The article making waves in wine circles this weekend was Lettie Teague's most recent column for the Wall Street Journal: Who Can Afford Napa Now? Not This Wine Columnist. In it, she uses the opening of a $1300/night hotel and a $900 tasting package as examples of a region whose increasing focus on high-priced experiences runs the risks of alienating long-time customers and locals while also pricing out the new generation that the local industry hopes will become future Napa wine lovers. In her conclusion, she includes a comment from Tor Kenward, the winery owner with the eye-opening $900 tasting:
"Of course there are many other wine regions in California where the prices are lower and winery tastings are even, often, free. 'I tell wine lovers to go to Mendocino, to go to Santa Barbara,' Mr. Kenward said. I decided to follow his advice myself. Stay tuned to this column."
It is of course true that looking only at the most expensive hotel rooms and winery tasting packages (many of which are signaling to their hoped-for audience with the price) isn't the full story. As Lettie explains in the article, the average tasting fee for a "base" experience in Napa Valley has risen, but is still just $40.62 according to CellarPass. An "elevated" experience averages $82.26. And a quick check of Expedia for a two-night Thursday/Friday stay in June offers budget lodging options in the low-$200s and nicer hotels and resorts starting around the mid-$400s (yes, there are more expensive options, including the $1799 price tag for the Stanly Ranch whose $1300 base mid-week rate was the article's main example). So, while Napa Valley is an expensive place to visit, it's still possible for a consumer used to buying $50+ bottles of wine and spending $100 per person on a meal to build a viable trip without totally breaking the bank. But her point remains: people who want to feel that they've experienced the best the region has to offer must now budget several thousand dollars for a visit.
In my nearly three decades in business, it's been drummed into me that it's a very good idea to focus on your core product, and to tailor your other offerings to support that main product. In our example at Tablas Creek, we want to sell wine and add (and keep) people loyal to our wine club. So we've priced our other offerings accordingly. Our tasting fee is $25/person, and we comp that on the purchase of two bottles of wine. Tastings are free to all our club members. Our tours are free. We pour guests 6 or 7 tastes of wines priced between $28 and $65, so the cost of the tasting just covers the cost of the samples. For what it's worth, I consider each tasting fee we collect a failure, because it means that the guest didn't like anything enough to buy two bottles or the experience enough to sign up for one of our wine clubs.
So why do we charge a tasting fee at all? Two reasons. First, we want to weed out people who just want a cheap place to drink wine. If people look at our fee and think "that seems like a lot" they're probably not great candidates to buy our wine, and we want as much of our limited capacity as possible to go to current or potential future customers. Second, people often don't value what they don't pay for, as this article from Business Insider explains well. You are signaling how much you believe your offerings are worth when you put a price on it. Your decision to offer it for free sends a signal about how much someone should value that product or experience.
Still, the 15% or so of our visitors who pay a tasting fee isn't a big piece of our profitability. Even if we changed our policies and 100% of our 30,000 annual guests paid the $25 it would be less than 10% of our revenue. So it's easy to be generous with our visiting policies, and use them to support the wine sales and wine club signups that are our bread and butter. For me, the sign that this is working is the relatively small percentage of visitors who pay a fee, and the long median tenure of our wine club members, which at the end of last year was a little more than four years, roughly triple the industry average.
So, what's going on in Napa? I think it's best understood as a shift of business priorities, with some unintended follow-on effects. At $100+ per experience, unless it's for a very expensive wine, the tasting fee is not a supporting product. And at $900, it's not a supporting product no matter the price of the wine. That experience, and the fee it comes with, is the main event. And that's what I think is at the root cause of some of the sky-high prices there. With the massive popularity of Napa Valley as a tourist destination, and many of the tourists coming from international locations where it's impossible or impractical to ship wine, a winery is behaving rationally by looking to turn the visit itself into a profit center. Yes, it may shock and disappoint a regular visitor to the region, but the high prices are telling those visitors that they're not the winery's target audience anyway. For someone coming from far away and looking for a once-in-a-lifetime experience, I get it. It's not what I'd look to do as a wine lover. And it's not what I'd want Tablas Creek to do as a business. But I get it.
The unintended consequences come in for the wineries who see their neighbors (who may have different target audiences or production levels than they do) raising prices and are then left with the dilemma that pricing, as I mentioned earlier, is seen a proxy for worth. Do they raise their prices to keep up and risk losing their historic audience? Do they keep their prices and risk being seen as less elite than their neighbors? Or do they try to split the difference (as, if I read between the lines in the article, it seems that the lovely, historic Spottswoode Winery has done) and feel guilty about it? Unfortunately there's not a great solution once a critical mass of wineries has set dramatically higher prices for themselves.
But whatever the downstream results, it seems clear that Napa Valley has set itself up for a future with higher, and perhaps dramatically higher, prices for visitors. With that, it seems inevitable that some wine lovers who are turned off by the change will decide to branch out and come to places like Paso Robles, where creating life-long customers for our wine remains the primary focus. And that writers, like Lettie, who have previously focused a large share of their attention on Napa Valley, will decide to write more about other California wine regions. Those are downstream consequences that would be just fine with me.