Three Biggest Challenges Facing Small Wineries Today?

I think the real story in the Willamette Valley (and other small regions nationally) is that 75% of wineries produce fewer than 5,000 cases annually. It’s micro-production by any measure. They have survived because of so-called “Premiumization” and the recent fascination with their AVAs. What will happen when the next economic downturn occurs, as the distribution consolidation continues, and/or as vineyard and winery acquisitions accelerate (which they are doing now)? Are there business parallels between what is happening in Willamette Valley and other burgeoning industries such as craft beer or high tech? Is large destined to win? How will small craft producers survive and thrive in the long run?

Distribution

Distribution is one of the most challenging business problems small-production wineries face. Consider that just 20 years ago there were roughly 2,500 wineries and 3,000 distributors. The odds of having your wines represented by distributors were very high due to the demand for excellent wines. Distributors worked hard to help build winery brands. That is not the case today. There are more than 9,000 wineries in the U.S., and with the consolidation of the largest distributors, I estimate only 700 distribution companies remain. And for economic reasons, they focus on large family or corporate winery groups, high profit margins and depletions. The small winery simply cannot compete. Ironically, market research and industry studies show that today’s consumers want to try and purchase more from small craft brands (as opposed to the well-established brands that used to be consumers’ preference), but cannot find them available in the marketplace.

Additionally, I was reminded of the purchasing power of retailers that act as wholesalers. I made a trip to Costco recently and discovered cut-rate pricing for Willamette Valley Pinot Noirs on display for Oregon Wine Month. Would you believe $10.99 for Willamette Valley label wines? Concurrently, there are active initiatives to control labeling and varietal percentages to enhance the Willamette Valley brand and presumably our price points. I can’t make sense of this discounted pricing in the long run, despite the recent large yield vintages.

Competition

While there are still many small winery operations starting up these days, there are many others that are better equipped for this hyper-competitive environment. I believe we are living in a wine bubble that is destined to pop for economic, political or other unforeseen reasons. Starting a winery today requires significant funding and marketing wherewithal to stand out in today’s crowded, competitive market. We not only have too many wineries in small regions like Willamette Valley, we’re seeing many more from all over the world that bring serious investment dollars and business savvy to bear. Many smaller wineries aren’t so well prepared.

I am also starting to see high quality and reasonably priced $20-$30 Pinot Noir – which I believe is sustainable for most small wineries – and should act as a good hedge against eventual restrained consumer spending, as well as to supply national wholesale markets.

Brand Building

Why do this? Because top of mind awareness is the only way to ensure consumers will buy wine from you when they are ready. The adage goes something like this – Repetition breeds familiarity; Familiarity breeds trust; and Trust leads to Sales. It’s the justification for advertising and media relations programs.

While getting media coverage is still essential for businesses, it is increasingly challenging due to the proliferation of wineries and dearth of established writers with ongoing columns. In other words, the days of being “discovered” and handed a strong fan base due to media coverage have passed.

Writers are not paid enough to research and discover, nor do they have time to do so. Wine brands that stand out in today’s world tend to get ongoing media coverage for three reasons: (1) They are already popular, often written about, and quick and easy for writers to review; and/or (2) They are easily found in the marketplace due to distribution; and 3) They spend advertising dollars with a media outlet. Many print and online publications rely on a pay-to-play system to survive in a post-Internet world. This leaves many small-production wineries out of the equation, and mostly for financial reasons.

Another aspect of branding is controlling your winery profiles on social media. I like to think of social media as Consumer PR. Have you claimed your profiles on all the relevant sites? I mean not only the obvious ones – Facebook, Twitter, Instagram, but also the travel itinerary, wine country mapping, wine rating and mobile app sites. Monitor, post and engage consistently.

Strategies

My feeling is that a balanced approach of direct-to-consumer marketing (direct sales in tasting room/club members and eCommerce), ongoing brand building (using media coverage in your marketing), and specialized targeted distribution options (online brokers, targeted states) are required to ensure success. Unless you have been established for a long period of time (5 years or more), a reasonable goal is 20-30% wholesale and 70% direct sales.

Small do-it-all-yourself wineries are finally hiring marketing staff – DTC or Hospitality Managers – either from within the wine business or outside – experienced hospitality professionals (hotel and restaurant staff come to mind) are excellent hires. They understand the importance of the customer service experience and can quickly acquire sufficient wine knowledge. And they have direct experience with seated tastings, proven to generate higher sales per visitor. Give them a mobile POS and cut them loose.

Consider creating a staff position to manage your wine club, and choreograph the sales path with your staff. Why? Loyalty programs might be the saving grace for small producers. Revenue is recurring and mostly predictable. Members refer friends when treated well and their business is appreciated. Get a handle on this important aspect of your direct sales program while wine clubs are still viable.

Doing outreach and getting media exposure will continue to build awareness of your brand and unique market position to support these goals. Using third-party expert opinions (feature articles, wine reviews and scores) in your content marketing will help you to stay top of mind with your customers.

CARL GIAVANTI is a Winery Publicist with a DTC Marketing background, going on his 10^th year of winery consulting. Carl has been involved in business marketing and public relations for over 25 years – originally in technology, digital marketing and project management, and now as a winery media relations consultant. Clients are or have been in Napa Valley, Willamette Valley, and the Columbia Gorge. (www.CarlGiavantiConsulting.com/Media).