Why Wineries Should Charge Their Highest Retail Price in the Tasting Room

By. Neil Williamson, Grumpy Marketing Guy

Over the past couple of years there has been a great discussion about where wines in tasting rooms should be priced.  There are some who believe the tasting room is like a “factory outlet” store and should have the lowest prices anywhere.  Based on the title of this post you can see that I fall in a different camp.

If you have your wines in distribution, whether you are distributing them yourself or not, the retailers are a primary sales channel.  The retailers are your partners.  Why would you undercut your partners?

Please let me explain.

The shop owner perspective – When you, or your distributor attempt to place the wine with a wine shop (or grocery chain) price will be a key issue.  If you are a local winery you may have a leg up on getting attention but one of the first questions will be “What do you sell it for at the winery”.  In the shop owner discussion you are competing with every other wine that is available in distribution.  If you are 5 miles away and selling the wine $3 cheaper than he/she can, why should you get a placement in the shop?

The customer perspective – In the retail shop, your wine must compete with all the other wine in the establishment.  If  a customer has been a guest at your winery and purchased your Chardonnay for $21 and sees it at their “regular” wine shop at $17.99, they perceive increased value, as they enjoyed the Chardonnay at $21.

The Grumpy Marketing Guy perspective –  Wine purchased at the winery provides the winery three profit margins (producer, distributor, retail).  If we accept that guests that visit the winery like wine (not a big leap) and regularly shop for wine somewhere other than the winery, then capturing all three profit margins maintains your pricing integrity in all channels.  In addition, it helps build credibility with your retail partners.

It is important to recognizing winery guests are wine lovers who have a variety of only your wines to choose from during their visit but its all your wine.

Important exceptions

  • Multiple bottle/Case discounts – just as your retail partners have such discounts you should as well usually at 3, 6 and 12 bottle increments.
  • Inventory Issues – there are times when a wine does not move in the market and you have a significant inventory, creating a special price for such wines as needed is a great idea.
  • Festival Pricing – I encourage wineries to play with their pricing at festivals.  If you are sold out of a wine at the last festival, bump it up a $1 a bottle see if it still sells out.  If something was a slow mover drop the price $2 as a festival special.

Wine prices at the winery should be designed to recognize the significant capital costs you have in the winery and to capture the maximum revenue the market will bear.

Respectfully Submitted,

Neil Williamson, GMG

Photo Credit: Winecountry.it

 

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Wine Distributors – Friend or Foe?

By. Neil Williamson, Grumpy Marketing Guy

There are a least two divergent views regarding distributors in the wine business.

Photo Credit: Palate Press

While the first group can’t stand them and sees them as the enemy, the second group could not accomplish their business objectives without their existence.  Which winery is in which group tends to focus on the ownership’s previous business experience, the winery sales objectives as well as the winery’s geographical footprint.

All of this ties back to the end of prohibition and the creation of the “three tier system” of alcohol beverage control.

In 2009, Jeff Seigal wrote a great piece on the three tier system on the Palate Press wine blog.  Siegal explained the creation of the system in this way:

The only consistency, really, is the three-tier system, which exists in some form in every state. In the three-tier system, consumers (with some exceptions) must buy wine from retailers (or restaurants), who must buy from wholesale distributors, who buy from the producers. Retailers can’t buy direct from the winery and consumers mostly can’t either. Say what you will about the system, says Blau, but in 1933, when state officials were looking for a way to regulate alcohol after Prohibition, it was the best thing they could find. And, since then, it has done what they wanted it to do—made it easier to collect taxes, to regulate alcohol sales, and to prevent the corruption and abuses that existed between manufacturers and retailers before and during Prohibition.

Considering the importance of the three tier system to their business their defense of it makes perfect sense.  In Virginia, a well crafted compromise has emerged.  Farm Wineries (a legal distinction in Virginia) are permitted to use a “co-op” distributorship that is virtual in nature.  Orders are placed on the distributor web site and the winery delivers the wine, collects the payment and sends the payment to the virtual distributor who cuts a check on a monthly basis.  This option is available to wineries under 3,000 cases in the market.

My experience has been that most distributors are not terribly interested in wineries under the 3,000 case level because they are historically unreliable.  Don’t take that the wrong way, it just is under that level (and often above that level) vintages run out before the next vintage is ready placing the distributor in a position where they will likely lose a placement for lack of wine.

I also have found as wineries reach the 3,000 case level, it becomes increasingly difficult to self distribute.  In Virginia, as in many states, you can not peddle wine; you must order wine and deliver in another visit after orders have been placed into the system.  Even if your winery is limiting the distribution to a 100 mile radius around the winery, that still a a great deal of ground to cover especially when one account in the southwest territory needs 6 bottles and one account in the northwest corner has an order for a case.

Now, that you know I believe distributors are winery friends, I have to fix a myth in the industry.  There are some that believe “Now that I have a distributor, I don’t have to work outside accounts, that’s why I’m paying the distributor”.  That’s a recipe for low sales for the winery.  In order to achieve their scale, the distributor represents a number of different labels.  The job now increases in complexity, not only do you have to get the account excited about your brand, you have to get your distribution sales team fired up as well.

All in all, self distribution works to a certain level but working with distributors is a net positive step that can help a winery grow exponentially.

Respectfully,

Neil Williamson, Grumpy Marketing Guy