I’m old enough to remember the days when the only acronyms that really mattered in the wine industry were AOC, DOC/G, QmP and maybe VDP. Today, all of these have been kicked aside by a new trio of letters invented in the US: DTC. To read many commentators, switching to selling Direct to Consumers is the answer to all the wine industry’s woes.
Quite how this is supposed to apply to a winery producing 100,000 cases and currently distributing through supermarkets, is another matter but, for a smaller business, there is a very good argument for building up a commercial relationship with the human beings who are going to drink your wine, rather than, or at least as well as, the traditional middle-men. Especially if, as in the US, you can get these people to sign up for a wine club subscription worth, according to the recent Silicon Valley Bank DTC report, $2-3,000 apiece, at prices that offer a far better margin than are obtainable by selling through wholesalers and retailers.
The churn factor
But there’s a five-letter problem with this model: churn. Sooner or later, most normal wine drinkers get bored of drinking the same kinds of wines from the same winery. Clever wine club software has enabled wineries to personalise their offer to each member, and this has reportedly helped to extend the relationship by as much as a year. But churn is still an issue, and tasting room staff and the digital marketing team are tasked with permanently having to recruit large numbers of new customers, simply to keep the ship afloat.
This, in turn has also, my friend the genius digital marketing consultant Polly Hammond believes, been made harder by the development and expansion of wine E-commerce. Unless one is talking about bottles from one of a small number of limited-production wineries, nobody needs to drive to the winery to sign up for a subscription any more.
Satisficers and maximizers
This gives me the opportunity to reintroduce a concept of which I am very fond: the division of the world between maximizers and satisficers. The former group are constantly on the lookout for the best quality, the most exciting and possibly newest products. Satisficers, by contrast know what suits their needs, and live with it. They’ve been drinking Lavazza or their supermarket own-label coffee and driving a BMW or Ford for as long as they can remember. It has never let them down, so why change?
Many people using these terms imply that satisficers are content to put up with second-best but, I don’t think it’s that simple. For many, I believe the satisfaction includes not having to shop around – precisely the activity that gives maximizers such a buzz.
If you accept my definition, winery-run subscription wine clubs – like distributor-run wine clubs such as Laithwaites, wine.com, Cellarmasters/Langtons, Hawesko and Naked Wines – are all basically aimed at satisficers. Their customers may enjoy new experiences, but they’re not that keen on seeking them out.
Which brings me back to the winery wine clubs and their churn problem. Unlike the distributor clubs with their huge and ever-changing ranges, however good their algorithms, individual wineries are always going to struggle to keep things fresh.
Time to join forces?
One solution might be for a group of like-minded wineries to get together and develop a broader offer across their ranges, quite possibly including imports.
Now, there are two obvious constraints that would need to be considered – though this would vary from one market to another. First there’s the physical matter of logistics: how, and from where, are the wines to be distributed? And trickier still, how could mixed cases ever be assembled? Second, there’s the thorny issue of data. A customer buying Sauvignon Blanc from Winery X may not want their data to be shared with Winery Y.
However, I can see ways of clearing both these hurdles, and I certainly think the concept worth considering.
Collective marketing
But DTC, however important it may be to future distribution, is only part of the picture. The low margins the wine industry enjoys - compared to spirits - mean that any form of marketing can be a struggle. Once the costs of sending out a few samples, entering some competitions, glad-handing the media, attending a trade fair and giving promotional funds to distributors have been taken into account, there's not much left in the kitty.
The idea of collaborative marketing is far from new. At its most banal, it’s on show every time a region puts together a collective area at a fair or consumer event - and, arguably more interestingly, in the shape of Germany’s quality-focused VDP association. But there are also smaller groups like the Primum Familiae Vinum - First Families of Wine – or its Australian counterpart, or the Douro Boys in Portugal or Vinectar in Bordeaux.
The model of combining forces in selling at a trade level has also long been demonstrated in the UK by Hatch Mansfield, an agency whose shareholders include Louis Jadot in Burgundy and Errazuriz in Chile.
The department store model
So, to return to my collective DTC model. to put the idea in a nutshell, it’s like moving from owning a single shop from which you sell your wares to having floorspace and shares in a department store.
And despite the fact that some producers are already doing it or something very like it, I’m sure there will be plenty of people who’ll give me a far longer list of why commercial DTC collaborations can’t be done, or will be ‘too hard’. And, for businesses that are currently thriving without any need from anyone outside their current distribution chain, that attitude may be totally appropriate. If it ain’t broke…
However, for a great many producers in the wine industry, especially the small-to-medium sized enterprises, broke could be an increasingly relevant term. So, maybe, for them, it’s time to look outside their own little box and consider the notion of strength-in-numbers.
The views and opinions expressed in the Devil's Advocate pieces are those of the writer, and do not necessarily reflect the views or positions of the publication. They are intended to provoke discussion and debate. If you would like to offer your own response to this or any other article, please email the editor-in-chief, Anja Zimmer at zimmer@meininger.de.
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