Striking a balance between direct-to-consumer (DtC) and the three-tiered system is becoming increasingly important in Oregon wine country. The state’s notoriety for high quality winemaking continues to spread across the world, however the majority of Oregon wineries only produce less than 5,000 a year. “If your winery is producing less than 150,000 cases a year you are operating in a whole different world,” said John Hinman of Hinman & Carmichael LLP, an authority on beverage law in the United States.
The “DtC and 3T” session at ShipCompliant’s 10th Annual Direct Sales Conference in Napa brought together a power panel of the wine industry’s experts to discuss sales strategy and effectively allocating resources towards DtC and wholesale sales channels.
The panel consisted of four experts in different areas of the industry: Bobby Stuckey, Master Sommelier at Frasca in Boulder, Colorado and Co-Owner of Scarpetta wines; Chris Poppy, VP/General Manager of Chatterbox Marketing; and John Hinman of Hinman & Carmichael LLP, an authority on beverage law in the United States. The session was moderated by Ken Fredrickson, founder of Chicago-based wholesaler Tenzing Wine and Spirits and investor in Brewer-Clifton Winery in the Santa Rita Hills.
The “whole different world” Hinman referenced when discussing the role of smaller wineries in today’s marketplace is the “world” of big box retail. From a wholesaler’s perspective, if your winery is not producing at least a half a million cases a year your chances of getting placement in a large retail chain is very low. In order to thrive in that space, your brand needs to be able to operate at a low margin. If you don’t have the quantity of product to make up for the low margin, your brand and your wholesaler cannot be profitable.
While placement at Costco might seem unattainable, success is certainly within reach for a small winery that strikes an efficient balance between DtC and wholesalers in the proper markets. Fredrickson’s research has found that wineries enjoying the most success with DtC programs are those with a production size of less than 4,000 cases.
There are many benefits to a strong DtC program including control of brand consistency, building strong relationships with loyal consumers and larger profit margins. While many wineries have thrived by offering their wines solely directly to consumers, it is a very risky sales strategy. Take the recent recession — premium, DtC-focused wineries with highly allocated inventory found a severe decrease in demand for their top-tier labels when the economy was weak and struggled without a Plan B for selling their wines.
The general consensus amongst the panel was that if your winery is producing less than 50,000 cases of wine a year, DtC should be a strong focus in your sales strategy. Poppy recommended reserving smaller production, more unique SKUs for the tasting room and direct sales. Consumers like having access to wines they wouldn’t otherwise find outside of the tasting room. He has also found a lot of sales success for his winery clients in cold calling wine club members. Personal calls increase consumer loyalty and also provide another high touch sales opportunity.
As mentioned earlier, working with a wholesaler in select markets mitigates risk and provides an opportunity for on-premise placement where artisanal, family-owned Oregon wines routinely thrive. In addition to investing in a strong Direct to Consumer sales strategy, smaller wineries should also consider a scaled back wholesale channel investment. However, as there is a very high overhead cost to enter a new state, the panel suggested identifying key markets for your wine and finding a distributor in those markets that are a good match for your brand.
Throughout the “DtC and 3T” session there was a lot of discussion about the frustrations wineries have when working with a wholesaler in the market, including sales reps lacking wine product information and not planning out their day efficiently. In his experience working with his Scarpetta wine label, Bobby Stuckey stressed the importance of finding the right sized distributor to match the size of your winery. A smaller distributor will place higher priority on a boutique winery because it is less likely to be distracted by the demands of big name, high volume producers.
Another consideration when entering a new market is that while your wholesaler relationship will serve as a means to legally bring your wines into a new state, you should be prepared to do a lot of the on-premise in-market sales work yourself, especially initially to show your brand’s dedication to the market and your brands viability.
Ken Fredrickson, with over a decade of wholesale experience under his belt, provided some insight into how to successfully approach a distributor. He stressed the importance of coming in with a plan. Know your pricing, understand the margins you can provide and above all, answer questions: What will be your total spend for the market in samples, training and POS? How often will you be in the market? When will your release dates be? Lastly, once you’ve identified an appropriate distributor and landed placement in their portfolio, stay engaged and hold them accountable for depletion reports and other crucial data about your brand’s performance.
By intelligently striking a balance between DtC and wholesale channels your winery can mitigate risk, establish strong relationships with loyal customers and realize your brand’s potential across the country.
Is your winery interested in learning more about how to work with wholesalers or other topics regarding sales channels? Let us know! The Oregon Wine Board is always searching for relevant topics to address through industry education.