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.


Surviving Consolidation in the Wholesale Wine Market

This week, like much of the California wine community, I'll be making the trek up to Sacramento for the Unified Wine & Grape Symposium. "Unified", as this enormous trade show is known within the indistry, is a chance to see the newest in technology, to check in with friends and colleagues from other regions, and to take in a program that includes seminars on viticulture, winemaking, wine marketing, and business/operations. We always have a cohort there, partly to see what the exhibits have to offer but mostly to support NovaVine, the nursery with whom we partner to sell Tablas Creek vine cuttings. For NovaVine, Unified is one of the year's best marketing opportunities.

I have been invited to speak on a panel Thursday afternoon -- a part of the marketing curriculum -- titled "Surviving Consolidation: How to Position Your Brand for Success".  I'll be representing smaller wineries, and will be joined by representatives from the worlds of wine wholesale and retail, as well as Ed Lemay, the Senior Vice President of Marketing at Constellation Wines, who brings the perspective of a larger supplier. I spend a lot of my time thinking of how to prosper in a crowded wholesale market, and thought that while I was putting together my notes for Thursday's session I might share a few of the key points here. For the longer version, please come see us!

It's worth pointing out that I'm not sure that all of this is much more important because of consolidation than it was before.  Sure, there are many states with fewer options for distributors, but the wholesale market has always had more wines than it could possibly focus on, so these strategies for making sure that you, as a small-to-medium size winery, get your share of the attention are likely the same that they've always been. They're just more important now.

  • Know what makes you distinctive. And focus on it. There are thousands of wineries that are competing in the wholesale market, from your neighbors to wineries elsewhere in your state to others from around the world.  If you can't reduce what makes you distinctive down to a few sentences, the game of telephone -- in which you need to educate your wholesaler's management, they need to educate their sales team, those salespeople need to sell to their restaurant and retails customers, and those restaurant and retail buyers need to speak to the end consumer -- breaks down. One place I see many wineries get into trouble is in the assumption that because their model works in their tasting room, it will necessarily translate into the wholesale market. Tasting room customers are faced with many fewer options than any buyer in the wholesale chain. It's good marketing overall to keep yourself focused, but make particularly sure your story for the wholesale market is concise and logical -- as well as memorable.  
  • Demand the information you need to evaluate success. You need to be engaged with your wholesalers. Make sure you're regularly getting inventories, account lists and how many (and which) samples are being pulled. Know what the pricing and the deals are that are offered.  Know (and care) whether your 100 cases are being sold to 30 restaurants or 3 retailers. And then review this information regularly so that if what you're seeing isn't what you want, you can communicate this to your wholesaler. Just showing that you're interested in this information helps tilt the playing field in your favor.
  • Be a good partner. Most wholesalers are filled with talented, passionate salespeople who want to do a good job. You can help them succeed with your brand in many ways: by going regularly to their markets and working alongside them. By being generous with samples, to help make sure that your wines are in their bags often. By taking good care of them when they come out to visit, and when they send out their VIP's to see you. And by giving them the tools they need in point of sale, positive media attention, and marketing support. You are in this together.
  • Work together to set your goals and strategies. Is there a particular wine or two that you need your distributor to focus on this year? Or a particular type or list of accounts you'd like them to target? Or a sub-region that needs work? You should be conducting regular (annual, at least) reviews with your wholesalers to communicate this to them. Make sure you listen to them when they tell you what is working and what isn't, and involve them in the solutions to the problems you identify. The more ownership they have over the initiatives you work out, the more likely they are to see them through.
  • Build and use your own restaurant, retail and consumer relationships. Nothing gets a distributor's attention like accounts asking for your wine. When you are out in the market, collect cards and drop a thank you note after you're back home. Then, stay in touch. Share directly news of new releases, special offers and positive press. And don't forget your consumer mailing list. When you have a cool new placement or a feature at a retailer, share the news with your fans in the area. The fans will appreciate it, the account will be grateful (and maybe even surprised) by the support, and the distributor will know that if they work on your wines they'll be rewarded. Success breeds success, so each time a distributor rep puts your wine into an account and sees it sell through and be reordered, it makes him or her that much more likely to think of your wine the next time there is an opening to fill. Of course, failure breeds failure, too. Don't chance it if you have the power to help.
  • Be careful in franchise states. Nearly half of states have some sort of franchise law that restricts or prohibits suppliers from leaving a distributor that is not performing. In those states, your recourse is less and of course distributors are less responsive. Consider insisting on an opt-out clause in a contract before you sign on. If the distributor refuses, it may be a sign that you're better off not doing business with them anyway. And remember that just because a distributor is a great fit now, they may not be if they are bought by someone else, although your franchise tie will likely remain in force. But even in franchise states, all of the above fundamentals still hold true, and distributors in these states have the same goal as anywhere else: to sell wine. 

It's worth also mentioning that I'm assuming you're already making a good product and pricing it fairly. If not, you're going to find executing a successful wholesale strategy difficult, no matter what else you're doing. The wholesale market is less forgiving than your tasting room, where your customer service, and the time you can spend with your customers, makes a greater difference.

Anyway, this is just a teaser for Thursday's discussion, at which I'm very much looking forward to hearing the other panelists' (and the audience's) perspectives and ideas. I hope you can join us. If you won't be there, please add any ideas or feedback in the comments section.


Is the bloom off the user review site rose?

Last March, I wrote the post Has TripAdvisor overtaken Yelp for winery visitors, suggesting that of the two major user-review Web sites, TripAdvisor seemed to be replacing Yelp as the preferred forum for people writing user reviews of Paso Robles wineries.  The graphic I included in that post showed a pretty dramatic shift over time:

Reviews by Site

The graph also shows a steady increase in the number of user reviews posted for Tablas Creek on the two sites, from 10 in 2008 to 15 in 2009 to 22 in 2010 and 42 in 2011.  With the first quarter of 2012 showing as our busiest quarter yet for user reviews (18) I fully expected to see continued growth.  But something happened around the middle of last year, and while our annual total (63) was still our highest ever, the quarterly total peaked in the second quarter at 25, then declined to 13 in the third quarter and just 7 in the fourth quarter.  I have gone from checking the sites daily for new reviews to now checking only every week or so, and getting used to seeing the same months-old reviews I saw last time.  The curve looks a little different now. To smooth out some of the noise, I've added a rolling average, which averages each quarter with the quarters before and after:

User Reviews Trend thru 2012

It's worth noting that my conclusion that TripAdvisor -- which to most wineries at the time was much less salient than Yelp -- was a player to watch turned out to be true. TripAdvisor tallied nearly three times the number of reviews of Tablas Creek as did Yelp in 2012.  But by sometime around mid-fall the flood of user reviews had turned to a trickle.

I was curious to know whether what we were seeing, both in the drop in user reviews at the end of 2012 and the dramatic shift toward TripAdvisor and away from Yelp, was standard for our area.  So, I picked three other popular, well-established Paso Robles wineries (Justin, Adelaida and Eberle) and took a look at what they'd seen.  I found that the shift toward TripAdvisor and away from Yelp is real, and dramatic.  In 2011, the four wineries (including us) showed 133 reviews from Yelp and 44 from TripAdvisor.  In 2012, Yelp reviews declined 34% to 88, while TripAdvisor reviews grew 390% to 216.

And I found that the dip in reviews I'd noticed in the second half of last year was echoed by our neighbors, though we saw a larger decline than most.  Here are the four wineries' results for 2011 and 2012, using a stacked area graph that allows you to get a good sense of the aggregate:

User Reviews Four Wineries 2011-2012

My first thought was that this could be explained by the number of customers visiting Paso Robles.  After all, the summer season is typically the busiest one in Paso Robles, and the winter the quietest.  But when I looked deeper, I found that at least at Tablas Creek our tasting room traffic doesn't vary that much by quarter.  Our smallest quarter last year was indeed the fourth quarter, but at 6880 visitors it was only 12% less busy than our busiest (the third quarter, at 7815).  I don't have any reason to think that our traffic trend differs significantly from the other wineries in the area, so I tried dividing the total number of reviews for each quarter by that quarter's traffic.  The results show that per Tablas Creek customer, we are seeing a decline in user reviews submitted for the four wineries:

User Reviews per Customer

There are few possible ways of explaining away the development, none of which I find particularly convincing.

  • Perhaps there is a different type of customer who visits in the summer months, a younger, more tech-savvy customer, who is more likely to post a review on Yelp or TripAdvisor.  Maybe, but If you look at the results for 2011, the two summer quarters showed the lowest percentage of reviews per tasting room visitor. Why would this reverse itself in 2012?
  • Perhaps there is something about the four wineries that I chose that makes us all subject to some trend that is out of step with what's really happening.  This is possible, but seems far-fetched.  Other than that we're all in Paso Robles and all of roughly similar scales, we represent wineries that are in different parts of the AVA. Could, say, newer... or smaller... or larger wineries have been getting more reviews at the end of last year even though our traffic stayed steady? I just don't see how. The implication would be that there is a specific sort of person who writes these reviews and that sort of person hasn't been visiting Tablas Creek, Justin, Adelaida or Eberle as much in the last six months even though our overall traffic numbers are steady. Maybe they're now boycotting Paso Robles in favor of other wine regions? I have trouble believing such an explanation.
  • Perhaps there are as many user reviews being written, but there is a new competitor in the field that is siphoning off reviews from both Yelp and TripAdvisor.  The obvious option is Google, whose Google+ allows users to write reviews. But the five Google+ reviews of Tablas Creek include only two written in the last year. The other competitor mentioned sometimes is CitySearch, which has only three reviews of Tablas Creek, just one written since 2008.  So, if they're moving away from TripAdvisor and Yelp, where are they going?

In the absence of another plausible explanation, I'm left to think that there has been some sort of shift against both Yelp and TripAdvisor among their users in the last six months.  Unless this is a statistical hiccup that will correct itself over the coming months (possible if unlikely) the possible conclusions are that we're seeing the bursting of a bubble that will eventually lead to a steady but lower-level number of new user reviews, or that this is the beginning of a long-term trend that will result in the category's gradual obsolescence.  I would tend to suspect the first explanation: that like with many new technologies, lots of people jump onto the bandwagon when they see their peers doing the same, but many find that it's just not for them. And it is work, writing these reviews, uncompensated work at that.  It's easy to imagine a reviewer getting fatigued with what's involved.

From a practical standpoint, even if it is true that user reviews are declining, the sites are still important for wineries to monitor. Both sites (particularly Yelp) are search engine goliaths, and there is well-documented evidence that even a single negative review can make a significant difference to a restaurant. A decline in the authorship of reviews doesn't imply a decline in readership, and in fact good reviews are more important now than ever, as there are fewer reviews being written and a negative review is proportionally more influential with a lower volume of other reviews in which it can get lost.

Still, I was interested to see that what seemed like an endless escalation of user reviews has not just slowed, but reversed itself. We'll see, over coming months, what this means.


Common-sense sustainability

I'm in New York this week, helping kick off the release of the 2010 Esprit de Beaucastel and 2010 Esprit de Beaucastel Blanc.  My hotel, like most hotels these days, has one of the signs that tells you that in order to help protect the environment, my sheets and towels -- clean when I arrived -- will be changed only every fourth day, saving untold gallons of water and pounds of detergent.  Does the hotel really care about this, or just about the dollars they're saving in water, labor and soap?  It's a Kimpton, so probably they do care.  But many less environmentally-conscious hotels do the same thing, and I think that it's one of the best examples of a common-sense approach to sustainability that can, applied on a broad level, have enormous benefits to the use of resources without any noticeable detriment in customer experience.

As much as we prize (and praise) efforts that businesses make toward environmental responsibility, I'm a realist, and believe that the only ones that really stick are those that have a net positive impact on the business's bottom line.  I don't mean that individual businesses always act in a purely profit-maximizing fashion.  But I do think that eco-conscious ideas won't be widely enough adopted to make a measurable impact if they don't also offer the business some business-friendly incentive, whether that be lower costs, increased production, or improvements in product quality. I don't think that favorable publicity or public image is enough. Look, for example, at the paltry share of US energy production that comes from solar (less than 1%) despite the appeal of renewable energy and the widespread use of incentives.

Along these lines, we've been trying to think of things that we can do that will help us use resources better while saving (or at least not costing) us money.  I can think of two good examples that we've implemented in the past few years, both of which we've been getting lots of inquiries about from other local wineries.  I'm very interested in hearing about other similar initiatives.  If you have come across other good ideas, please share them in the comments.

For years, we had ordered pallets of bottled water each month, so that guests who we took out into the vineyard in the heat of summer wouldn't wilt, and no one would get dehydrated in the midst of their day of wine tasting.  Still, I always hated seeing the pallets arrive, and thinking about the impact of the production of these water bottles and the thousands of bottles each year that ended up having to be recycled or in landfills.  So, we installed a water filtration system outside our new tasting room and ordered several hundred stainless steel canteens. Each morning, we fill up the canteens and put them on ice outside the front door:

Canteens

We have another bucket nearby where we ask people to return the empty canteens, and then we wash them at the end of the day and refill them.  Sure, we lose a few that wander off into people's cars, and there's a little extra expense from the washing, but each canteen is only about four times as expensive as one water bottle, and there's no way we lose 25% of the canteens we use.  It's saving us money, preserving resources and making a point about sustainability at the expense of a little extra work for us.  I'll take that deal any time.

I would put our decision in 2010 to move to lighter-weight bottles in a similar category.  Long-time followers of the blog may remember the public debate we had about whether the winery's image was enhanced by our larger, heavier bottles and our ultimate conclusion that these larger bottles provided negative utility for our customers, making them harder to store, more difficult to lift and move, and more expensive to ship.  Two years later, I find it hard to believe that we ever thought that the larger bottles were a good idea.  Not only did the change save roughly 90,000 pounds of glass weight, and the associated higher costs of producing these larger bottles, trucking the empty glass to the winery and the filled cases from the winery, and shipping the bottles to our customers who ordered the wine, but we've stopped getting complaints about how the bottles we put our wine in don't fit in people's wine racks.  I find myself now suspicious of wines in these big bottles, thinking that they must be trying to impress with their package because of something missing on the inside.  Has this move resulted in lower sales off the shelf, or other indications that the image has suffered?  We haven't heard a single comment that would suggest it.

Sure, we do plenty of environmentally friendly things that don't save us money, most notably our commitment to organic and biodynamic farming.  But we're convinced that the benefit is in the grapes that we harvest and in the quality of the wine that we can make.  For us, the expense is worth it.  Are we happy that we're leaving our piece of land in better shape than when we found it, all while not exposing ourselves and our customers to chemicals?  Of course.  But do I expect other wineries and vineyards to necessarily make the same farming choices?  I'm not sure; it depends on the calculus that they do as to the value of the higher quality product that would result.  But I think that there are some common-sense steps toward sustainability that most any winery could implement right away, and am curious to hear any others that you've found appealing.  Even if it means asking your customers to participate in some small way... from returning an empty canteen to hanging up their once-used towel.


The power of print

Last weekend I noticed a small flurry of online wine club signups, as well as a surge in online orders.  We hadn't sent out a recent email (we do that at the very end of the month).  We hadn't gotten any particularly noteworthy press.  It wasn't until it lasted for a few days that I realized we had sent out our summer 2012 newsletter and it had started to hit mailboxes late last week.

Summer 2012 NewsletterWe have always thought of the principal value of our newsletter being marketing, education, and engagement with our consumer and wholesale customers.  Sure, we include an order form in it, but we don't ever get a lot of them back.  And we really don't push sales.  I think of the newsletter in the same way that I think of our work with social media: we're maintaining mind-share, personalizing our business, and educating: doing whatever we can to bring people inside our world, at least for a little while.  We figure that sales will come organically as a result of this marketing.  But when I went back and looked at the impact of our last newsletter, I realized we'd been underselling the direct sales impact of our print newsletter.

We sent our first newsletter of the year out in early February.  For the next two weeks, we nearly doubled the online club signups and orders that we had been averaging (from .22 VINdependents, .37 VINsiders, and 1.91 orders daily to .73 VINdependents, .60 VINsiders, and 4.4 orders).  By my rough calculations, that newsletter directly added sales of around $30,000 in just those two weeks, based on the average long-term revenue a new club member brings in and the actual extra sales from the additional orders we received.  The impact with this newsletter if anything has been more dramatic.  It's a busier time of year, and our online averages have gone from .30 VINdependents, .55 VINsiders, and 2.05 orders per day to 1.00 VINdependents, 1.71 VINsiders, and 5.71 orders per day.  In just a week, the added value to us has been something like $40,000. All this is beyond the intangible marketing, member retention, event promotion and wholesale trade benefits we've come to expect.

Print newsletters are not without costs.  To send ours out to the roughly 18,000 people for whom we have addresses, it costs us something like $15000 in printing, handling and postage costs.  Would an email, which costs us very little, have the same impact? Not exactly. We do send emails out as a regular part of our marketing program: every month to our VINsiders, every couple of months to our VINdependents, and a couple of times a year to our entire mailing list.  But I have the sense that the cohorts that each medium reaches don't overlap 100%.  Of course, there are some mailing list members for whom we only have a physical address and no email, or vice versa.  But even within the group that has both, there are people who will ignore an email (or have it caught by a spam filter) but will read the newsletter (and the opposite). Two areas where print dramatically outperforms email for us are with the trade (who are apparently so bombarded with messages from the hundreds or thousands of suppliers they work with that they ignore all or most) and in spurring wine club signups (since you are typically emailing existing club members).

For me, all this suggests that we're making the right choice to continue to maintain a balance of communication between email and print.  And that even though the print newsletters are relatively costly, the sales and wine club signups they drive -- without us trying to drive sales -- more than pay for their expenses. So the marketing benefits, and all the benefits that we get with elements of the wholesale trade, are gravy.