The SVB Annual Direct-to-Consumer Wine Survey Report is a much-anticipated report that almost didn’t happen in 2023.
It's put together by Rob McMillan, who was the Executive Vice President of the Wine Division of the former Silicon Valley Bank. The bank collapsed in March, but it was bought by First Citizens Bank, which kept the wine division, to the great relief of California’s wine industry.
And so, the report came out as usual. Rob McMillan joined a panel of wine industry experts on 16 August to discuss the highlights.
“About every eight to 10 years, the industry goes through some sort of a cycle and I think most people can start to figure out that we're in a beginning of change,“ McMillan began. The industry is now going through a digital transformation, and not just because of new technologies and access to key analytics and metrics. A big change is that they can now call on the services of digital vendors like Commerce7 and Shopify.
The report itself is a granular summary of key research findings to do with pricing, sales, and geographical data. But as they worked their way through the report, the panelists weighed in with ideas about how to improve profitability.
Here are seven of their top suggestions:
Re-think the tasting room
“When customers come to visit a tasting room, they have an amazing experience,” said Jessica Kogan, the Chief Growth & Experience Officer of Vintage Wine Estates. “The primary reason that they join the wine club is they want to remember that time and that moment and what it meant to them. “
That means that anything wineries can do to improve the tasting room experience “will pay massive dividends”.
Susan DeMatei, Owner and President of WineGlass Marketing, noted that tasting rooms now compete directly with other entertainment venues and destinations; 55% of wine consumers are under 40, members of the digital native generations. These sophisticated consumers have travelled widely and are on the hunt for experiences. “Today's consumer wants variety,“ DeMatei went on. “They want options and they want community. Whereas the experiences that we have set up are these sorts of one-on-one tastings or a small group. They're very educational. It's a very Boomer way of spending your time.“
Yet tasting rooms are already much more sophisticated operations than they were in the past, when “buying from the cellar door” meant buying wines at a discount. Andrew Walleck, Chief Operating Officer of Wine Access, suggested it’s time to replace discounting with a focus on better value, “meaning, ‘hey, we made this one particular SKU just for you guys. It’s our Winemaker’s Special Reserve. It’s got a cool story attached to it’.”
McMillan, who said that tasting fees have become standard at wineries, believes it’s time for the tasting room to evolve again—into surge pricing, where the price changes depending on the level of demand. “Should you always be charging $40 for a tasting fee, or $25? What about on a Monday?” he said. “We’re at this point where we have to rethink the tasting structures. Can we use tasting fees as an incentive to bring people in?”
New consumers who might not be interested in spending $40 to try wines might be tempted at $25, even if the available time slots are less convenient, he went on.
Start texting
Remember the days of texting on a mobile phone? It’s time to fire off SMSs once again, and rediscover the very specific pain that comes with texting thumb.
“The open rates are massive,” said Kogan. “We're talking between 95% to a 100% open rates.” Ask customers for their phone number plus permission to text them—but use this method sparingly.
The social media management platform Hootsuite recommends using text messaging for personalised promotions, as well as offers, discounts and surveys, or to tell customers that their order has dispatched.
Take this show on the road
As much as McMillan believes there is still revenue growth to be found in the tasting room, he says the tasting room can’t do all the work of building a customer base. “We've got to find the growth and the growth has got to come from taking share away from somebody else, whether it is energy drinks or spirits.. So it's how do we get them to include what we sell in their daily lives?”
Load up the van. “It's not that we want to move away from tasting,” he said. “It’s that we want additive.” He suggests that wineries use their data to pinpoint where the majority of their customers live, and then develop a road show and go visit them.
“You can figure out where your retailers are selling in that region. You can say, I'm going to be the best winery for Dubuque, Iowa,” he went on. “That's one of the things that data can help you do—be more specific about the way you're attacking an individual region.”
This, of course, is what regional bodies have been doing for decades, but they can do it because a critical mass of wineries turns their road show into a major event. If individual wineries are going to try this strategy, it could be worth talking to neighbours to see if they want to come along to share costs and make a bigger splash.
Offer gift subscriptions
Give wine club members the option of giving a gift subscription to friends, family, and clients.
“That is actually a huge opportunity,” said Walleck. “The data says that only a very small number of consumers are doing that.”
He suggests that if parents are able to give subscriptions to their children, or to refer someone else, “I virtually guarantee you'll see a huge uptick in digitally acquired wine club members.”
Introduce a tipping option
One suggestion that may send a cold shudder through international readers is the idea of bringing tipping to the tasting room.
Kogan said tasting room workers are the heroes of the wine experience world. “They are the first line of defence in representing the values and the mission of the brand,” she said. “And if you ask customers three to six months after their visit, typically they can remember the name of the associate that was there to help them.”
Tipping incentivises workers to work even harder, from remembering to ask customers for their mobile phone numbers, to sending them links to write reviews. “Once reviews are posted to your site, you go higher in the algorithm. So it can only be a positive to support your frontline as best as you can,” Kogan went on.
McMillan had data showing that in 2014, only 21% of wineries had a tipping option. “Today it’s almost 70% of wineries,” he said.
The calibre of staff has also changed. “Back a decade ago, it was a lot of retirees; people with time in their hands earning a couple bucks on the side. They may or may not have been even trained. You have professionals now that are in tasting room and hospitality and in the US tipping is kind of a normal thing.”
Tipping is beginning to spread internationally, simply because the cash machine technology that prompts customers to pay tips is being adopted by businesses elsewhere. Still, beware of soliciting tips unless the service is above and beyond, because even Americans are getting fed up with it. A Bankrate report from June this year revealed that two thirds of Americans now have a negative view of tipping, with many believing that “tipping culture is out of control”.
Improve the shipping experience
In many countries, the US being one of them, the cost of shipping bottles of wine can be prohibitive. Unfortunately, “Amazon has trained everybody to get not only free shipping but get it in two days, which is easy for Amazon to do because they're vertically integrated and they own their own shipping vehicles,” said DeMatei. She said if it wasn’t possible to embed the cost of shipping into the cost of the goods, at least let people know when the goods have dispatched. “Let people know it’s coming.”
This is one of those times when customers may welcome an SMS.
Spend more money on marketing
How much should a company spend on marketing its products? That’s an extremely difficult question, with answers ranging from between “6.4% to 9.5% of company revenue across almost all industries,“ according to Gartner. Before the pandemic, the report went on, marketing spend “averaged 10.9% of company revenue”.
Whatever the true number, the wine trade is lagging way behind.
“The wine industry spends 2%,“ said De Matai. That means that all the other beverages, destinations and other competitors are massively outspending the wine trade. When it comes to the fight for consumer attention, wine people have barely entered the ring—so wineries need to get serious about marketing.
In aggregate, these tips could be considered something akin to contemporary aviation strategy—take each individual piece of the service, and see how it can be monetized. The trick is to do the opposite of the airlines, meaning offer better service at every point, rather than a worse one. And then let people know about it through better marketing.
These are only some of the insights that came out of the wide-ranging discussion, which is available at Rob McMillan’s website, along with the report.
