Virtual experiences can be great if you are playing games, but when it comes to making money, nothing replaces the real thing. When it comes to wine drinkers, the real thing they seem to want is to meet the winemaker, visit the vineyard, know the owner. They want to have a personal relationship with a winery, or feel as if they do.
Take Tusk Estates for instance. It leases vineyard plots in five different Napa Valley appellations, and contracts out with a local winery for the crush and ageing of its no more than 2,000 bottles of Cabernet Sauvignon by noted winemaker Philippe Melka. The plus-sized Bordeaux bottles, each with an etched lip and punt deep enough to hold a double-shot of whiskey, are labelled by hand. The linen label itself is hand-printed on a replica of the Guttenberg press.
But the only way to get one of those bottles is to join Tusk’s wine club, and the only way to join the club is to know either the winemaker or his two partners – marketer Tim Martin and snack food executive Michael Uytengsu – or know someone who does.
“Everyone in Tusk has to be connected to us owners by no more than two degrees,” Martin explains. “Like other high-end clubs, you have to be invited by another member into the club who says they would be good for it.” Once recommended, the nominee can pay a $2,200.00 membership fee and in return get three bottles of Tusk, shipped in specially designed linen boxes. They also get invitations to private parties at exclusive estates, including Uytengsu’s mountain-top villa in Napa, to meet other members and share a glass.
The eight-year-old venture still hasn’t turned a profit, though there is a waiting list, says Martin, who insists, “We’re doing this because it’s fun.” Tusk isn’t really about wine; it’s about networking. The private parties ensure members meet others who share both a certain economic status and a fondness for Napa Cab.
Tusk may be the ultimate expression of a sales channel known in industry as Direct to Consumer. DTC encompasses wine clubs, tasting rooms, online sales as well as special “perks” such as winemakers’ dinners, picnicking in a coveted locale that is open only to members or watching a meteor shower from the vineyard.
It’s the experience
“People are looking for experiences. They want to know the story behind the wine, but they also want to feel as if they are a part of it somehow,” said Lisa Mattson, a spokeswoman for Sonoma’s Jordan Vineyard and Winery, which produces only two wines – a Chardonnay and a Cabernet Sauvignon. While Jordan doesn’t offer a wine club – its 100,000-plus case production couldn’t meet a club’s demand – she said it does offer a loyalty program. For each dollar spent, customers are awarded points that can be redeemed for “experiences”, she said. “This August we are going to open one of the vineyards at night so that our members can come and enjoy the Perseid meteor shower. There’ll be wine and dinner and shooting stars falling all around!”
DTC is – especially for US wineries – the most profitable way for a winery to sell its wares. DTC sales hit $1.82bn in 2014, up from $1.57bn in 2013, according to ShipCompliant, a company that handles paperwork and shipping for wineries and wine clubs.
“If a winery is selling, say, between 15% and 20% of its production directly to consumers, than DTC represents more than 50% of their annual profit,” according to Jeremy Benson, head of the Benson Marketing Group, and leader of ‘Free the Grapes’, a national group made up of wineries, consumers and retailers who have been fighting to allow direct shipping. The coalition is having some success. Ten years ago, just 27 of the 50 states permitted direct-to-consumer shipping. Now there are 43.
The percentages are even higher for very small producers who average less than 50,000 cases annually. Benson estimates that, “Roughly 30% to 40% of their sales are coming from their wine club; another 30% to 40% to 45% is coming from their tasting room. And then there’s another sliver, say 10% to 15% that’s straight e-commerce.”
Many wineries have their own clubs where visitors to the cellar door – usually at the far end of a tasting room – can buy bottles at special prices. Some wineries make blends just for their members; others provide wines that are only for sale at the winery. Wine clubs often also have automatic plans, where the customer receives a shipment on a regular basis. “Wine clubs are essentially a paid-for sampling program,” said Benson. “It allows them to send samples out to people who are paying for those samples.”
Taylor Eason, who has worked in brand marketing and communications at both J Vineyards & Winery and Boisset Family Estates, calls wine clubs “a phenomenal revenue stream. It’s automatic money.”
It is the USA’s three-tier system, where a winery must sell its wares to a wholesaler/distributor who then sells it to a retailer where the consumer can buy it, that has a series of built-in costs. “When you’ve got a wine that goes through the wholesale channel, the price goes up 50% right off the top. So if the wine sells for $20.00 [to the consumer] you have to sell it to the wholesale channel for $10.00. With direct to consumer, the winery gets to keep all that profit,” said Eason, who has opened her own marketing company, Cork & Fork.
ShipCompliant said the average cost of a bottle sold via DTC was $38.40. Small wineries, those that produce between 5,000 and 50,000 cases, make up almost half of the DTC shipments. Despite those numbers, DTC represents only 2% of total US wine production. Consequently, Rob McMillan, executive vice president of Silicon Valley Bank’s Wine Division, forecasts, “Direct-to-consumer sales will continue as the largest growth channel for most wineries.”
DTC does have its own costs in the form of a tasting room, extra staffing, and dealing with compliance issues, “so the winery’s actual DTC profit margin is less than some may think, but it still far surpasses the traditional three-tier route,” said Benson.
The average wine club member stays for between 18 and 24 months, Benson estimated. “So if you think that most wineries ship three or four times a year, the lifetime value of a club member is quite high.”
To keep members coming back the wineries compete with one another to provide “experiences that no one else can give you and that you cannot get unless you are a member,” Jordan’s Mattson said.
Some such as St. Supéry offer their wine club members cruises on the San Francisco Bay, lobster lunches and special pricing on bottles. Others like Chateau Montelena Winery, which produces the Napa Valley Chardonnay that won the 1976 Judgment of Paris wine competition, frequently host winemaker’s or founder’s dinners, not just on the property or in Los Angeles, San Francisco and New York, but also in Tulsa, Oklahoma and Cleveland, Ohio. Similarly, JUSTIN Vineyards & Winery in Paso Robles, California, owned by Fiji water mogul Stewart Resnick, will send the winery’s master sommelier out on the road.
“It's a great way to show how much the wineries care about their wine club members. A member in Tulsa, for example, may have come to Paso (Robles) or to Napa and had a fabulous time at the property, but only might make it out once every couple years. This way, a winery principal is coming to them and they're able to interact with them in a small group setting in their hometown,” said Stephen Schmitz, a spokesman for both wineries.
Chateau Montelena has an annual case production of 50,000 and while it is available at many upscale wine shops nationally, DTC accounts for more than 50% of sales.
Wine club sizes and requirements vary, but overall, the 100,000- to 250,000-case size players have between 25,000 and 40,000 members. But of those, “probably only 20% are hard core and those are the ones you really want to cater to,” said one marketer. Charging for a membership as Tusk does is rare.
Smaller wineries, producers of 20,000 cases or less, may find the costs of running their own wine club prohibitive. But they can turn to other wine clubs – those that serve as aggregators. These clubs slice and dice the market based on price points, palates, age and attitude. The granddaddy of modern wine clubs seems to be The Wine Society in Australia, formed in 1946 as a non-profit organisation, to bring wines to members of its cooperative.
Nearly 70 years on, it finds itself competing against global powerhouse Direct Wines, the holding company for Laithwaite’s, The Australian Wine club and Averys of Bristol. Laithwaite’s began in 1969 and had 150 customers at the time. It now has more than 700,000 customers worldwide.
Some like Club W and TastingRoom by Lot 18 use algorithms to determine their member’s palate, based on the answers to a series of questions about the wines that are sent. Lot18 raised about $47m in 2010 and 2011 from investors, but it then laid off a lot of its staff, failed in an attempt to expand to Europe, and has been tweaking its business model ever since. It continues to operate the Forbes Wine Club. Club W raised about $12.6m in 2013 and 2014 and is targeted at hipsters and Millennials.
The 25-year-old California Wine Club has its own platform, as well as providing the back-end services (shipping, invoicing, branding, etc.) for wine professionals who have their own wine clubs. “We don’t have waiting lists, but the wineries we feature – these are real working wineries… real families with homes and vineyards and tasting rooms with a physical presence and stories that wine consumers can get to know,” says Gerri-Lynn Becker, the club’s president.
Logan Lee co-founded his now two-year-old venture, Wine Awesomeness (WA), because the other clubs weren’t speaking to him or his fellow Millennials. He and his partners (no one is older than 33) engage their audience where they live – online – via Facebook, Twitter, Instagram, Vimeo, YouTube and even email.
While he contemplated using a Kickstarter campaign, Logan said they found outside investors for WA with a lot of e-commerce experience.
“Getting capital by itself is very cool, but our investors specifically bring a lot of brain to the table,” he said. “Getting to work with smart people who have accomplished some things has been a key resource.”
Like Tusk, WA hasn’t turned a profit yet, either.