Saturday, March 9, 2013

How Much Do Tasting Rooms Make?


I had a good meeting with one of my longest tenured clients this past month. We were talking over strategy and the discussion evolved to discussing their tasting room. Specifically, they don't have one - so should they?

My client is in a region where there is an agglomeration of tasting rooms. The winery is doing well without one. A little off the beaten path, if they did put one in they would need to develop some strategies to get people to the winery. Wanting to hone in on a measure of expected return in their planning, they asked me what's the ROI of a successful tasting room? I could have given them the stock answer and talked about measures of profitability, but the reality is there is no such thing as an average ROI on a tasting room. If fact you are missing the point of a tasting room if success for you is defined as profit.

This Person was Shocked
This might shock some but a tasting room shouldn't be considered a stand alone profit center. Sure you can do the math ... revenue minus costs and hopefully there's a profit. But a retail room is more appropriately viewed as a support element in an integrated marketing plan.

Your view and bias of what a successful tasting room is, will be reflected in the way you measure it. Most wineries choose to define that success in terms of direct profit: direct sales minus direct expenses and some allocation of overhead. I'd love to be corrected by readers, but I'll bet a bottle of wine ( ....  my choice in bottle of course....) that there isn't a single winery that develops strategies, process and measures ROI to include what I consider to be the most important metric of a successful tasting room: The Second Sale.

What do I mean by that? Go back to strategy. Say you measure success in the retail room by profit. Your strategy then will revolve around ways to boost profitability. You will develop calling programs on the right hotels, talk to concierges, put fliers in the hotel visitor rack - all with the hope of getting more people into the tasting room. The more people in the tasting room, the better chance at higher sales. Its the theory that if you get to the plate enough, you'll get a hit. Whats wrong with that? Nothing except the most  expensive sale is the first one. Look at all the costs aimed at getting people into the facility in the first place. Can't they buy it on-line or someplace else without making the investment? If you fully cost burden your first sale, most wineries will lose money on that sale, so your real return of the tasting room might be negative.

The value of a buyer of a case of wine in your retail room is the profit in that case. That's it. The value of a client is a lifetime revenue stream. Measure that. That's a huge difference.

Back to the metrics, what is your conversion rate in visitors? What is your success rate at a second sale after someone has tasted? What about metrics on the places that are driving visitors? How many people from the hotels you're targeting are purchasing a second time? Do you get more return sales from those in the Marriott, the Westin, or the No Tell Motel? Whats the rate of second sales from referrals from your concierges or travel planners and travel sites? Which of your clients is an evangelist and is naturally recruiting followers? Are you tracking that? The metrics that focus on the second sale, and efficiencies created by measuring your sales tactics which include the second sale is something our industry is not fully embracing.

Go ahead and pat yourself on the back if the revenue minus direct expenses equals profit in your tasting room. Make sure your tasting room staff feels good when someone walks out of your tasting room with a couple cases of wine. But if you don't know who that was, how to contact them and thank them ..... don't know if they ever buy another bottle of your wine - then you will never know the ROI of a tasting room.

What do you think? Do you measure the second sale? What metrics do you employ in the tasting room to measure success. Log in and add to the discussion below.