Doug at Wino Magazine put a blog post up earlier in the week about the effects of the economic downturn on small wineries. One of his suggestions is to buy directly from the winery. I have mentioned this in the past and couldn’t agree more, especially in tough economic times.
An example I heard a while back has stuck with me. A winemaker said it cost him $13 per bottle to make his wine. It wholesaled at $15 per bottle and retailed at $30 per bottle. So for every bottle he sold through distributors, he made $2. For every bottle he sold through the winery, he made $17. Let’s do some simple math here. Say he makes 200 cases of a wine. The profit margin is $4,800 if sold exclusively through a distributor. $40,800 if bought exclusively through the winery. Needless to say that is quite a difference. It is easy to understand why wineries that do almost all of their business through mailing lists – such as Leonetti, Quilceda, and Cayuse – do quite well. For this reason, buy direct if you can.
That said, one thing for wineries to consider is dropping their shipping costs to a minimal amount. For many consumers, there is a barrier to buying directly through the winery due to the often high shipping costs. Given that the bottle cost is often close to that found in many retail stores, you are adding an often significant cost. If the shipping cost is $24 per case (not uncommon), that’s an extra $2 a bottle. For your $60 wine or a wine that is not available locally, maybe you don’t care. In cases like the present when people are focusing on value, it is a deal breaker, especially given that there are so many options on the shelves. In particular, if someone is just going to buy a bottle or two, adding in a shipping cost of $10-15 (again not uncommon) is completely prohibitive.
The bottom line is that if buying through the winery is cost neutral to positive for the consumer, more will take advantage of it. Ask Columbia Crest how their one penny shipping did in December although the 95 point Wine Spectator review clearly helped there. I would encourage wineries to consider minimal shipping costs combined with an aggressive email campaign to increase sales to help get through the tough times. I’m not suggesting the wineries take it on the chin in terms of shipping costs, but rather look at the overall benefits (decreased shipping cost but increased margin). At least during the economic downturn, it is something for wineries to consider.
Adding to my point about shipping, one winery I received an email from charges $18 for 1-3 bottles and $46 for 12. I find it hard to believe that these would be the actual shipping costs (i.e., the winery is not making money on the shipping). At $4-18 extra a bottle – the wine costs $35 – this simply makes no sense for the consumer.
Sean –
Back from a long snowshoeing weekend and catching up on The Report; great posts as always.
One of the main aspects of my business plan is to buy directly from Washington wineries, as opposed to distributors.
So, to use your $30 on-the-shelf example, in a three-tier case, the winery sells for $15 to the distributor, who turns and sells for $21 to the retailer, who slaps a $30 tag and puts it on the shelf. a winery would sell to a retailer for $21.
In most cases, wineries selling direct to retailers charge the same price as distributors would charge to retailers, so in that case, the winery would charge $21 and make a profit margin of $8. It’s not the full $17, but it’s a nice additional chunk of change.
And to your point about shipping, I completely agree. If I were hired to do consulting for any small winery, my first piece of advice would be to waive all shipping charges. It’s penny-wise, pound-foolish for these wineries to charge for shipping at all, let alone try to make profit on it!
I would also recommend that wineries sell out of the tasting room at a pricepoint less than what it would be on the shelf at the retailer. The winery can still make a better margin than it would selling to either a distributor or to a retailer, and it would add incentive for people to buy direct. Some do this, but many more should.
It was a true surprise to me when I first started traveling to wine country that the cost at the winery was identical – or higher – than the retail cost at wine shops. I don’t know if its because wineries do not want to undercut the retailers or, more likely, because the retailers might be inclined to reduce to the winery’s price and want to decrease the wholesale price as well. I had heard a long time back that there were some regulations surrounding pricing but don’t know if that is actually the case.
Bottom line, being able to buy from the winery for $1 or $2 cheaper would provide a bit of added incentive. I have occasionally passed on buying wine from a winery if the wine is available in town for the same price and I am concerned about having enough space in the car. If I were saving a small amount of money, I would be less inclined to do this.