June 2009 Issue of Wines & Vines

Succeeding in a Poor Economy

How one medium-sized winery focuses on the fundamentals

by Jason Haas
Tablas Creek Winery
In 2008, about 22,000 people visited Tablas Creek Vineyard in Paso Robles, Calif.

  • Savvy wineries can continue to prosper and grow, even in a faltering economy. One successful owner shares some tips.
  • Always give your direct customers a great experience, at the winery or online.
  • Keep track of those who visit you, and keep in touch.
  • Work with your distributors, and they'll serve you better.
People ask every day how our sales are holding up and what we're doing to survive the current economic struggles. Most people look surprised--and then relieved--to hear we're doing pretty well, all things considered. Our wholesale sales were down 11% last year because of a decline in the fourth quarter, but our tasting room sales were up 15% for the year and down just 3% in the fourth quarter. Our traffic was up 5% for the year. Sales to our wine club were up 21% for the year, and despite slightly higher cancellation rates, we ended the year with about 3,400 VINsider wine club members: an increase of more than 500 from the beginning of the year.

So far this year, we're holding steady. Our first quarter direct sales (which account for more than 70% of our revenues) were up 6%, and our traffic was up 2%. We signed up 240 new club members in the first quarter (off 7% compared to last year, but still right at our historical levels of 5% of our traffic). Our average sale per customer has actually gone up slightly this year, driven in part by a 13% increase in online and phone orders. Our wholesale sales had their first up month of the last six months in March, and we're now down less than 8% in the wholesale market compared to 2008.

Given all this, I thought it might be helpful if I tried to enumerate what I think the essentials are for a small- to medium-sized winery that wants to be successful in this economic climate. Most of it is not rocket science. It's about focusing on the fundamentals and doing them well.

Good customer experience

When someone comes to visit you, make sure the customer's experience is a good one. For wineries that sell (or want to sell) a significant percentage of their wines direct, I think that this point is as important as all the others combined. I am amazed by the number of people we get in our tasting room who tell us stories of disinterested servers, overcrowded tasting bars or salespeople whose only interest is a club sign-up. A hugely successful tasting room may convert 5%-7% of its customers into club members. That means that the vast majority of the people coming through your tasting room are not going to sign up on the spot. Focus on giving everyone a memorable experience, and the wine (and wine club) will sell itself.

This does not mean that wineries should approach sales as though the idea is somehow dirty. Sell through education and enthusiasm, and make sure that your customers know the options in front of them. Every person who leaves your tasting room happy is a source of repeat business and referrals.

Key to ensuring a good customer experience--and the sales that result--is having sufficient staff on hand to handle your busiest times. This necessarily means that in slower times you'll be overstaffed, but if you calculate the value over time of a single club sign-up or a single dissatisfied customer who might otherwise have bought a case of wine and told his friends, the cost of labor looks smaller by comparison.

Build and use your lists

At Tablas Creek, we saw 22,000 people come through our tasting room last year. Adding just a small percentage to your e-mail lists (let alone your wine club lists) can give you a powerful tool to communicate special offers, share information about events and generally build an ongoing connection to your base. Once you have added these people to your lists, it's important to contact them regularly. An e-mail every few months, with perhaps a print newsletter a couple of times a year, is generally seen as welcome rather than intrusive. And for your core customers (read: wine club members), a little extra outreach in times of economic difficulty may well prove rewarding.

We've found that while our wholesale figures have suffered, the responses to our wine club e-mails are providing a consistent, growing return even during the past six months in this struggling economy.

Tablas Creek Winery
Three different wine bars make it possible to separate larger and smaller groups, so that guests don't get lost in the shuffle when visiting the tasting room on a busy day.
Some wineries fear contacting their club members because they worry that doing so might prompt them to cancel their membership. Wine club shipments themselves are a form of contact, and it's true that there are usually more cancellations around the time of club shipments. But refraining from contacting your members means you lose a chance to sell extra wine between shipments, and I think it weakens the bond with members--perhaps resulting in higher cancellations down the road.

Remember, members can always refuse a shipment, which makes life more difficult for club management. Combine the costs of returned shipments and cancelled credit card payments with this weakened bond with remaining members and extra revenue from additional shipments, and the policy of "no contact between shipments" doesn't seem so smart.

Cultivate partnerships

You are not the only one in your area with an interest in bringing people into town and giving them a good experience. Reach out to local hotels and bed & breakfasts, and create co-marketing opportunities and specials that will give them a reason to be e-mailing their customers about you. Work with local restaurants to put together dinners that you will market together. This expands your base, supports partners in your community and ensures you stay visible.

Don't be penny-wise

This is not the time to cut your marketing budgets and hope to save your way through the economic downturn. Sure, be selective about what expenses you choose (was that half-page ad in the glossy wine magazine really worth its $10,000 cost?) but don't disappear.

When overall business is contracting or staying stagnant, you can be assured that your competitors are out there pounding the pavement. Keep going to festivals. Keep working in the market with your wholesalers. Keep supporting the local organizations that are marketing your area, and keep supporting the advocacy groups (such as ZAP or Rhone Rangers) that promote the types of wines you make. This will help you maintain your share of whatever business is out there, and will position you for fast growth when the economy does turn around.

Get editorial coverage

Writers in lifestyle and wine publications are struggling, too. Newspapers and magazines are both being hit hard by a decline in ad revenues, and many are letting writers go or converting full-time positions to contract labor. This means that everyone in the media is being asked to do more work for less or the same money. Help them out. Come up with creative ideas that will make good stories (and relate somehow to your business). Then pitch the writers you know on these ideas. Don't expect every idea, or even most ideas, to pan out, but you'll be surprised what does. And not contributing ideas is a great way to be sure that they aren't used.

Alternative text
Telling customers about special events makes them feel more connected to your winery.
Be sure, too, that you're covering the basics. Are you sending samples of all your new releases to the 20 or 30 key writers around the country a few times each year? Figure that the total cost of doing so is somewhere around $2,500, plus a few cases of wine. Calculate what a full-page advertisement is in any of the key wine or lifestyle publications, and do the math.

Work with new media. In January, I wrote a piece on our blog about Facebook and social networking for wineries. In the three months since I wrote that article, Tablas Creek's Facebook page has gained nearly 300 new fans. Extrapolate this power across months and years, compounded by the ever-greater movement of social networking websites into the mainstream, and you will see how potentially valuable these inroads are.

And Facebook isn't the only outlet. A blog is a great way to personalize your business, communicate your core ideas and principles, and drive traffic to your website. Twitter offers the same, for the ADD crowd. Getting involved in online bulletin boards can develop enthusiasm in an important base. And new wine 2.0 sites like Snooth are just starting to show their power.

If you aren't particularly technologically inclined and are worried about your ability to execute in these new media arenas, find an intern to do it, or just ask a member of your staff who graduated from college in the past few years. You'd be surprised how easy and inexpensive it is to create a broad online presence.

Hands-on with wholesalers

We're finding that a major problem in our wholesale efforts is overcoming the nervousness of our gatekeepers. Clearly wine consumers have not stopped buying Tablas Creek; the customers with whom we have direct relationships prove that. But for a wine to sell in the wholesale market, the distributor manager has to believe in the product enough to maintain a healthy inventory; the distributor rep has to believe he or she can sell the wine enough to pull a sample and show it to his or her accounts, and the buyers at the accounts have to have enough confidence to buy the wine in a crowded marketplace full of people offering them hitherto-unimaginable deals. That's a lot of people whose confidence you have to win or keep before the consumer even gets the opportunity to buy your wine.

You can overcome many of these hurdles by staying actively involved with your wholesalers. Make sure you're receiving inventory reports every month, and accounts-sold reports quarterly. A distributor can't sell wine it doesn't have in inventory, and won't sell a wine whose inventory is down to a few cases. Know whom you'd like to see the wine sold to, and make suggestions to the distributor. Following up your market visits with detailed notes on leads, and staying in contact afterwards, greatly increase the impact of the time you spend working in the market. Support your wines by offering the sales reps (who usually have a limited sample budget) some samples at your expense.

These ideas are good even in a strong economy (the wholesale market is a very crowded one, and distributor mergers have guaranteed that most distributors have many more wines in their books than they can realistically focus on) but become essential when times are tough. And, be sure you're out in the market, working with your distributors. It's important for you to hear what their customers are saying, and for the distributors to see that you care enough to support their efforts.

Give people value

Focusing on value is an essential concept. It does not mean that things need to be cheap. But it does mean that you need to think about what will remind or convince a potential customer that what you're offering is worth what they will spend. Offer a special on a specific wine each month, or offer free or discounted shipping. Be generous with events that will bring people out to the winery, where a purchase is more likely to happen.

One example: We included a $15 discount coupon in the end-of-year gift that we sent to all our wine club members at the end of 2008. Just a few days later, we started getting orders from people who had received that coupon. Would we have received those sales had we not sent out the coupon? Probably a few. But most, in my opinion, were spurred by people deciding this little nudge was enough to tip their value scale into the black.

These are just a few ideas, and nothing here should be earth-shattering for winery owners or sales managers. But for us they have meant the difference between lamenting the poor economy and being able to continue to grow, even as the fundamentals of the economy have deteriorated. I hope that this has proven helpful, and I would love to hear from other business or winery owners out there who have also come up with creative ways of protecting themselves from the economic downturn.

Jason Haas is partner and general manager at Tablas Creek Vineyard in Paso Robles, Calif., where he is a member of the winemaking committee, manages wholesale distribution of Tablas Creek, and directs local and national marketing efforts. He also writes Blog Tablas Creek (tablascreek.typepad.com), which was named "Best Winery Blog" at the 2008 American Wine Blog Awards. To comment on this article, e-mail edit@winesandvines.com.
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Posted on 06.11.2009 - 10:25:34 PST
This is excellent, if obvious, advice. It's greatest value is that Jason backs it up with results. Hopefully, wineries will get the message: Relationship Marketing -- to the Trade as well as to Consumers -- is fundamental. If you feel like you could be doing more but you don't have the inclination, get help. A smart marketer (ahem) with a half-decent database can capture two dollars of revenue for every dollar spent.
Sonoma, CA USA