Direct Sales Decided by Location, Survey Finds

Remote wineries rely on community support, less on wine clubs

by Kate Lavin
wine direct consumer sales svb wbm
Source: Silicon Valley Bank

San Rafael, Calif.—The location of your wine business affects more than just terroir, according to a survey conducted by Silicon Valley Bank and Wine Business Monthly. Nearly 1,200 wineries participated in the 2017 Direct-to-Consumer Survey and found that while most wineries rely on direct sales, regional reputation and proximity to a metropolitan center play a large role in whether a winery will be able to survive on a diet of steady wine club sign-ups.

“The lion’s share” of sales are coming from wine clubs and tasting rooms, according to Mary Jo “M.J.” Dale, marketing director for Vinventions. “Almost 80% of direct sales are from these two channels.”

According to Silicon Valley Bank, the average winery makes 35% of its direct sales through wine club/allocation subscribers, compared to 44% from their visitor center/tasting room.

But the numbers vary widely from a regional perspective. Napa and Sonoma counties both reported that wine club allocations made up more than 45% of their direct sales, while wineries in Illinois and New York said just 10% of their direct sales efforts came from wine clubs. Paso Robles is reigning king of wine clubs with a whopping 52% of direct sales coming from subscriptions.

On the other side of the country, tasting room sales in Virginia account for 69% of direct wine sales, compared to just 29% in Sonoma County.

Winery location isn’t the only thing worth measuring, when it comes to direct sales. In the past five years, the demographics of direct-to-consumer (DtC) customers also have changed. Baby boomers (ages 51-68) continue to make up the largest fraction of DtC wine customers (41%), but Generation X is picking up ground with 33% of the DtC pie (up from 29% in 2012). Meanwhile direct wine buyers ages 69 and up now represent just 10% of the DtC total, while millennials (ages 22-38) have replaced that group in terms of importance to to the sector with 17% of the DtC wine sales.

Location, location, location
Where wine club members live presented another surprise for Silicon Valley Bank. While the Bay Area is home to almost 7.7 million residents and the five highest income counties in California, nearby Napa County sells the lowest percentage of wine club memberships to nearby residents (only about 20%). Just southeast of Napa, however, wineries in California’s Livermore and Lodi regions say about 75% of their wine club members are people who could visit the winery and return home the same day.

Virginia has the highest percentage of local wine club members, with nearby members making up more than 80% their wine clubs and accounting for an equal percentage of DtC revenue.

“Eighty percent of Napa wine clubs are depending on non-regional participation,” Rob McMillan, founder of Silicon Valley Bank’s Wine Division, said in a webcast based on the survey results. In places like Texas and Illinois, however, “The regions that are perhaps less developed in their outreach…those are the ones that seem to be relying more on the local economy.”

So how can wineries that rely on non-locals for revenue connect with their most important clients? Liz Mercer, owner of Mercer Hospitality Consulting and an instructor for WISE Academy, advises throwing a very narrow and targeted net. “Focus on your wine club members who are already fans and advocates for your brand,” she said, adding that holding a wine reception for VIPs and their friends can be a powerful way to expand your winery’s recognition with others who are likely to become important clients.

The DtC survey asked winery respondents what type of tasting experiences were most likely to result in sales. It turns out that seated, private, formal tastings were the clear favorite, with 73% resulting in sales. Casual group tastings, meanwhile, had an even lower conversion rate than the traditional tasting bar, although the sales that were made in this fashion had a higher dollar value than those at a tasting bar. Once again private/formal seating tastings were the clear winner in terms of dollar amount, with the average purchase for such a setting totaling $461.

Similarly, 23% of seated private/formal tastings result in wine club memberships compared to just 4% of standing tastings at the bar.

Mercer suggested wineries have a space set aside for proven VIP customers that show up unannounced, since they are likely to make large purchases again and the private tasting can triple the amount spent, according to survey results. “They’ve already made the purchase with you, you want them to walk out with more wine,” she summarized, adding that WISE Academy secret shopping trips have proven tasting room staff only ask if customers would like to purchase wine about 60% of the time. They offer wine club signups about 40% of the time and ask to collect contact information in about 20% of interactions.

Dale offered that, on average, the lifetime value of contact information to a winery is about $25. She offered the A-B-C rule to tasting room staff: Always Be Collecting names and contact details—and if a couple is visiting, ask each person to fill out a contact form.

Bye bye, Robin Leach
SVB’s McMillan said the days of the “Lifestyles of the Rich and Famous” tasting room are over. “With the younger consumers, that turns them off. Even the older consumers want to look under the hood,” or into the barrel cave.

If the regional data show anything, however, it is that there is no one-size-fits all model for DtC wine sales success. By-appointment tastings don’t work in all wine regions, and Dale suggested trying a hybrid open/appointment tasting schedule before foregoing the drop-in method altogether. “You don’t want to leave money on the table or leave your customers stranded,” she said.

Cyril Penn, editor of Wine Business Monthly, noted that wine club retention is at an all-time high, with the average wine club membership spanning 30 months. The milestone is important, although attrition continues to be a real frustration for wine club managers.

“We work so hard to bring in wine club members, only to lose a significant portion of them out the back door,” Dale said. “We have learned from other industries that it’s three times more profitable to hold onto a wine club member that you have than to get a new one.” She suggested offering differentiated experiences that allow members to select their level of involvement.

Value of a membership
Unsurprisingly, membership in a Napa County wine club topped the charts of Silicon Valley Bank’s statistics, with the average wine club member spending $1,075 per year, compared to the $750 national average. Wine club memberships for wineries in the Sierra Foothills drew a surprisingly small $291 per year, by comparison.

When it comes to drawing Napa-caliber dollars for your own direct wine sales program, the trick isn’t to follow the Napa model, but to evaluate what translates into the most sales in your area and capitalize on it.

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