After decades of experience in consumer product marketing, the last 5 of which have been almost entirely focused in the wine industry, I’ve gotten pretty good at recognizing patterns. And over time I have noticed two things that all successful wineries seem to have in common.
Let me qualify, first, what I mean by “winery”. I am not referring to outfits like Mondavi or Kendall Jackson, which are beverage companies who primarily market varietal wines. I don’t say this to disparage them. Their size does not say anything definitive about the quality of their products. But they operate at a scale (and with an economic leverage) that is exceedingly rare in the wine business.
No, I am referring to what one might call a “boutique” winery. These are small(ish) businesses, many or perhaps most producing below 20,000 cases per year, often owned & operated by a multi-generational family team. The lion’s share of their revenue usually comes from wine club membership. Their “retail” channel is typically their on-site tasting room and perhaps a few local restaurants and wine shops here and there. This is the type of place most of us visit on a wine-tasting excursion. For the past 5 years, these businesses have been my clients. And I believe the following two thing are critical for this type of winery to succeed.
1. Establish a wine-making identity.
This one seems self-evident, but many wineries struggle or fail on this count. What is a wine-making identity? In my opinion, a winery (or a winemaker) should be able to answer the following question in a heartbeat: what sort of wine do you make, and why?
The people who make their way to your tasting room are not there for a glass of wine. They can just buy wine on their next grocery store run at a low price with marginal effort. No, your customers are looking for an experience. They’re in a receptive mood, ready to expand themselves in some way.
If the answer to the above question is clear, then the nature of your wines will seem purposeful and intentional, which will generate greater anticipation. And the tasting, then, will be more than a tasting. It will be a payoff of the winemaking vision. When the customer brings a glass to their lips, they will imbibe the relationship of your winery to the wine it produces. They will know the “why”. That’s where the magic is. The closure of that loop makes the customer feel invested. And that is the basis for a long relationship.
Some wineries try to have a “bit of everything” in a quest for broad appeal. But I find that wineries who are more focused with their products, while they may do modest unit sales volume, tend to have more loyal, higher-spending customers and wine club members. People who are invested in your particular winemaking style will visit more often, stick around longer, spend more, and evangelize your winery to their friends. In the wine business, it seems that going deep often beats going broad.
There are a great many aspects to a winemaking identity (too numerous for this writing), but here is one bellwether: if your Winemaker has little or no visibility in your business, you’re probably missing an opportunity.
2. Get to a premium price point
Some boutique wineries believe they are competing on price with the wine industry at large. So their instinct is to keep their prices on the low side. The price for a bottle of wine is a funny thing, because there is perhaps no other consumable product category where value is so difficult to define. But if you’ve followed the first bit of advice, this second one becomes somewhat of a no-brainer.
Once you’ve established a strong winemaking identity, you’ve paved the way to charge a premium price. If consumers perceive your wine to be rare and special, they will expect to pay a high price for it. In fact, they may be disappointed (and less inclined to purchase) if the price is low. Cognitive dissonance is a real phenomenon, and consumers do impute higher value to goods with higher prices. It may surprise you to learn that the best revenue growth rates in 2022, a tough year, occurred in the $70 – $90 per bottle price range.
“Wineries with lower average selling prices are selling fewer cases and are getting a smaller dollar return. Wineries with higher average selling prices are selling fewer cases, but dollar sales are growing more than case sales.”
– Silicon Valley Bank Direct to Consumer Wine Report, 2023.
In my opinion, winery owners should embrace the idea of creating a low volume, premium priced, high margin business. If a volume opportunity comes your way (Costco begs for the opportunity to sell your wine), then you can move to a lower price point, or create a value SKU. But don’t imagine you are competing with that $18 Mondavi varietal sitting on the grocery store shelf. You’re not, and that’s a good thing.
Conclusion
The wine business is notoriously tough, but 2023 has been especially so. After the unexpected boom that was created by the Covid lockdown in 2020, there has been a nasty hangover as competitive retail channels reopen, gas prices soar, and consumer preferences seem to shift away from wine. The above strategy is about creating an economically stable small business that is built to last. It is characterized by a small(ish) set of loyal and even passionate customers who are happy (and may even prefer) to pay a premium for your wine, will evangelize your brand, and stick with you for the long run as you grow.