sales channel would account for just 8.2% of the company's revenue.

Yet direct-to-consumer wine sales have grown to a $1.58 billion dollar industry: nearly the size of the total of wine sales to restaurants (some $1.8 billion last year).  It's still dwarfed by the $7.34 billion in retail wine sales, but it's growing.  So, is DTC important to wineries, or not?  It depends on your size.  Most wineries are small; by the Wine institute's estimate, 90% of wineries produce fewer than 50,000 cases, with three-quarters producing fewer than 5,000 cases.  Every one of those wineries should be looking to consumer-direct sales to make their business viable.  But most of the wine produced in America is produced by large wineries; estimates are that the three largest wine conglomerates produce half the wine sold in America each year.  And the twenty largest firms account for 90% of the market. For them, as the math showed above, direct sales are not going to make a significant difference in profitability.

If you're the average bottle of American wine, produced by one of the big companies in lots of tens or hundreds of thousands of cases, you're not likely looking at a future that involves transport via UPS or FedEx.  But if you're an average winery, producing a few thousand cases of wine a year, you should be focusing on selling a high percentage of however many bottles you produce directly.

Three final notes.  First, why, if they'll never notice it on their bottom lines, do the big wine companies still have tasting rooms and wine clubs?  I think (and based on the effort put into their direct sales by many of these large wineries, they agree) that it's valuable marketing: each direct relationship that a winery maintains is going to have a positive ripple effect as that customer communicates his or her enthusiasm to friends, and will support the work of distribution in a way similar to -- yet more profitable than -- advertising.

Second, you may be wondering why a relatively small winery like us bothers with wholesale sales at all.  Like a large winery with its direct sales, we think of it as powerful marketing, for which we get some revenue to offset the costs.  Having wine in great restaurants and wine shops means that customers don't have to come to us to discover us, and we have literally thousands of wine-savvy professionals around the country telling our story.  If we can get all this at something close to break-even, it's a big asset.

And third, if 90%+ of wineries rely on consumer-direct sales for their livelihood, why did Brian say that it won't provide the revenue wineries are seeking?  I think that there are two reasons.  First, Brian comes from a retail perspective.  The regulatory environment still makes it much more difficult for retailers to ship around the country than it does wineries.  And retailers are all competing to sell wines their competitors can buy at more or less the same price they can.  This level playing field, the regulatory patchwork, and the high cost of expedited shipping on a perishable, heavy item like a bottle of wine all combine to shield smaller local retailers from competition.  Will this equilibrium last forever?  Probably not. Given that Amazon is on their third foray into trying to sell wine, the e-commerce giants must see some potential here.  And here is an important area that I agree with Brian: whether you're a retailer or a supplier, Amazon and its ilk are likely to be neither savior nor apocalypse in the near term.

But all that's beside the point to a small or medium-size winery.  If that's who you are, you likely already know that direct-to-consumer sales isn't just your future.  It's your present, too.


Game Theory, the Prisoner's Dilemma and... Winery Membership Organizations, Part 2: Measuring the Value of Membership

Last month, I wrote a blog piece about how game theory, and specifically the classic example of the prisoner's dilemma, relates to participation in winery membership organizations.  If you haven't read part 1, this post will make more sense if you do so now.

OK, welcome back.

In this piece I'm going to tackle the first of two questions part 1 left unanswered: how to measure the value created by being a member of a winery organization, and whether it's worth the (often considerable) expense.  I'll tackle the second question (how game theory suggests an organization or a community respond to wineries who opt out of the communal marketing) in part 3.

Membership in a winery organization is typically not cheap.  The membership page on the Paso Robles Wine Country Alliance (PRWCA, for short) Web site lists membership prices from $675 (for wineries producing fewer than 250 cases) to $17,500 (for wineries producing over 40,000 cases) with a range of gradations in between.  In many cases, this membership is the single largest annual marketing expense for a winery member.  Is it worth it?

There are many ways to look at the benefits of membership, some of which will be applicable to some brands and not others, and some of which are more easily measurable than others.  I'll focus on a few principal tangible benefits in this piece, but want briefly to address some of the benefits of membership that I think are valuable but hard to quantify.  They include:

  • Participating in the branding and market awareness of your region.  This is the central goal of most marketing organizations, and yet it is both hard to quantify the value of success and impossible to limit this value-add to members.  If a campaign is successful, each bottle of wine you produce is a little easier to sell, as there is a larger pool of people out there potentially interested in purchasing your product.  But do they discriminate between wineries who are members of the organization and those who are not?  Unlikely.  Yet most wineries and growers would list this as the single most important goal of a membership organization.
  • Having representation at the many intersections of the wine community and state and local government.  Whether it's building, tasting room, or event permits; water rights; labor supply; or regulation, one role of a membership organization is to represent its members in front of local government.  Elected representatives are much more likely to hear the aggregated voice of an organization that represents hundreds of businesses and thousands of voters than they are to listen to any one individual, and it takes an organization to have the resources to attend meetings and stay informed.  A winery may go years without having a regulatory issue threaten its business, but when one does, its impact can be enormous, and having a say in the outcome invaluable.
  • Being a part of a community of ideas. There is significant value in rubbing shoulders with your peers as they navigate the same challenges that you face.  You share (and borrow) ideas both directly from other members and through the educational events organized by the membership organization, and it only takes a few good ideas to make a measurable difference in your bottom line.  The PRWCA has monthly meetings for tasting room managers as well as regular seminars for growers and winemakers.  Could you replicate these by paying for the ones that you want, or by spending lots of time with your neighbors?  To a significant extent, yes.  But that process is a lot easier when you're a part of a group with the mission to facilitate this exchange.

All of the above are valuable, but I don't actually think you need to get value out of the intangibles in order to justify the cost of membership.  In fact, let's just look at one benefit: the value of the additional people that membership brings into a tasting room. 

Wineries should know what an average customer who walks through their doors is worth to them. This will vary from winery to winery and depend on the winery’s average sale (AS), the percentage of walk-in customers who sign up for a wine club (CP), the average purchase per year of a wine club member (AP), the average duration in years of a wine club membership (LM) and the winery's profit margin (PM). The calculation goes:

Average Value = (AS + (CP * AP * LM)) * PM

For us, that figure is about $130. We’re one of the larger wineries in our area, so we pay a relatively high total in dues, but even at our size, we end up ahead if membership brings at least another 125 customers per year into our tasting room. That's 11 customers per month.

Once I went to the trouble of calculating the value of each additional customer visit, the calculus of whether or not membership paid for itself got a lot simpler.  Do we get 11 extra customer per month because of our membership?  I'd say yes, many times over.  Here's how: 

Bringing customers into the area. 
The ongoing marketing and advertising campaign, the organization-sponsored events, and the media outreach that the group does are all undertaken with the goal of bringing people into the area each year.  Once the people have booked their trip, they may or may not further consult the PRWCA for guidance on where to go.  So, the visits that these customers make in the area will be distributed among the various wineries, members and not.

How many extra people does the work of a group like the PRWCA bring into the area?  It's a tricky question, as customers typically have multiple reasons that they make any particular buying or travel decision.  But I would suspect that it's at a minimum in the tens of thousands per year (the festivals alone attract over 10,000) and likely in six figures.  (For why I think it's that high, see the "But does it work?" section below.)

If we assume that each wine tourist would visit an average of 5 tasting rooms per Paso Robles trip, even the minimum figure indicates 50,000 tasting room visits created by the PRWCA's outreach.  Divide this up among 200 local tasting rooms, and you get a figure of 250 visits per year per winery.  That's already double the number that we would need to justify the membership outlay.  If, as I suspect, the visit total is significantly higher than 10,000, the extra is just gravy.

Now, does a winery need to be a member to reap these benefits?  No.  But it's not just a community-minded thing to do.  As as the prisoner's dilemma example in part 1 showed, the individual wineries in the region benefit more from pooling their resources in a combined marketing campaign than they would from spending their same money individually.  

Directing the customers that they bring (and others) into the tasting rooms of members.
There is also a direct result on traffic due to a member's inclusion on the map (below, or available in PDF here) prepared by the PRWCA, printed by the hundreds of thousands each year, and also distributed electronically to the 50,000 monthly visitors to the pasowine.com site.  That's a lot of potential customers who see you if you're a member, and don't see you if you aren't. How many of our customers have to find us through one of the PRWCA touring tools to make it worth the investment? Less than 1%.

PRWCA Map

Remember that we need 11 extra customers per month to pay for our membership.  We average 2500 visitors per month, so 11 is four tenths of one percent of our traffic. It seems impossible that being on the map and on the Web site where hundreds of thousands of customers are starting their research isn't going to bring us that tiny marginal increase in our customer base; one or two groups per week is enough.  For a smaller winery -- say one at the 3,000 case level who's paying about $3,000 in annual dues -- 24 additional customers per year does the trick.  That's one couple a month.

But does it work?
I can almost hear the reader question hovering in the background: "but how do you measure if the outreach really does drive traffic?"  I'm happy you asked.

Last year, the PRWCA started an online campaign, which ran from August through October and included targeted advertising on such high-traffic sites as Pandora, Centro, Snooth, Eater, Facebook, Twitter, Youtube and Google.  These various ad buys (coordinated by an expert digital advertising agency) produced nearly 40,000,000 impressions, and big increases in the traffic on pasowine.com and the PRWCA's various social media sites.  I'd been aware that our tasting room traffic had also spiked last fall, but hadn't particularly tied the two things together.  As a baseline for comparison, between January 2013 and July 2013 our tasting room traffic was up 2.7%.  During the August-October PRWCA ad campaign, our traffic was up 13.2%.  After the campaign ended, it was down 0.6%.  Now, this is not conclusive.  There could have been a number of other reasons that our traffic was up then (including that we had a run of good press, and that the tasting room was doing, I thought, a particularly good job).  Or it could have been a statistical blip.  But, it encouraged me to pay attention to the difference in 2014 between our traffic when the PRWCA was advertising, and when it wasn't.  So far this year, the results have been similarly suggestive. 

In 2014, the PRWCA has made two advertising pushes (around March's Vintage Paso/Zinfandel event and May's Paso Robles Wine Festival) that were separated by so little time that it seems likely that their impact would have run together.  Looking at the period before that advertising started (1/1/14-2/17/14) our traffic was down 2%.  Between the beginning of the first campaign and the end of the second (2/18/14-5/26/14) our traffic was up 8.2%.  And since the campaign ended (granted, it's only been five weeks) our traffic has been down 3%.  That's starting to be a useful number of data points.1 

The roughly 10% increase in our traffic that we've seen in the periods where the PRWCA has been advertising amounts to an extra 200 customers per month. That's 18 times the number of extra monthly customers we need to break even on membership.

Does a winery who is not a member get many of these benefits in traffic?  Of course.  That's the free-rider challenge.  But if they lose even a tenth of that extra traffic because they're not on the map, or not on the Web site where the customers are doing their research, they're coming out behind. 

Other Direct Benefits: Trade and Media Outreach
Of course, wineries do not live by tasting room traffic alone, and a region's or winery's reputation can be built faster with help from the trade and media.  Outreach to these groups is another function of a membership organization.  Let's look at media outreach first.  I'm always skeptical of documents that point to "ad equivalency value" of editorial pieces, but anyone who has investigated the cost of an advertising campaign knows it's staggering: placing a one-page ad in any of the big food and wine magazines is more expensive than annual membership in the PRWCA for our largest wineries.  And the value of advertising is in repetition and duration, which puts it out of reach for any but the largest wineries.  This leaves smaller wineries to work to get editorial coverage, an effort made much easier with exposure to the dozens of writers that a group like the PRWCA brings into town each year.  Is this something that every winery will get equally?  Of course not.  The writers don't write stories spoon-fed to them, and most come to town with agendas of their own.  But it only takes one success to reach an ad equivalency of equal to or greater value than the membership cost.

There are similar equations to calculate in the trade outreach that a marketing group does, in trade education, in buyers tours -- where the trade is brought to the region -- and in road shows, where the region brings itself to major markets and invites trade to see what's new.  What is the value of a by-the-glass placement at a high-profile restaurant in Indianapolis (one concrete result for Tablas Creek from last year's buyer's tour)?  Or an agreement with a new distributor to represent your wines in a market you're looking to break into?  Or a feature in the newsletter of a retailer?  These, too, are occasional but powerful additions to a winery's business.  Of course, these benefits aren't of much value if a winery is only selling out of their cellar door, but if that's the case, they probably get all the benefit they need from the additions to their tasting room traffic.  In fact, it's the added work that an organization has to do to reach the trade, and the disproportionate impact that has on larger wineries, that is the best justification in my opinion for the sliding scale of winery dues.

Both trade and media outreach are benefits that are only available to members, as non-members aren't included in visit itineraries or group events.

Conclusion
In a comment in a recent piece on the Hoot N Annie blog, Gary Eberle says that membership in the PRWCA is "the cheapest investment a winery can make in direct to consumer sales".  And I agree... whatever your size, if you have a tasting room, being a member of the organization pays for itself many times over. 

When I moved out to Paso Robles, I thought that membership in the PRWCA was something of a civic duty: an investment a winery did for the long-term growth of the area.  I still think that's true.  But I think it's equally true that membership brings direct returns to the winery many times greater than the investment.  Good for the region, and for our bottom line?  Why yes, please sign me up.

How do we get back the handful of wineries that drop out each year?  And how do we minimize the number that we lose?  Stick around for part 3.

Footnotes
1For the stats geeks out there, I had my wife dust off her graduate statistics work and run a t-test on the changes in our weekly traffic data since the beginning of last year.  Of the 76 weekly data points, there were 30 weeks where the PRWCA's ad campaign was going on and 46 weeks where it wasn't.  With that few data points, I would have been surprised had the data come out as statistically significant. It didn't, but the p-value (the measure of significance) was .189, indicating that there was a less than 20% probability that the difference between the result sets was due to chance.


Game Theory, the Prisoner's Dilemma and... Winery Membership Organizations, Part 1

Game theory describes a branch of science at the intersection of economics, psychology and mathematics which explores models of interaction between rational actors, seeking to explain why and when these actors (be they individuals, companies or even nations) will choose to cooperate or to betray each other.  Many of these games are iterative, a fancy way of saying that they happen again and again, like many actions in life, where the actors can learn from their previous actions and the previous actions of their competitors.

One of the classic examples of game theory is the prisoner's dilemma.  Imagine the situation where two co-conspirators are arrested on light evidence, and each independently offered the opportunity to inform on the other in return for escaping jail time.  If neither chooses to inform, the prosecution doesn't have much of a case and so both get light sentences (say, 1 year).  If both choose to inform, both get moderate sentences (say, 3 years).  If one chooses to inform and the other doesn't, the one who informs gets no jail time, but the one who doesn't, and sees his co-conspirator testify against him, gets 5 years.  You can set up the four possible actions in a grid:

 A TestifiesA Stays Silent
B Testifies A gets 3 years
B gets 3 years
A gets 5 years
B gets 0 years
B Stays Silent A gets 0 years
B gets 5 years
A gets 1 year
B gets 1 year

At first glance, the actions that the actors should take in this game seem pretty clear: whatever one prisoner does, the other comes out better if he testifies, serving no time (vs. 1 year) if the other person stays silent, and 3 years (vs. 5 years) if the other prisoner testifies. And yet the best outcome for the duo happens if both behave irrationally (or perhaps trustingly) while the worst outcome occurs when both behave rationally (or self-interestedly).  Real-world applications of this abound, from arms reduction treaties to curbs on greenhouse gases to the production of individual countries in the OPEC oil cartel.

PrisonersDilemma
Graphic courtesy Wikimedia Commons, which has a great interactive Prisoner's Dilemma
example -- from which the screenshot above was taken -- here.

How is this applicable to wine associations?  I'm happy you asked.  I've been spending a lot of my time thinking of this recently thanks to my positions on the board of directors of two organizations: the Paso Robles Wine Country Alliance (PRWCA) and the Rhone Rangers.  In both cases, I believe that the organizations provide a valuable service to their members, but there are significant free-rider problems that discourage membership.  Think about it this way.  If the Rhone Rangers is successful in its marketing and makes Syrah easier to sell, all Syrah producers benefit, not just the ones who are members.  Similarly, if the PRWCA is successful in its promotion and brings more people to area tasting rooms, or raises the profile of Paso Robles so its wines sell better off retail shelves and wine lists, any Paso Robles winery will benefit, whether or not they have paid their membership dues.

And the dues, for the PRWCA at least, are not cheap.  We've had two important local wineries drop out of the alliance this year, each saying that they were going to reallocate their marketing dollars to efforts that more directly benefited their bottom lines.  These decisions shot a significant (though not crippling) hole through the PRWCA marketing budget.  Were the wineries behaving rationally?  Actually, yes, they almost certainly were, though if their behavior was generalized everyone, including them, would be worse off.  It's a prisoner's dilemma-type example!

The main reason that wineries band together is to gain efficiency with the money they spend.  It's generally accepted that an advertising campaign gains efficiency with repetition and with consistency.  So, a single marketing campaign, well targeted and well run, is typically more effective at driving behavior than ten different advertising campaigns each one-tenth the size of the original campaign.  And the PRWCA gains additional efficiency because of its expertise -- unlikely to be found in-house at any individual winery -- both because of the people running it (thank you, Jennifer Porter) and because of the outside consultants it is able to afford.

Let's look at an example that will require a little math. I'll round the numbers to help them make sense, but it doesn't really matter what the numbers are: the conclusion still holds, as long as we agree that wineries are unlikely to be as efficient spending individually as the group would be spending their money in a coordinated campaign. For ease of calculation, I will assume that there is a 50% loss in overall spending efficiency when a winery splits their money from the group's to spend it individually.  And we'll round numbers to 200 wineries, with a contribution of $5000 each (leaving a total budget of $1,000,000).  I'll look only at the power of advertising to drive people to local tasting rooms, and assume that each visitor makes 5 tasting room visits when they're in town, and assume that the PRWCA gets one person to make the decision to come to town for each $5 they spend.

OK, back to specifics.  Let's look at the impact of the PRWCA's spending of $5000 -- one winery's portion of the total budget -- as a part of their master marketing campaign.  This $5000 brings 1000 customers into town.  These customers make 5 visits each, or 5,000 visits total, split among the 200 wineries.  Each winery receives 25 of these tasting room visits. 

Now, let's look at the scenario where Winery X takes the $5000 that they were going to give to the PRWCA and reallocates it to running radio ads in Fresno, Bakersfield and Orange County.  This advertising is only 50% as efficient as the PRWCA's marketing, so the winery might expect to pay $10 per customer (double the PRWCA's cost).  But the people that this advertising drives to Paso Robles will all start at Winery X's tasting room.  So they get 500 visits for their $5000.  Other tasting rooms in the region still benefit, as these visitors make on average 4 more visits to other tasting rooms when they're in town.  But those 500 customers, who make their additional 2,000 total visits to other Paso Robles tasting rooms, account for only about 10 new visits to each of the other 199 wineries -- less than they would have each received had the same money been spent by the PRWCA.  So Winery X ends up 475 customers ahead, whereas every other winery in the area ends up 15 customers behind.  Winery X is behaving rationally, and can even point to the fact that its advertising is helping their neighbors gets customers.

Like in the prisoner's dilemma example, the problem comes in the aggregate.  What seems like a small loss per other winery looks a lot larger when you multiply that loss by all the wineries affected: the region loses 2,985 tasting room visits from the 199 other wineries, and only gains 475 for Winery X.

If every winery were to make the same decision to spend their $5000 individually, with the same results, they too would get 500 customers to start in their tasting room, and would each contribute 2000 other tasting room visits to the region.  Across the 200 wineries, that pool grows to 400,000 visits.  Divided equally, each winery gets 2000 of these, plus the 500 from the advertising they paid for themselves.  That's 2,500 customers total.  If the same $1,000,000 had been spent by the PRWCA, it produces 200,000 customers who make 1,000,000 visits total: or 5,000 visits per winery.  By spending their money rationally (an economist might equally say selfishly) they have cut their total number of customers in half.

Of course, not every winery makes this decision.  And that's the most frustrating thing for those of us who do contribute to the group's spending.  Winery X receives most of the benefits of the marketing that an organization like the PRWCA is doing with the member wineries' money... whether or not they are members.  Sure, there are a few ways that they lose out: they're not on the organization's printed map; they're not included in the group's media outreach; they're not a part of the trade outreach that the organization does; and they lose a modicum of goodwill from their neighbors.  I actually think that these benefits on their own probably pay for the costs of membership.  But if their principal driver of revenue is their tasting room traffic, they still probably come out ahead, at least in the short term.

How does one quantify the benefits that do accrue directly to the members from their membership?  And how does a regional organization best respond to this? Game theory has answers for this, too.  I explore how to quantify the value of membership in part 2 and will delve into game theory's suggestions for how an organization should respond to those who drop out in part 3.


Why "California's Driest Year on Record" is less serious (and more) than you're hearing

As January 2014 dawned, California residents were greeted with a collection of terrifying headlines about the lack of rain the state received in 2013.  The Weather Channel posted a national story titled "Record Driest Year in California, Parts of Oregon". The San Francisco Chronicle warned "After dry spell, get ready for water restrictions" while the LA Times editorialized "LA's driest year: Time to shut off the lawn sprinklers for good".  The Huffington Post plays it straight "2013 Is California's Driest Year On Record" while the Wall Street Journal reported "California Stretched by Worsening Drought".  A map published by the NOAA showed nearly all of California under some water stress, while a large swath (inconveniently centered around Paso Robles) was under "Extreme Drought":

NOAA Drought Map

The data from our weather station at Tablas Creek bears this out.  In all of 2013, we received 3.71 inches of rain.  That's just 13% of what we consider our normal rainfall of 28 inches, and easily the least in a calendar year since we started keeping records in 1997.  The story in areas east of us is worse: the weather station at J. Lohr, in the Paso Robles Estrella River heartland, totaled just 1.93 inches in 2013.

Why it's not as bleak as it seems
So, why is this story not as bleak as it looks? It all looks much worse because of how the rain we've received the last two winters falls on the calendar.  The rainy season in California doesn't follow the yearly calendar; it starts in November and goes through April.  This season largely corresponds to winter, when agricultural crops like grapevines are dormant.  A grapevine doesn't care whether the rainfall arrives early or late in the dormant season; it's not going to start using that water until it sprouts in the spring.  So looking at how much rain fell between January 2013 and April 2013 (some 2.35 inches at Tablas Creek) and ignoring the fact that November and December 2012 were unusually wet (11.74 inches) gives a false picture of both what last winter was like and what the growing conditions are now.

Similarly, the winter of 2011-12 was characterized by late rain: more than two-thirds of the 15 inches of rain that we received that winter came in 2012.  Between the late rain that winter and the early rain the following winter, it looks like 2012 was an about average rainfall year, with just under 23 inches of rain out here, when in fact both the winters of 2011-2012 and 2012-2013 provided roughly half of normall rainfall.

So, while a headline like "13% of annual rainfall" makes for good copy, the situation on the ground is more nuanced.  We've had two consecutive low-rainfall but hardly bone-dry winters in the books, and we're in the middle of what looks like another dry --maybe even very dry -- winter.  That's plenty bad enough, but not unprecedented.

Why it may be worse than it seems
So why is the situation worse than it seems?  We're not sure whether our historical norms are still what we should expect on average.  We're in our 15th winter since 1999-2000, and in those winters, we've only seen four seasons with above-average rainfall (2004-05, 2005-06, 2009-10, and 2010-11).  Two others (1999-2000 and 2007-2008) saw more or less average rainfall.  That leaves nine years with 60% or less of normal rainfall, raising the question of what normal rainfall actually is for us now.

Most models of climate change suggest that rising global temperatures will result in drier conditions in the American southwest, including California.  The EPA's Climate Change Center concludes that "human-induced climate change will likely result in more frequent and more severe droughts" in the our area.  Both the EPA's low-emission and high-emission models project for significant declines in California precipitation over the 21st century:

SouthwestPrecipChange-large

Drought is by nature a cyclical phenomenon.  But whether the current three-year dry pattern breaks this spring, next year, or later (and we're definitely hoping for sooner than later) it seems inevitable that we're entering a period where even relatively wet areas like ours will suffer more frequent and more prolonged periods of low rainfall, with all the attendant stresses on ground water supplies and growing tensions between agriculture, housing and recreation.

What to do?
How a vineyard is developed determines to a great extent the amount of water it needs each year to remain healthy and productive.  The more closely spaced grapevines are, the more support they will need each year.  This suggests that the old-school California vineyards planted before widespread irrigation are a model worth studying.  These vineyards were planted at very low density by modern standards, often as much as 12 feet by 12 feet apart (rather than the current norm of 3 feet by 8 feet).  We've been planting recent blocks -- such as our head-trained, dry-farmed "Scruffy Hill" block, pictured below -- using this old-fashioned vine density, and are cautiously optimistic about the results.  Sure, we're not going to get 4 tons per acre, but that's not what we want anyway.  We're seeing acceptable yields (2 to 2.5 tons per acre) and excellent vine health without irrigation over the last two dry years.

Scruffy Hill

Other vineyard techniques that we've been using and expect to see more widely adopted in coming years include deep ripping of the soils before the rainy season, to encourage water to penetrate rather than run off, switching from more frequent but shorter-duration irrigation to less-frequent but longer-duration irrigation to encourage deeper root growth and better vine self-sufficiency, and greater exploration of higher-vigor, deeper-rooting rootstocks instead of the lower-vigor, more shallow-rooting rootstocks that are the most common today.

Even if "California's Driest Year on Record" is a bit of a statistical fluke, it's clear that it's dry here and likely to get drier.  Anyone who is not planning now for that future is courting disaster.


What Facebook's News Feed Changes Mean for the Wine Community

There was a bit of a flap in social media circles a couple of weeks ago when Ad Age broke the story that Facebook would be reducing the organic reach of pages and requiring those pages that wanted to reach a significant percentage of their fans to advertise to do so.  A Facebook sales presentation sent to its partners last month makes it clear: "We expect organic distribution of an individual page's posts to gradually decline over time as we continually work to make sure people have a meaningful experience on the site."

The implications of this change do not appear to have percolated into much of the wine community, but it sounds like the impacts will be substantial for the many small- and mid-size wineries who have been relying on Facebook as an inexpensive marketing channel, and perhaps even more so for winery organizations that rely largely on sharing their members' content.  What's more, it does not appear that Facebook is planning these changes for some time in the distant future.  Instead, it appears from the reach of our Facebook posts that these changes are well underway.

It is no secret to anyone who administers a Facebook page that any post reaches only a fraction of the page's fans.  But many wineries, who have invested significantly in acquiring fans, may not realize the extent to which their content is already being filtered out.  The specialists who I talk to suggest that organic page reach is averaging in the 12%-14% range now, which means that an average post to a page with 5000 fans will be seen in the news feeds of just 600-700 of those fans.  That Facebook should be looking to further reduce this reach will mean that the businesses and organizations that have been using only the free tools Facebook makes available should expect to the platform to become less and less rewarding.

There are really only two options for a business or organization who wants to continue to interact with large numbers of their fans on Facebook:

  • Get ready to pay for reach.  A Facebook spokesman is quoted in the Ad Age article as saying "the best way to get your stuff seen if you're a business is to pay for it".  This is different than the classic model of Facebook advertising, where you advertised to get new people to like your page or to sell your product to non-fans.  Now, you'll have to get used to paying just to reach the fans you've acquired.
  • Make especially compelling content.  In recent weeks I've noticed a correlation between engagement rate and post reach even greater than before.  Looking at our Facebook page since the beginning of November, most of our posts averaged in the 9%-10% engagement rate, at which level we reached an average of 935 fans, or a little over 17% of our roughly 5300 page likes.  Each additional percent of engagement allowed that post to reach approximately 3% more of our fans, with a peak of 1687 fans (31% of our total) on a post with 16% engagement.  Similarly, on the posts which were less engaging, we reached fewer fans; the one post that received only a 5% engagement rate was seen by just 412 of our fans (7%).

The chart below shows the same data graphically.  The data comes by averaging the reach of all image posts on the Tablas Creek Facebook page since the beginning of November.  I excluded any posts that overlapped with another post that same day, as more frequent postings show lower reach totals for any given level of engagement.

Facebook Post Reach by Engagement

Facebook's message is clear: make your content compelling if you want it seen organically.  Otherwise, expect to pay.

It was probably inevitable that Facebook should make this change, which raises revenue while also helping them prioritize friend-generated content over business-generated content.  But it does mean that the wineries -- and the wine organizations -- that have been relying on Facebook as a low- (or no-) cost means of customer acquisition will need to reevaluate their strategy and budget. 

These changes, while likely unwelcome to most wineries, shouldn't be impossible to adapt to.  Wineries will just have to choose what portion of their marketing budget to spend on promoting their posts to their fans, just as they would evaluate any other advertising opportunity that crossed their desks.  They also likely already have a leg up on generating interesting original content.  But it seems to me like it will be harder for wine organizations, particularly small ones, to react to.  Many of these organizations are sharing other pages' content, and links to non-original content have two strikes against them: they are harder to generate high post engagement scores for, and they have been named as a target for deemphasis by Facebook in the past.

Will businesses and organizations switch their attention to other platforms like Twitter and Google Plus?  It seems unlikely.  Facebook's power lies in its massive audience.  This audience isn't going anywhere, and businesses who pick up their toys and move to a different sandbox will likely find themselves lonely there.


Every now and then you get a particularly meaningful compliment...

The wine business is hard.  It may not get talked about a lot, but it is.  There are huge start-up costs, an ever-growing number of wineries which crowd the marketplace and compete for your existing customers, and a shrinking number of distributors that combine with a relentless stream of wines from around the world and make it hard to gain attention in the wholesale market.

Granted, there are positive demographics working in your favor as a winery, too.  America is becoming more and more a wine-consuming nation, which means that you aren't competing with the other wineries in your area for a pie of a fixed size; the pie is growing every year.  Liberalized wine shipping laws have put some 80% of American consumers in states we can ship to.  And Americans' acceptance of blends (and unusual grape varieties) has never been better than it is.  But it's still a challenge getting and keeping your name out there, particularly when you want, like we do, to succeed both in our direct sales business (our tasting room and wine clubs) and in the wholesale market.

HootnAnnie_logo

So it's great to see an article like the one we received recently from Paso Robles-based bloggers Matt and Annie Browne, whose blog Hoot n Annie is packed each week with first-person accounts of their explorations into the local wine community and their insightful analysis of what works in marketing and social media.  The title of the article is Paso Robles Wineries: Tablas Creek is Doing it Right and I'm not sure I've ever read anything so nice written about us.  They are social media experts, and much of their focus is on what we've tried to do in that sphere (I was very happy to read that they thought we'd been successful) but they also talked about our marketing, our facility, our people, and (of course!) our wine. 

It's easy, I think, to fall into ivory tower syndrome as a winery.  Unless you force yourself to get out into the market, or make sure you're searching out unbiased opinions, it's easy to hear only voices that tell you you're doing great work: those are the people who tend to seek you out.  Does this mean you're doing great work?  Not necessarily.  And even if you are doing great work in one sphere (winemaking, say) it's easy to assume that success will find you as a matter of course.  We had that problem at the beginning; our initial marketing plan could have been summed up as "people will buy Tablas Creek because people love Beaucastel".  It turned out to be wildly optimistic, and we spent some dicey years in the early 2000's turning around the business side of Tablas Creek.  In 2002, for example, we sold 4,000 cases of wine and made 12,000.  That's obviously not sustainable, and we realized that our problems weren't going to be solved by a single effort.  We opened a tasting room, started a wine club, started participating in wine festivals and working with our distributors around the country, and rededicated ourselves to being an involved and committed member of our community.  We made the decision to focus on maximizing the number of customer interactions and doing everything we could to give those customers an outstanding experience that they would rememeber and would tell their friends about.  And little by little we leveraged a successful business out of the good choices we'd made at the beginning in choosing our site and making our wines. By 2006 we'd stabilized our balance sheet and were selling roughly the same 18,000 cases we were making.

But it's not easy.  And each year brings new challenges, as you work to stay true to who you are while continuing to innovate in ways that keep you fresh.  We've tried hard not ever to take our fans for granted, or to rest on our laurels.  Reading a piece like Matt's and Annie's gives me faith that it's working.  Thanks, guys.