REthink Wine Blog

What is planning?  According to Wikipedia; “Planning in organizations and public policy is both the organizational process of creating and maintaining a plan; and the psychological process of thinking about the activities required to create a desired future on some scale.  As such, it is a fundamental property of intelligent behavior.”

So what is an example of “intelligent behavior” in the wine industry?  As a group, we are pretty good at production planning.  We know roughly what our yield per acre for a certain vineyard will be, we know how many acres are planted, hence we know how many tons of grapes we will have to make wine with.  From this we can calculate number of barrels needed, glass, capsules, corks, etc. 

Where we tend to have less accuracy is in planning how to sell this splendid wine we made.  Wineries that have been in business for awhile, and have steady production have a good idea of how much wine their club will need, what kind of sales they can expect at their tasting room,how much their distributors will take, and so on.  Newer or growing wine brands have less historic information to go on. 

So what I would like to do here is suggest a methodology for building a sales plan for your wine.  First step is obvious, how much wine do I have to sell.  Next, look at your predictable outlets.  How much did I sell to the trade last year?  Is there any reason why that number will change?  To get an accurate feel for this, you need to review on a market by market basis, your historical results. 
How much wine did I sell direct to trade.  How much did I sell through three tier. When looking at three tier, be specific. What did we sell in Ohio?  Was the number of cases consistent with the previous year?  Is there a reason that number might change this year?  Some reasons for a fluctuation might be change in a distributor, your distributor taken on a new, competitive brand, or change in your sales personnel. Maybe the distributor gained or lost a key chain placement, late in the year which will greatly impact this year.

Once you understand what you can reasonably expect from trade sales, you need to look at direct to consumer. (Certainly you could look at direct to consumer first, and trade next) In looking at direct look at your clubs, your tasting room, and your e-comm.  What did the last two yearslook like, by channel.  Based on the trends, what should it look like this year? Am I gaining club members, or losing? Is my shopping cart business growing?  Is tasting room traffic down or up?

If I add my expectations for trade and direct to consumer do I have enough wine, too much, not enough? If not enough, what should I do? Maybe raise prices, maybe pull out of a under performing market, maybe cut back distributor allocations?  If I need more sales, what I do?  Actually, there are more strategies for growing sales then I could possibly list here, and there has been plenty already written about strategies to grow your business.

Anyway,the point of this blog is to highlight the importance of a plan.  Like my first boss use to tell me, “if you don’t plan where you are going, you will never get there”.   

Invites to all Inertia clients went out this morning to our Annual Direct Symposium.  This years theme is “Innovation” and we are really excited about the content we’ve been able to build for the day.

First, we have three great speakers;

Ted Jansen, Inertia CEO will be speaking on how Inertia is bringing INNOVATION in technology, partnerships and new initiatives to help our winery clients build their direct sales. 

Gary Vaynerchuk of Wine Library TV, demonstrating how INNOVATION in consumer engagement can help both build a brand and grow direct sales.

 John Hinman, of Hinman & Charmichael, on ways for wineries to manage through these dynamic times, and how market opportunity is breeding INNOVATIONS for wineries to leverage - all of which ultimately benefit the consumer.

This year we will also have breakout sessions, allowing for smaller groups to focus on topics of specific interest to them.  To ensure you’re getting the most out of your day with Inertia, we invite you to “vote” for your breakout session topic/s of choice. Topics with the most votes will be covered in any one of 6 breakout sessions.   Go to http://www.surveymonkey.com/s.aspx?sm=hLax5WW8gesYWJB_2f9rROEA_3d_3d to log your vote.

Helping our clients grow their business is a key value at Inertia, and we are confident that the information you will glean from this years Symposium will be of great value to all of you.

Look forward to seeing on July 11th,

Mitch Schwartz, VP Sales and Client Development 

I’m sure most of you are familiar with the fairy tale The Princess and the Pea by the famous Dutch author, Hans Christian Anderson.  The beautiful and saintly Princess had to so sensitive that she could feel a pea disturbing her sleep, while the pea was buried beneath several mattresses.

That is how my day went today.  I generally felt annoyed most of the day, though there was nothing more significant than a pea under the mattress causing my discomfort.  As I sat at my desk trying to be productive, and instead feeling distracted, I couldn’t put my finger on exactly what was in my craw.  True, my favorite baseball team is not doing well, I had my worst round of golf in a long time yesterday, I’m going to Missouri to visit the in-laws this weekend, my son won’t answer my phone calls, the dog doesn’t feel well, gas prices are too high, the economy is in recession, and I can’t get excited by any of the Presidential candidates.  But really, is any of that reason to complain?  Probably not.

I’m pretty sure I’m not the only one who has a “pea under the mattress day”.  So how do you deal with it?  Me, I write a blog, open a bottle of Tamber Bey Estate Cab, and kick back with my wife and puppy.  I find that my level of irritation is inversely related to the amount of wine I drink.

Enjoy your day,

Mitch 

Recently Inertia led a Wine Club Symposium for our clients and other wineries that were interested in exchanging ideas on best practices for building and growing a wine club.  One question that was raised was the impact, if any, that the current economic climate (dare we say recesson)had on club attrition.  The general consensus seemed to be that there was infact, an increase in club member cancellations.  There then ensued a discussion on what could be done about this.

This led to a question on how price elastic was the demand for club membership.  First a quick review of macro economics - Price elasticity is a measure of how much demand changes with a change in price.  In a perfectly elastic product, a 10% change in price results in a 10% change in demand in the opposite direction.  That is an increase in price, results in a decrease in demand.  Products that are easily substituitable tend to be very elastic (think fast food) while products that aren’t easy to substitute for are inelastic (think gasoline).

Okay back to wine.  I’d suggest that wine club memberships are substituitable, and therefore elastic.  So if demand is shrinking because disposal income is well, less disposable, then it flows that a reduction in price could stem the decline.  I suggested that if you normally have a 3 bottle club, you might want to proactively think of offering a one time recession buster 2 bottle offer, or some other price reduction.  Of course, you do not want to reduce the price of the wine, or increase the discount.  Maybe free shipping would work.  

Others in the room felt they would wait until a customer contacted them before making an offer. I think the primary question is this; what is more important, maintaining the Average Order Value of the club, or keeping as many members as possible.  That’s the question, you need to provide the answer.

The Major League baseball season has begun, and all is right with the world.  I love baseball.  I know it is no longer America’s favorite past time, but the game holds a special place for me.  Baseball is about nostalgia.  It is about being six years old, and sitting in the stadium with my Zade (grandpa), my Dad, Uncle and cousin and trying to take in all the stimuli overwhelming my senses.  The deep green of the grass.  The height of the pitcher’s mound, the smell of fresh cut grass.  At a baseball game the hot dogs taste better, the beer is colder, the peanuts saltier, the cotton candy sweeter.

Yes, I love baseball, but what does that have to do with wine?  Probably very little, but let me stretch the comparison. The reason I love baseball is that it is an intrical part of my upbringing.  This is the same reason our European cousins give for their love of wine. They remember first sampling the grape at their parents table, and learning about the nuances of wine from their parents.

We all have read about the impact the millenials are having on wine consumption in our country. This demo is adopting wine at a much faster rate than any previous generation.  I submit the reason is nostalgia.  The millenials are the kids of Boomers.  Boomers were the first generation to embrace wine as part of our culture.  I remember as a 19 year old being invited to a friends apartment to have dinner with him and his girlfriend.  She was making spaghetti.  I asked my Dad what wine I should bring (the drinking age was 18 back then). He suggested a bottle of Riunite Lambrusco (because it was Italian).

 Compare that to my millenial age kids.  Our son drinks big cabs, our daughter Pinot Noirs.  They learned about wine at our dinner table.  Actually, many of their friends learned about wine at our
dinner table. Wine has been part of their life for a long time, just as baseball as been part of mine.

As I said, baseball is back, and life is good.  
 

Recently the CEO of Inertia Beverage wrote a post about a charitable program from Clos du Bois.  Paul wrote ” I very much like to see things that give back to the community while helping wineries succeed in sales or branding. “ 

There generally are two reasons that wineries participate in these types of programs; brand building by associating with a good cause (causal marketing), or they generally care about a specific cause (or a combination of the two). 

 One of my favorite programs is the one created by Lookout Ridge, www.lookoutridge.com.  They call it Wine for Wheels.  Their site says “Lookout Ridge donates one wheelchair per every bottle of Futures wine sold.”  The winery owner, Gordon Holmes has arranged to have a variety of well known winemakers make distinct wines for the Lookout Ridge brand.  Currently the wines are only available as Futures.  Fairly soon they will be available for immediate purchase.

The beauty of wine as opposed to other consumer products is its role as part of our lifestyle.  The beauty of causal wine programs is the role wine plays as part of our social fabric.

Recently my wife and I went to dinner with another couple.  I had purchased a wine on line that I wanted my friend to try.  I called the restaurant and asked if they had a corkage policy.  They did.  They charged $10 per bottle.  Of course this is a great deal because we usually spend $70 - $80 on a bottle at a restaurant.  The wine I brought cost me $30, but it was much better than what we most often get at the restaurant.

When I told my sister about our experience at the restaurant, including the fact that we had brought our own wine, she said that she thought it was bad taste to bring wine.  She used to work in a restaurant, and felt that the restaurant owner spends much time in selecting wines for their list that compliment their food, and that choosing to bring another wine is an insult to the owner/manager.  She also pointed out that restaurants depend on the revenue they get from their wine sales to remain profitable.

I disagree with her.  The restaurant made $10 on the wine, with no investment.  Yes, they usually make $30 or more on the $50 bottle we purchase, but maybe that is part of the problem.  Most wine lists are pretty pedestrian, offering the same assortment of wines that are popular in the retail stores, or offering wines that they can buy for a great price, and markup three to four times over their cost.  Additionally, if they did not want us to bring a bottle with us, they could simply have a policy against doing so.

The best way to try a new wine is when it is served with an excellent meal.  I go to a restaurant for the food, and of course, I choose a wine from the list that matches that meal.  If I can enhance my dining experience by bringing a new wine with me, why shouldn’t I?  I’m not talking about going to the local retailer and buying a bottle of Kendall Jackson Chardonnay to try.  I’m talking about bringing wines that I haven’t had before, and that most likely are not available in the local market.

One provisio however.  When determining the tip for the waitstaff, assume that you had purchased a bottle of wine from the list, and then tip accordingly.  Your wait person shouldn’t be penalized because you chose to bring in your own wine.

I recently had dinner with a thirty something couple that lives in Oakland.  During our conversation they asked if Inertia had a certain winery from Mendocino on our platform.  I said no, but why the interest?  They belong to the wineries club, and raved about the experience.  For five minutes they talked about how friendly the people were, the great events they have twice a year, and so on.  They never once said anything about the quality of the wine.

That got me thinking about wine clubs in general, and specifically why do people join.  My net opinion, it’s not about the wine, it’s about the inclusiveness.  I know of two different couples that belong to a club from a popular Sonoma winery, that does not sell their wine in the general market.  One couple lives in So. Cal, the other in Upstate N.Y.  Both couples drink good wine, and have pretty good pallets.  Both are effusive about this winery.  The truth is the wines are average to mediocre, and definitely over priced.  However, the winery experience is outstanding, as is the job done by the club manager in staying connected with their members.

So the moral of the story?  Love your club members.  Let them know they are special.  Give them unique insights into life at the winery.  Get them to feel invested in your success.  They will not only stay on your club list, they will be your best ambassadors for future growth.

A group of us at Inertia Beverage recently finished reading the E-Myth revisited by Michael Gerber. This is one of my favorite books on building a successful small business. We chose this book to read, because we understand that the majority of our clients are just that, small businesses. We in the wine industry tend to place so much romance around wine, the process of growing the grapes, making the wine, etc., that we forget that this is still a business.

Gerber has three central themes in his book;

1. The typical small business spends all their time working in the business, not working on it.

2. To build a successful business, the business has to have a repeatable process that could succeed without the owner being part of it. Gerber calls this the franchise model.

3. There are three personalities working in any business, the Entrepreneur, the Manager, and the Technician. The personalities can reside in the same person or in different individuals.

How would I summarize the conclusions of the E-Myth? First, as the owner/founder of a business, you need to take time to take a step back, get away from the day to day demands of making the business work, and look at the bigger picture. Where is my enterprise headed, where do I want it to go, and how do I get it there?

Second, how much is this business dependent on the owner. Does all knowledge reside in the owner’s head? If the business was sold, and the current owner left, would the business fail? If the owner to these questions is yes, than the owner needs to build a set of processes that are a roadmap for running the business.

Lastly, what personality is dominating the decision making in the business. It needs to be the Entrepreneur, but very frequently it is the other two.

Certainly it is not possible to do this 120 page book justice in three or four paragraphs, but I highly recommend you read it. If you are an IBG client, ask your CDM what he/she thought of the book. We all enjoyed it, and hopefully learned some things that we can use in helping our clients grow.

The most enduring constant in the wine industry (and American business in general) is change. I was recently talking to a friend who started in this business with me thirty years ago, and we marveled at the changes we could recall.

In the early 70’s Italian Swiss Colony was a major brand in the U.S. Their TV ads featured “the little old winemaker, me”. Almaden was the #1 selling brand in San Francisco. Almaden was started by Charles LeFranc in the late 19^th century. LeFranc, a Frenchman, came to the U.S. to work for Paul Masson.

In 1980, Almaden was owned by National Distillers, who sold the brand to Heublein, who sold it to Canandaigua wine, which became Constellation. Paul Masson was owned by Seagrams, (which was sold by the Bronfman family to Diageo) who sold the brand to Vintners International, who sold the brand to Canandaigua wine, which became Constellation. Vintners International was created when they bought Taylor California Cellars, Great Western, and Taylor New York , along with a winery in Gonzales from Coca Cola, who thought they should get into the wine business. VI sold everything to Canandaigua wine, which became Constellation.

Along with Coca Cola, Phillip Morris, Schlitz brewery, and even Anheuser Bush put their toe into the wine industry ocean, only to draw it back out when they saw how turbulent the waters could be.

Consumer tastes have changed. You could not go onto a college campus in the 60’s and 70’s without seeing bottles of Lancers and Mateus being used as candle holders. Then came Riunite Lambrusco, followed by two beer drivers from Northern California who launched the wine cooler fad. Who can forget Ed and Frank thanking you for their support. About that same time we discovered another easy drinking potable, Sutter Home White Zinfandel.

As the consumer started drinking more table wine, they pushed for better quality at lower prices. In 1980, less than 3% of the table wine drunk in the U.S. came from a bag in the box. By 1997, the number had risen to 20%. This addressed lower prices, not better quality.

Prior to the mid-1980’s, there were no value priced varietals, then the Benzinger’s launched Glen Ellen and the fighting varietal category was born.

The meanderings above are only a small sampling of the changing landscape in the wine business. Today we are faced with the impact of the internet and changing regulations as we continue to refine our business models. A winery’s ability to thrive in this market will be significantly based on their ability to embrace and respond to the changes foisted upon us.

A quote I have heard attributed to Einstein best sums up the current state of the wine industry for me; “the definition of insanity is doing the same thing over and over, and expecting a different result.” The question to ask yourself is obvious, what I am doing differently today than I did yesterday? If the answer is not enough, perhaps it is time to rethink your actions. We will be glad to help.