Sunday, July 15, 2018

Do Tasting Rooms Steal Sales from the Wholesaler?

Procter & Gamble has long been respected for it's integrated product development, integration of acquisitions, and brand marketing. Consider the number of iconic brands they hold like Ivory soap, Pampers diapers, Duracell batteries, Gillette razors, Tampax feminine care products, Crest toothpaste, Tide detergent, and the list goes well beyond that. P&G has more billion dollar brands than any company in the world ... but they don't sell wine. If P&G sold wine people would be running to their mailboxes for free samples and the TTB would not be happy about that.

    Free Wine?

P&G figured out that sampling had a cost, but the cost was more than recovered when consumers got to the store and with the knowledge of how that product impacted them, were able to make a preferred decision about a purchase.

Somewhere in the 1960's Procter & Gamble reevaluated their thinking and decided that their shotgun approach in sending Crest to everyone might be less than effective with someone who had no teeth. The reality was back in the day, P&G had no idea who had teeth, who had kids, and who were screwed up bankers that never cleaned their nails or brushed their teeth.

Today big data gives marketers more information than anyone ever thought possible, and at some point as a consequence I think we are going to see free samples back in the mailboxes because marketers will know exactly who to target.

For today however, sampling for consumer products takes place with consumers going to the companies asking to try their products. And if you ask, the producers will send you free stuff to try or coupons making something almost free. But that doesn't work well with wines because of a labyrinth of legal issues. What does work is consumers coming to the winery and asking for tastings.

    Trail: A Dominant Component of a Purchase

With wines, one of the most important factors influencing consumer purchase is familiarity with the wine; a prior experience and if not that, a recommendation from someone trusted. We can get into the discussion of YELP style ratings versus professional wine writer reviews but lets stick with sampling products. 

This week when I spoke with a large winery and their wholesalers, I asked some about their feelings regarding tasting rooms. Unsurprisingly to me, those I spoke with had a sense that they were The Sherriff of Nottingham and they should own all they could see to the horizon. They see tasting rooms like Robin Hood; taking from the wholesalers and giving to their own customers. They also seemed focused on the discussion of cannabis as a substitute for wine which I still don't believe .. but sticking to this point:

One of the wine company folks there thought they had an approach dialed in that was fair - and looking from one particular way, it is fair. What they do is only sell wine out of their tasting room that isn't sold wholesale. My perspective with that is that is 180 degrees backwards. 

If you and your wholesaler have an enlightened view, you will view each as integral to success and in that reasoned world where we all get along, you will want to offer some wines that are in distribution. In a perfect world, wholesalers would subsidize wineries for offering tastings of their wines in distribution.  ...I said in a perfect world and this world will never be perfect.

    Sending Wine to Home Mailboxes

While wineries think the purpose of a tasting room is to get people into their wine clubs, and direct sales over the counter, in reality - Tasting rooms have always been the modern day equivalent to P&G samples in a consumer's mailbox.

Consumers sample wine in tasting rooms and outside of the small "wine souvenir" buy over the tasting bar, they take the experience with them into other venues. They buy the wine at a restaurant, wine retailer, and grocery store because they recognize the wine.

If a consumer joins a wine club, they are going to get a delivery of vino. But even a wine club is a form of sampling. Furthermore, those few (albeit core) consumers who do join wine clubs seldom stay in the club for more than 3 years. So maybe they are getting 4 or 5 cases? I don't think that should be a huge deal for wholesalers.

    Undercutting The Retail Price in the Tasting Room

The reality is wholesalers benefit when consumers walk into tasting rooms and gain first-hand experience with a wine. The producer is really supporting the wholesaler when they sell wine from their property. If Procter & Gamble could sell wine, they would absorb the costs of trial and sampling and I guarantee they would sell wine from their own tasting room! And that brings up the point of pricing in the tasting room.

With the winery absorbing the sampling costs and overhead associated with bringing consumers to their property, should the winery need to coordinate market prices with the wholesalers prices and not "undercut them?"

The consumer is often expecting a good deal when they come to the tasting room. How will they feel when they find the wine less expensive at Safeway the same day? That's brand negative and works against the winery and the wholesaler.

    Get Over It!

In my opinion, the wholesalers ought to be happy with the trickle of wine sold from tasting rooms relative to what they sell in the market - and they should be fine with the winery's discounted pricing. 

If the wholesalers were handling the sampling function they would be trying to figure out legal ways to coupon (that's discounting) and offering free sampling like any other consumer product. And interestingly, when I walk into Whole Foods these days, they are offering wine tasting in the store ... which is another topic altogether.

Time to wake up wholesalers. Your producers are giving you a gift by selling wine from the tasting room - even at a discount under your suggested retail price.  Wineries aren't a competitor. They are a gratis marketing agent.

What do you think? Do you have any stories to pass on about how your wholesaler considers your wine club and tasting room?

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  1. We have a tasting room and are mostly DTC now. We know where all our DTC customers are. In states where we distribute the sales are always higher in Zip codes where we have the most DTC customers. DTC customers, generated by the tasting room directly impacts distributor sales in a positive way. I remind my skeptical distributors that a winery fan will pour our wine for their friends and then their friends will look for the wine the next time the shop. Our DTC customers will run out of wine and if they see it in the store will buy it.

    1. Robert - Thanks for offering insight. I'm impressed with your club segmentation, and integrating that with the wholesaler. Sharing that information with the wholesaler is undoubtedly part of the way we can change minds and work more effectively together. That focus will pay off for you and your wholesaler.

  2. Between sales online and in wine shops for the wines I import, I find that customers are OK with a 20% markup in the store, for some wines as much as 25%. They'll pay for convenience. And those who are DTC only wouldn't taste the wines otherwise. Wholesalers are always on the lookout for poaching, but in this case they're off base.

    1. Tom - thanks for logging in and posting.

      It will be interesting to see how the landscape of 3-tier and marketing collide in the next decade. Soon we will have one wholesaler with more than 60% of sales. We already have 11 wineries with 80% of sales. Now add to that realization the consolidated wholesalers who've lived on moving more lower priced boxes, will soon discover that lower price wines aren't doing well and we are close to zero growth rate in wine sales from a volume perspective. Something will change in a major way in the next 10 years because it has to.

    2. As an online merchant, I will be happy to see the days of $7 bottles go away since I don't carry any. But I wonder if the uptick in price will also mean that consumers will demand more service and information about the more expensive bottles before they try them -- or will want to sample them before they do.

    3. They are sampling at Trader Joe's. Maybe the next big thing?

  3. I work in the wine wholesale business in Oregon and I can say definitively that I benefit when our winery partners have a robust tasting room business. We see much better pull through on local wines at restaurants and independent retail (particularly when the wines are more expensive) if that winery has an emphasis on the tasting room.

    For a market with a very strong focus on local wines, engagement with consumers plays a big part in wine sales - I actively seek out wineries who emphasize DTC. So from my perspective, yes, I wholeheartedly agree with your assessment!

    1. Sorry I missed your comment Merritt. I think I was in Argentina on a speaking trip but thanks for the comment. It's great hearing street level responses to the content - pro or con.

  4. Concerning lead story Photo.
    Point of clarity. SPELLING CORRECTION.
    ProctEr & Gamble. NOT ProctOr & Gamble.
    Enjoyed the piece none the less.
    Thank you.

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