On February 16th, The New York Times published an interesting article titled “Try the Red: Napa Learns to Sell” that caught my attention thanks to Twitter. The main focus of the article relies on this assumption,
“…in 2009, sales of wines priced at $25 and above dropped 30 percent nationwide, according to Nielsen. While global wine sales increased, California wine shipments fell for the first time in 16 years. Searching for a way out of the crisis, many Napa wineries are increasingly pinning their hopes on direct-to-consumer sales.”
As someone working in the front-lines of direct-to-consumer sales of wine and 5 years of ecommerce experience at some of the Internet’s largest properties, I groaned a little. I didn’t really start groaning and moaning until the article started talking about Facebook and Twitter as a great shining beacon of hope for direct-to-consumer sales.
In particular, Rick Bakas, a man who makes his living via promoting Social Media services to wineries (and does a good job at it), was quoted as saying,
“Where wineries need to focus most is on signing up new wine club members through social media,” he said, “rather than rely on cementing relationships with tourists who drive up to the tasting room.”
I happen to know more than a little about this particular challenge as this is how I make a living, too. At the end of this post there’s a quick rundown on how I’ve acquired the expertise I have, and it ought to inform the comments I’m going to make about why Social Media is not the solution.
Here’s the short answer about how it’s all a numbers game that doesn’t add up and then I’ll go into detail:
- It’s really hard (and takes a long time) for a brand to grow a huge, meaningful, Twitter or Facebook following.
- There are too many brands competing for consumers’ limited attention online to gain real online market share.
- Consumers are still skeptical of buying things online that they can’t experience first. Especially so with wine.
- There are MANY fewer people buying wine over $25 per bottle than under.
And the full(er) explanation for those of you who are interested, strap yourself in for a long ride:
- Meaningful Twitter & Facebook Followings
There’s a difference between building a following that includes people who are genuinely interested in most of what you have to say or are selling and creating an enormous flock of people who are willing to commit to sometimes seeing your messages amongst the thousands of other messages they get every day or week. This is the part where social media falls down most aggressively, all on its own. The reality of all those social media connections is that when you send messages out to your Twitter and Facebook flocks, only a portion of those people will ever see your message, and a really teeny tiny portion of those who do, will act. That really teeny tiny portion might generously be 1% of those of who see your message. That means that to get 100 new sales, you’d need 10,000 people to see your message. Let’s be generous and say that 25% of people who are in your flock actually saw your message… that means that you’d need 40,000 people in your flock to generate 100 new sales. I wonder how long it took Rick to build up 40,000+ followers on twitter, but I bet it wasn’t fast enough to turn a winery around in a single fiscal year.
- Capturing Market Share
The NYTimes article mentions this:
“Distributors, they say, pay attention only to their biggest accounts, while small independent wineries, which predominate in Napa Valley, have to figure out ways to promote themselves.”
If you think more than a handful of consumers are going to be more receptive to promotional information from small independent wineries than Distributors you’re mistaken. Distributors benefit from knowing about all of the wineries, even if they don’t carry/promote them. Their opportunities are in making fantastic deals with huge beverage companies and in finding “The Next Big Thing” which probably includes independent wineries poised for commercial success. So the Distributors have a vested interest in finding the best small independent wineries—consumers, on the other hand, do not.
Small independent wineries are competing for consumers’ attention amongst all of the other brands in all of the other goods & services industries out there, on top of the consumers’ other personal interests which include oh, I don’t know, the rest of their lives, making ends meet, keeping up with friends and family, etc. Bottom line is: As a consumer, a no-name winery I’ve never heard of is not going to get my attention without a referral from someone I know and trust (a very small group of people and companies to be sure).
- Purchasing Wine Online
The percentage of current online wine sales is somewhere in the 5-10% of all wine sold in the US. [This is not fact, but anecdotal data based on conversations with many other people in different areas of the Trade.]
There are reasons this number is so small and it has much more to do with how people buy wine today than it does with people’s online shopping behavior. I spend a lot of time talking to consumers about wine (every chance I get pretty much) because they’re not in the wine industry and they don’t think the world practically revolves around wine like I do. Most people I’ve talked to buy a bottle or two of wine at the grocery store, buy six bottles at a time at places like BevMo! and World Market, or are given wine as a gift when guests come over for dinner. Most of them talk about how their friend or family member told them about some great wine that they loved and they can’t wait to tell me about it, too. Most of them can’t conceive of buying a case of wine, much less buying a case of wine online. A case of wine is a financial commitment… and people don’t like to commit to things they don’t know.
Most online wine-buying behavior is people who are reordering something they already know they love or gift-giving. A reasonable percentage of people who are buying wine online are wine enthusiasts who don’t have access to a good wine store or are too busy to physically hunt down the latest treasure they’ve read about somewhere. A small percentage of people buying wine online are buying winery-direct because that’s the only way to get those wines—and I mean small.
The wine industry seems to be hoping that the Gen-Y whippersnappers who are so comfortable with the Internet and computers will just switch their buying habits to online because it’s not as awkward to them. As one of the Gen-Y elders with a healthy household income, a 12-year online shopping habit, and 5+ years working in ecommerce, I’m no more likely to start buying my wine online than you are… because I want to taste it first. I want to know what I’m buying before I shell out money for 3 or more bottles (which is how retailers want me to buy it online because it makes it cheaper and easier for them to ship it to me).
If returning wine online were easy, say as easy as returning 3-6 pairs of shoes that don’t fit properly, I might consider it. Unfortunately though, once I open a bottle, I can’t return it. And let’s say I order three, open one and don’t like it… it’s still not easy to return the other two. THIS is why consumer behavior around buying wine online is unlikely to change anytime soon.
- The Wine Price Pyramid
While a great deal of wine by volume and by revenue is sold at the over-$25 per bottle price point in the United States, I perceive that growth market to be limited. The people who are already spending $25 and up for a bottle of wine LOVE wine. They drink it every day, they order bottles in restaurants, they have subscriptions to Wine Spectator and The Wine Advocate, they have personal wine cellars, and wine is a passion for them. In a recession, there aren’t going to be a lot of people “moving up” to this level of wine-consumption. This recession in particular is teaching us all a lesson about not living beyond our means (I hope) and that luxuries are for people who live luxurious lifestyles… the rest of us need to focus on value and quality and getting our money’s worth because there’s less money to go around.
Before the recession most Americans couldn’t conceive of buying a bottle of wine at the grocery store that costs more than $25. Today, the chatter is all about wines under $15 or even under $10. That’s where the growth market is. You can sell 10x more wine to “the average consumer” because there are so many more of them. Would you rather get 10 new customers who spend $500 per year ($5,000) or 100 new customers who spend $100 per year ($10,000)? The math should be easy, even with the lower profit margins in the cheaper wines.
- Wine Clubs
You know when I join wine clubs? When I’m standing in a tasting room, buzzed and happy and really wanting to take this fantastic wine-tasting trip home with me in a bottle to be relived whenever I feel like popping a cork. The trouble is, I have to love most of what I’ve tasted to join your wine club. Not just one bottle that was great… but several. Every wine Fiddlehead Cellars makes is outstanding, so we joined their wine club. We were blown away by the 10 wines we tasted at Stolpman Vineyards so we joined their wine club. My favorite Rose is a Grenache Rose made by Beckmen Vineyards and I’ll drive 2 hours to Santa Barbara wine country to buy 3 bottles, but I won’t join their wine club because I was unimpressed by the rest of what I tried.
Sometimes, when I’m feeling generous, I might be someone a 3-month subscription to a wine club from Wine.com or the Wine of the Month Club. Maybe life’s getting too busy and I just want the wine delivered to my house at a good price, then I’ll look at the Wall Street Journal Wine Club or Zagat’s new Wine Club. This is consumer behavior, folks. Only your fanatical fans will join your wine club for a meaningful length of time. The rest who join last, on average, 4-6 months or 2-3 shipments whichever comes first. And the rest of us won’t join at all.
I’ll reiterate here because it’s important: I make a living selling wine club subscriptions… and I don’t think increasing wine club sales is the way to grow your winery’s business. And incidentally, I don’t think Social Media is a way to meaningfully increase wine club sales either.
Okay… so I’ve blown holes in ecommerce and social media as a growth opportunity for wineries. Do I have any solutions or am I just a critic blathering on? Yes, I have solutions!
- Wineries should take a hint from the fashion industry (the similarities are practically limitless) and go “High-Low.” Do you produce wines at $30 and up? Come up with a line of wines, made by the same winemaker so they carry the same reputation, and sell them at the under $15 price-point in mass-market settings. Introduce new consumers to your brand and create a following who, when they can afford it, will upgrade to your more expensive wines. Many wineries already do this: Ravenswood, Mondavi, Stag’s Leap, etc. come to mind.
- Still taking a hint from the fashion industry, go “Private Label.” This has been a BIG hit for many winemakers and vineyards with brands like Cameron Hughes, 90+ Cellars, Oriel, and even Bob Lindquist who’s making wine under the label VINTJS at Trader Joe’s. Reaching a broader audience where they’re already shopping is a great way to expand your revenue channels.
- Incentivize your wine clubs better. The wine geeks want access to special events because they’re saving their pennies for trips to Napa and Bordeaux, but the rest of us want a reason to join your wine clubs, too. We’re already getting discounts on your wines, but maybe I’d join your club if you offered me discounts to other wineries in a “collective.” So by joining the St Supery wine club (which I’d like to do some day) I could also get discounts and new-release information for Rombauer and PlumpJack, too. You’ll get increased brand-exposure (from Rombauer and PlumpJack’s fans) and you’ll get more subscriptions because there’s more in it for the consumer.
- Invest in focus groups and user testing. Build your brand’s reputation around consumers who have blind-tasted your wine, liked it, and are willing to say so on your website, in non-industry publications, and disclose that they’re not being paid as spokesmen so other consumers can trust them. Let’s face it, most people talking about wine are paid to do so and are immediately lest trustworthy because of it.
- Host wine-tasting events in major geographical locations and bring the wine-tasting experience to consumers where it’s convenient for them. Parties are cheap and drunk people buy a lot of wine. It’s a low-risk and fun way to find about your wines.
Then publicize all of that via Social Media… which is what it’s for. Getting the word out (as opposed to driving direct sales).
While working in Product Management, User Experience, and Search at Shopzilla.com, the largest and most successful comparison shopping engine, I learned an inordinate amount about people’s online shopping behaviors, some about their offline shopping behaviors, and the web-marketing channel known as Cost-per-Click advertising (or CPC). I also learned how to test consumer behavior using actual shopping data as they were/are among the very best at it.
Later, I ran Product Management at Social Shopping hopeful ThisNext.com. Here I delved deeply into determining the power of user recommendations for generating demand that generates sales for, typically, high-end products. I learned a great deal more about online business models like Cost-per-Impression Advertising (or CPM) and Performance Marketing (Cost-per-Acquisition, or CPA). Unlike CPC and CPM models, when you’re working in the CPA business model, you get conversion data. For those of you whom I haven’t bored right off the site, CONVERSION DATA = ACTUAL SALES.
Currently I run a property called WineClubReviews.net. As you might imagine, we review wine clubs and rate them. Because wine taste preferences are so subjective, we don’t rate the taste of the wine and whether or not you’ll like the wine, we rate whether or not the wine club is delivering good value for your monthly subscription. Among all of the wine clubs we’ve reviewed to date, only one is from a single wine producer, and it’s not a winery, it’s Oriel wines who has engaged an innovative business model to capture wine consumers’ attention.