Saturday, April 18, 2015

How Important Are Tasting Rooms to Success?

 
There is a bit of a standoff taking place in parts of wine country. No, the battle isn't with the Federales - not with the ABC, CDFA, BOE, TTB, or FDA each of whom have a regulatory role in the wine business. The battle is over events, tourism, and tasting rooms.

The wine business is being pressed from an incredible number of directions by those with conflicting desires and fears:
  • an anti-growth coalition that wants to keep things as they are or at some prior date,
  • the NIMBY club wants control over all they can see - even if its not their property to control,
  • the green alliance who want to dictate what can be developed and what can't,
  • internecine rivalries between winery owners,
  • long standing feelings of inequity between vineyard owners and wineries for grape contracts,
  • the local governments who are trying to make sense out of changing business conditions that include a heavy emphasis on direct sales, and balance the rights of property owners against those of their communities that elect them.

The plot is worthy of a movie .... how bout "The Treasure of the Vinous Madre?" Got a nice nose to it don't you think? I can see the trailer announcing ....Lawless winery owners combat the rag-tag French Legion-like, army of volunteers in a battle royale with only social media, bullhorns and cardboard signs with which to fight.
 
Anyway, this isn't isolated to Napa. A quick read of the press in Santa Barbara, Napa, the Willamette Valley, Paso Robles, Sonoma, New York, Virginia .... pretty much everywhere there is a burgeoning wine business, will yield news reports about the standoff which like all politics today, contains a fair bit of hyperbole.

The hyperbole seems to center around impacts on infrastructure, noise, traffic and water use. Focusing on Napa for a moment, that's why I loved this article [article], as well as others that are citing facts instead of hyperbole such as:
  • "Everyone in Napa works in the wine business" (74% of employees don't work in wine or hospitality.)
  • "Growth in new Napa wineries is out of control." (The County is approving on average 8 new wineries each year...but there are now 21 permits for new wineries pending.)
  • "There are more wineries in Napa every year" (The actual number of wineries in Napa has been declining since 2011, and now is closer to the number that were operating in 2007. )
  • "Day-tripping tourists are clogging the roads." (21% of cars on the road are visitors.)
  • "Most traffic snarls in Napa are from visitors" (55% of traffic is from people who live and work in Napa.)
  • "Wineries don't need tasting rooms or events to sell wine. They can sell on the internet." (not true. see below.)
 

Recently Silicon Valley Bank and Wine Business Monthly combined on a wine industry survey to get a view of the current activity in the direct business. There are some who are weighing into the current debate, throwing whatever point they want out there - substantiated or not - just to see if it sticks. With respect to the last statement of hyperbole, these charts should help dispel that myth. (You can click on them for a larger view.)
 
From other work we've done, we know the average winery sells about 60% of their wine direct (chart at left), versus the three-tier system.

From the above chart, you can see almost half of direct wine sales come through the visitor center and tasting room, and about a third through the wine club. Only about 3% we know from prior research comes from internet sales. In this chart, its 9% that comes from the miscellaneous sources and that includes those on-line sales.

You might also notice there isn't much in the way of revenue from events - just 7%. Events to the extent they are paid events, generate little income relative to other sources. They do generate wine club loyalty which converts to extended stays with a winery and higher lifetime income.

So in answer to the question and in a search for the facts in this on-going and escalating standoff, about a third of the average winery's direct revenue comes from tasting rooms, and another third from wine clubs which depend on the tasting rooms to supply its members. I'd say that qualifies as important.
 
 
If you are inferring from this blog that I am supporting wanton winery growth, you would be absolutely wrong. I am in favor of reasoned, studied, and planned development but there is a limit to winey development.

People come to and live in any wine area because of the vibe of the region. Allowing garish construction, having no concern of the impact of traffic and water with development, putting no consideration into infrastructure and affordable housing - that is contrary to common sense and will kill the goose that lays the golden egg.

Getting to decisions will take facts instead of diarrhetic bloviation, but maybe opposing sides in this debate have a little more in common to protect than that which first meets the eye?
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     What do you think about the topic?
 
What is your view of the current politics in your region? Are there too many wineries? Is there too much national and local government intervention in the business? What happens if your wine business keeps on the current path? Did you know what diarrhetic bloviation is? That's a fun word.
  • Please join the site in the upper right hand of the page and offer your own thoughts for the benefit of the wine community. And if you think the discussion is worthwhile, please promote this on your favorite social media platform. 



31 comments:

  1. Very interesting blog. You should see what they're doing down in the Temecula Valley AVA. They have 45 wineries already in operation, and approval is already given for another 40. So they are preparing to double the winery space at a time when, as one tasting room server told me, "Temecula is trying to figure out what it wants to be."

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    1. Slayer -
      Thanks for loggin in and your perspective. Temecula is an interesting example. Years ago there were a few wineries but mostly orange groves. Now its become its own destination and I read about some of the zoning fights down there. Inevitably, the only soultion to the situation is guidance documents so not every application isn't debated and fought over. I believe Temecula went through that a few years ago if I recall correctly?

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    2. Hehe ... Since I've only just recently returned to Temecula, perhaps David Vergari will reply to your question :-)

      (He being the winemaker at Thornton Winery, producer of some of the best California sparkling wines that I've ever had.)
      ((shameless plug))

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    3. Deleted to correct for a typo.

      Resubmitted:

      "Temecula Valley, Winegrowing Region or Party Destination?"
      (Los Angeles Times, August 26, 2011)

      Link: http://articles.latimes.com/print/2011/aug/26/food/la-fo-temecula-wine-country-20110826

      "Temecula Valley Wines a Work in Progress"
      (Los Angeles Times, August 26, 2011)

      Link: http://articles.latimes.com/print/2011/aug/26/food/la-fo-temecula-wine-country-box-20110826

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    4. Thanks Bob for your always relevant news articles supporting the conversation.

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  2. It seems everybody wants jobs and economic growth, but not in their backyard.

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    1. SJK - Thank you for logging with your thoughts. I agree in large part with your perspective. In Napa, the counter to winery growth has been traffic ... then we find out the traffic is actually from businesses and job creation.

      The anti-change alliance will always squak even if there are jobs created but we can't dumb down the discussion to the person who spews drivel the loudest. Nor can we ignore the fact that unplanned growth has a toxic impact on both residents and a wine community, so there has to be a balance to sustain both. Either way however, there will be change.

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  3. Bankser...it remains to be seen if 40 additional wineries will open in Temecula...and when this will actually occur. A lot more vineyards need to be planted to achieve this goal [sic].

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    1. David,

      Given our drought, where is the irrigation water going to come from for those 40 additional wineries?

      No one "dry farms" vineyards anymore.

      Bob

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    2. "Drought Revives 'Forgotten Art' at Wineries: Farming Without Irrigation"
      (Los Angeles Times, November 22, 2014)

      Link: http://www.latimes.com/business/la-fi-dry-farm-wine-20141123-story.html#page=1

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  4. I feel the bad actors in this game are the "wineries" that are really special event facilities who happen to make wine that they can force the facility renter to buy from them. There is more than a couple of new facilities in El Dorado county that I would wager sell a significant portion of their output to weddings. I know of one who has even bought sparking wine in shiners and slapped a label on them.

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    1. Kent - thank you for your perspective. I don't share the view personally. I believe its up to a community to set the development tone. Out of place developments are arguaby approved by a planning commission. I don't blame the wolf for eating the sheep. I blame the rancher for leaving the gate open.

      Small businesses are difficult to get off the ground and the wine business is particularly difficult. I don't blame business people for trying to work within rules to make a profit if that includes events and direct sales. That said, those who skirt the rules aren't doing any of the business a favor at this point.

      The term 'event center' has been used as part of the hyperbole fueling this discussion. Its a word that attracts heat because at the core, its imputing an anti-tourism, anti-retail mindset. And at the same time, you can see in the above charts, wineries need the ability to host events as well as build and retain their clubs. The balance point has to be at the planning level so out of scale operations aren't put in place and a community's desired look and feel is supported. Some 'event center' wineries I would argue are actually appropriate and valued in communities.

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  5. Thank you Rob, for the voice of reason. Agree with you, especially the point about the balanced approach -- too much and a region loses their vibe -- too little and small wineries can't thrive.

    Perhaps we should figure out how to leverage Uber to help alleviate traffic issues. My thinking is a lot of people would take advantage of an affordable on-call door-to-door service. (Maybe a different take on Uber Pool that they are piloting in SF?)

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    1. Thanks for loggin in Mizmo. There are mitigations for many of the issues presently swirling. For instance, why not have financial support staff at a winery work from home or in the city near their own homes versus at the winery. Leave that for hospitality.

      Likewise there are numerous ideas that can help with traffic in a region, each of them region specific but in Napa, I have held that it is in the regions best interests to put up and promote a Napa wine community in the Airport Center. That will allow day trippers who come for the day to get an understanding of the art, science, agriculture, wine and history of Napa and spend more time at the winery learning about the region insted of sitting in their cars for another 90 minutes going to Calistoga and back.

      I have buckets of ideas and the debate while frothy, should bring solutions for all sides.

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    2. Buckets of ideas -- do tell!

      Not sure I get the Airport Center idea though. We still need to transport visitors to wineries for first-hand experience.

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    3. Mizmo412 - Regarding the Airport center idea, from data I see - I believe the by appointment approach yields more effective experience and sales. Its rifled in sales to consumers. In this case, if consumers are coming in for the day to taste and are without any agenda, they aren't as likely to be the kind of customer that will join a club and be part of a winery's experience. They consumer can enjoy more time staying in the south of the county (where they can spend their money) and determine from that if they want to visit a winery specifically on a separate visit. A winery with a Type 2 California permit could participate in that if they felt that was worthwhile. That reduces traffic, reduces car exhaust in wandering, and allows consumers more time to shop and spend.

      While a little more of a reach, I'd also propose a parking structure be placed in the south county and small ferries run up the Napa river on a schedule to the redeveloped downtown where those consumers can take public transit for their traveling around, or be shuttled to hotels by hotel livery. Make parking free for those who park and take the ferry to a downtown terminal - encouraging getting out of cars, reducing the temptation to drink and drive, and directing tourism to downtown. Charge parking for those who are coming for the day and staying to enjoy the Visit Napa complex described above.

      That's just scratching the surface of ideas that can be discussed to better address the Napa situation.

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    4. Rob,

      So when are you running for mayor?

      Bob

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    5. Bob- It would be a sad day if I were elected to public office. I would think much less of the electorate were that to happen.

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  6. Great post Rob, these issues are being faced around the world. In many wine regions but also tourist towns, indeed you could replace the word "wine" for "tourism" and the debate would be similar.

    Just to clarify, are the charts above for Napa or the all of the US wine industry?

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    1. Thank you Bruce for your comment. I would argue that while some of the dissention in a tourist area is from anti-change groups, most is from locals who feel impacted by the lack of planning to accommodate tourists entering their area. They like the tax dollars being left in their community which they would otherwise have to bear, but would rather be able to make a left turn into a gas station. Its the lack of planning that people really are dealing with.

      The charts above are for the wine industry as a whole. They are from two separate surveys - one at the end of last year and the other the beginning of this year. They represent what the "average winery" looks like as a benchmark.

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    2. Thanks. Certainly agree planning (and infrastructure spend) is critical—struggling with growth here in Queenstown NZ, in particular our roading.

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    3. Are you experiencing similar anti-tourism issues there?

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    4. Not really anti-tourism, perhaps more anti-change and struggling to fund growth of infrastructure.

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  7. I also wanted to say, great article, great comments, and I am very much interested in hearing what any of your readers have to say about what works, and what doesn't... with regards to tasting rooms, wine tourism in general, etc???
    Your comments are all very helpful, thank you...

    Wendy Vallaster
    New Spain Wines

    in collaboration with the 'Asociacción de Vinos de Cebreros'

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    1. Wendy- This blog is spiced with articles on tasting room and direct sales. You can search key words and find several that might be of interest. One that received a lot of attention was: "What Percent of Tasting Room Visitors Buy Nothing?"

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    2. Wendy - also check out Rob's Tasting Room Survey, and the panel discussion video here: https://www.youtube.com/watch?v=zGaHCFOjOUA .

      Or one of the WISE Wine Tasting Professional courses here: http://www.wineindustrysaleseducation.com/

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    3. thanks guys... I guess my main post was deleted some how... which explained what I was really working towards. Thanks for the direction. I've written a course on developing Wine Tourism for the Bodegas here in Spain to take advantage of... and I agree, the WISE layout is great, although I have not experienced the actual courses. I am working with a group to come up with a solid, workable plan to implement wine tourism in a newly recognized quality wine region in Spain.. so I would like to really see where things may have gone wrong, or could have been done better in any of the New World wine regions, where wine tourism has really become instrumental in smaller wineries moving cellar door sales, etc.

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    4. I was commissioned to do something similar for Queenstown Wendy. Happy to talk to you on the phone—helping hand from one consultant to another sort of thing.

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  8. Our metric is to have all our wines available in both bottle and growler. We have 11 taps, two for water, the rest for wine and cider. This program has proven very popular with the locals.

    We have a "Growler" club wherein the fifth fill is only a buck. Some are on their 7'th and 8th card.

    As far as I know we are the only winery doing this. Comments please.

    Matt Morehouse, Crow and Bear Winery Applegate AVA

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    1. Awesome payback for your loyal clientele Matt!

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