Every year, Rob McMillan’s SVB State of the US Wine Industry report offers an invaluable insight into what is happening in the world’s most attractive wine market. His separate Direct-to-Consumer report arguably makes even more fascinating and surprising reading for anyone involved in winemaking outside the US, because of the picture it offers of a very different distribution model from anything to be found in Europe.
Most discussion of wine distribution in the US inevitably focuses on the three-tier-system, a peculiar restrictive structure that has existed for the benefit of that country’s wholesalers since the repeal of Prohibition. Direct sales from wineries, while often mentioned, rarely get the attention they deserve.
Using survey responses from nearly 500 US wineries, McMillan now estimates that 39% of their revenues comes from their tasting rooms and wine sales, including through their subscription wine clubs. For premium wineries, McMillan told Meininger’s, that figure rises to over 70%.
The gross margin on those sales, he reckons, would be around 55-60%, though full allocation of sales, general, and administrative expenses might reduce this somewhat, as would a focus by a winery on Chardonnay and Pinot Noir. Even so, it would still look very attractive when compared to 15-30% gross margins the same winery might expect on sales through traditional wholesalers.
Shocking prices
The average prices US wineries can charge their DTC customers will shock most Europeans too. In all the main California AVAs and in Washington State, the ‘suggested price’ is $50-55. For Napa, it is $104.38, while for ‘other California’ it is $40.37 — still a price many non-US wineries can only dream of. Tasting room sales have, it seems, doubled between 2012-2023, while average fees of $72 for a ‘reserve’ tasting’ are another good source of revenue. As recently as 2014, this experience would have cost just $26.
While many winery visits are still casual ‘walk-ins’, the trend, especially among wineries selling at over $50 per bottle, is towards ‘by-appointment’. Indeed, over a quarter of the respondents to McMillan’s survey only offer this option.
Tasting fees and tasting room sales — which average nearly $200 per visit rising to nearly $450 in Napa — are clearly an attractive part of the business, but the main aim for any winery is to sign up visitors for membership to their wine club in return for an average 17% discount on the retail price of any wine they buy. The SVB report suggests they convert one in 10 visitors into members In Napa, the figure is 16%.
These clubs are the key to the winery business model. The average US winery now banks around $2,700 each from around 1,800 wine club subscribers across the 32 months they are likely to remain members.
Fewer visits
The only cloud on the horizon is that the number of visits fell in 2022 and 2023, after a post-pandemic boom season in 2021. McMillan is optimistic that these numbers will bounce back this year. In any case, there is also the potential for wineries to expand into urban tasting rooms. These may generate 20-56% less revenue, and their growth since 2017 has only been 18% compared to 31% for the wineries. However, he says that they have “hit their stride as a stand-alone arm supporting brand-building”.
The thinking behind urban tasting rooms might extend to pop-up tasting rooms and wine versions of the increasingly popular food-trucks. McMillan told Meininger’s that he “can see how a pop up in that kind of a food truck venue could indeed be useful.” The DTC part of the wine industry, he points out, has yet to start marketing itself outside the states where the wines are produced. While there are plenty of local legal hurdles to clear, the potential this might offer is clear.
Europeans may dismiss this kind of DTC information from the US as irrelevant, in the way they might dismiss peculiarly American data about baseball or firearms. Alternatively, they, and producers elsewhere, might pause to consider whether they might not learn a few lessons from their counterparts on the other side of the Atlantic.
