Thursday, October 21, 2010

Discounted, High End Wines..A Match Made In Heaven?

Last night, Paul Mabray of Vintank sent me a Direct Message on Twitter asking my thoughts on a service he and his team rolled out, called Deals From the Vines. Essentially it's a Facebook-contained flash-sale site. Since Facebook introduced the new "Groups" feature, you can make a group private and allow any member of that group to invite their friends. Only members can see what's posted on the group page which aids in keeping things (relatively) private.

What's that mean to you, the wine consumer? Flash-sale sites like CinderallaWine (and others) essentially offer big discounts on expensive wines, to help the wineries and distributors move inventory. Some charge fees to the wineries, Deals From the Vines does not. There are variations to the business model but they're all predicated on the notion that there is a glut of wine on the market and not enough consumers willing to pay for it...At normal retail prices.

Flash sites will either buy a specific quantity of wine from a winery, or become the middleman between winery and consumer. They then sell the wine at a much reduced price for 24 hours, or until it's gone, depending on which site you're on. Consumers can see prices reduced by as much as 60% per bottle. You can easily see the benefits to wine drinkers. Exposure to new wines, saving money, and buying more wine to name a few.

Wineries, however, don't necessarily benefit in proportion to the consumer. Here's where I get interested in the concept and why I think Deals From the Vines might be the wave of the future in flash-sale sites. If you're a winery trying to move some wine and are willing to do it at a cut rate, you've got some decisions to make. Now before we get too deep, remember that I'm a blogger and not a winery owner, winery accountant, winemaker, etc. Just a blogger. So far.

Back to the issue at hand, moving your wine to the consumer (theoretically moving it to as many consumers as possible) and ensuring they're happy with their purchase. Here are questions that I thought of as possible barriers to entry for any winery considering a flash-sale site.

1. How much do we (the winery) discount our per bottle or per case price?
2. Do we risk alienating existing customers who've already paid full retail price for our wine?
3. What happens next vintage, when we want to sell our current releases at the full price?
4. When the economy improves and consumers are ready to buy more (and more expensive) wine again, will we look a) cheap b) arrogant or c) disingenuous for selling our wine at 40% off previously?
5. Since we're not upsetting the established sales channels as much as we're creating new ones, will there be any backlash at all?
6. How, if at all, can brand dilution issues affect us?

I know there are more questions and all the above do have answers. I merely present the six above as points of discussion.

Business strategy at each winery would take care of question one. The winery would be under pressure to provide a significant discount or else the flash site wouldn't take their business. Precedent has already been set, the accepted norm is between 30% and 50% per bottle, off the suggested retail price. If you, the winery, want to move wine, this could be a way to do so provided you're willing to see your product at prices that you charged 15 years ago. Sites like CinderellaWine and Deals From the Vines will name whatever price you tell them to as well as their discounted pricing. This helps show the customers that they are in fact getting a good deal.

The risk of alienating existing customers and creating backlash, questions two and five, would seem to me to be dependent on the brand itself. What is your position in the marketplace? I suspect that some wineries will forgo using flash-sale sites because they see themselves as too prestigious as well as being afraid of antagonizing their existing bloc of customers. Then again, if your existing customers don't find out about your flash sale, your winery won't suffer much. Also, the sheer volume of prestigious wineries popping up on flash-sale sites means your winery won't be alone. I think the Vintank crew is going to succeed in their endeavor because they're keeping the sale prices unsearchable, via the privacy of the Facebook group. Therefore, only people who are on Facebook AND in the group AND want to check out the deals will engage. This would appear to minimize the winery's exposure, ensuring that mostly "deal-centric" consumers saw the reduced pricing versus a wider audience who just happened to google your winery.

To me, question three is where things can get dicey. Paul mentions in his blog post that there is a two year cycle whereby wineries reduce production during poor economic times to help dry up any excess inventory that might be on the market. He says we're at the end of a two year cycle, with indications of an economic upswing. If production has been cut and excess inventory has had two years to sell off, wineries might be looking forward to selling their wines at "regular" prices soon. What's the best way to keep current customers while attracting new customers, after you've been featured on a flash-sale site? I believe there will be backlash, there's no way around that. However, to me this is tempered by the fact that so many consumers still buy their wines at brick and mortar stores and of those that buy online, most of them do not pay attention to flash-sale sites. In essence, they're not going to know that the bottle of Far Niente

In question four, I think I may have used some hyperbole with my choice of words. While I doubt anyone will email, call, or write to a winery accusing them of being any of the words I used, those terms could get tossed around in casual conversation between wine drinkers. Still, as I alluded to in a previous paragraph, if the average buyer doesn't even know you dropped your prices for 24 hours, they won't react. The only risk is from the person who did buy your wine at 40% off but doesn't want to pay the regular price. Since they wouldn't have purchased your wine had you not discounted it in the first place, you're not losing a sale though. That is the safety net for wineries that choose to participate in Deals From the Vines. Since "deal-centric" consumers are more likely to buy your discounted-yet-still-prestigious wine, you've made a sale. Hopefully they like it enough to rave to their friends about the wine. Hopefully those friends are willing to spend the money you'd like to get for your wines.

Question six must be answered at the winery, by the winery. Lowering the price of your previously expensive wine can lower your brand image. Since so much of the wine consciousness is driven by bottle price, the effects of cheapening your wine can drop your brand perception a notch or two in the eyes of a casual wine buyer. While this might not be the precise definition of brand dilution, it can leave you in another price group, one of lower price (and perceived lower quality) wine. So your brand's niche is suddenly diluted, which will affect your future sales. I'm not quite sure if the question was phrased correctly though, and this answer has given me the most trouble in composing.

I think Deals From the Vines will work for a while, maybe six months to a year. I doubt that it will work beyond, in its current iteration, because the supply of prestigious wines sitting unsold will be gone. The wines that are discounted will become less well-known, without much history or pedigree. In essence, I think the consumers who use flash-sale sites will start to see vanity-project wines for sale, albeit at deeply discounted prices. Silver Oak, Far Niente, Sassachia and others won't need to cut prices to sell every bottle they make. This goes for every flash-sale site, no matter how old they are. This also goes for companies like Trader Joe's, that are buying millions of gallons of good wine sitting on the bulk market and putting their own name on the juice, then selling it at a big discount. Once the market goes up, I strongly believe things will go back to "normal".

Then again maybe the wine market has been reset. Maybe there will be a big backlash against high priced wine, against the perception that you should pay a premium because of the label and pedigree. I doubt it though, if 2007 California Cab and 2009 Bordeaux pricing is any indication, there are still multitudes of people willing to pay top dollar for high end wine, or should I say, top label wine.

I encourage you to check out the Facebook group as well as Paul's explanation. I feel this is an interesting topic, flash-sale sites will evolve over time or simply disappear. The next year or two will be telling.

Beau Carufel


  1. I like the idea of a small-scale way that wineries can distribute excess inventory like this. When I see "rare" brands show up in places like Costco, I get concerned about their future potential - although if it attracts entirely new customers, everyone wins. I'll be interested in seeing how this goes, and I know that Paul and the Vintank crew know what they are doing. Thanks for sharing the info.

  2. Nice analysis, however I don't think the flash sale sites will go away any time soon. There are many reasons to use a flash site and not all of them are because you have excess inventory.

    Consider that wine.woot has been around for several years, and started and thrived before the current downswing. Flash sale sites are a great way to put wine in the glass of people who may have heard of your winery, but haven't quite taken the plunge of making a purchase. Some of our best brand ambassadors today made their first Twisted Oak purchase on a flash site.

  3. wow, so much to answer (I have to do it in 2 parts and typing too fast to edit in this small box so please excuse any errors). What a great look and I have some perspective to the post but need a bit of time to answer. I've answered all your questions below but this type of program is not just for clearing out excess inventory, it is sometimes about introducing a brand to a new set of customer at a discount because you don't have the distribution or location to make connections.
    1. How much do we (the winery) discount our per bottle or per case price?
    That is a business decision tied to how many customers you have in your DB and how much inventory you are sitting on or both. But the hard reality is that any money you make above FOB - 20% (the amount you sell your wine to a wholesaler plus the cost of sales) is found money ESPECIALLY if you acquire a customer
    2. Do we risk alienating existing customers who've already paid full retail price for our wine?
    That is true and that is ALWAYS a risk with any brand that discounts. Howevever, almost all brands discount. You may buy a bottle of wine in the store, and three weeks later see the same bottle on sale. Wine buyers understand that discounts occur. They happen in all industries. What I think is actually worse is when a customer buys a bottle of wine off a wineries website at full retail plus full shipping and then sees it online for far less with cheaper shipping. That is more damaging IMHO. The former is sales programming and expected.
    Also this is a closed network or "Flash sale" and is gone before you know it only to be replaced with the next deal.
    3. What happens next vintage, when we want to sell our current releases at the full price?
    Assuming that the customer enjoyed the wine they bought, with more customers in your database, you are more likely to buy again. The key is that you capture and then NURTURE those customers between the sales. Customer service is key and those who practice it better will win in the long run.
    Also since this is a closed network sale or flash, it's visibility is very minute vs. the general customers of the winery. This is true of all flash sale sites.

  4. 4. When the economy improves and consumers are ready to buy more (and more expensive) wine again, will we look a) cheap b) arrogant or c) disingenuous for selling our wine at 40% off previously?
    A few things:
    >>>this assumes enough customers saw the deal to be effected (unlikely due to the closed sale)
    >>>that they remember after a year the price
    >>>people look for deals always and understand that at times you get lucky. I don't think they hold the winery to a forever commitment.
    >>>gaining new customers helps ensure that if some customers (who generally are NOT brand loyal) leave, they have new ones that they can relate with
    >>>The story for many of these brands is that they don't NEED to discount, they WANT to discount in order to get their wines into the mouths of consumers because they believe in their brand so much that they are betting profits on it. This is in essence "a paid sampling program." The customer pays a discounted price to try a new wine. In a sea of over 250K products, being a new choice sometimes requires investment to get the customers attention. God knows they have enough selection.
    5. Since we're not upsetting the established sales channels as much as we're creating new ones, will there be any backlash at all?
    Since it is closed, it is less likely but if the brand is in any kind of distribution and sells to retailers there will ALWAYS be a chance of upsetting a wholesaler or retailer. the conversation then becomes about how good of a partner the winery is or what performance failures/challenges this causes, or if that partner is not performing, the winery can hold out their sales plan and tell the wholesaler that they missed it and the winery had to move inventory to another location. More importantly (and the conversation I like to have with wholesalers) is that by acquiring more consumers my DTC program becomes more healthy returning positive EBITDA to them that allows me to do better market support to help them sell wine in their market. DTC is good for wholesalers, they just won't recognize it. (sorry for the run on sentence)
    6. How, if at all, can brand dilution issues affect us?
    Brand dilution assumes one has a brand. However, we are working on new ways to help wineries use this medium in unique ways to help them maintain their brand equity. Holding firm on price and not investing in customer acquisition are expensive propositions so it becomes a business decision. However, the risk and exposure are small (as an example, assume that Deals of the Vines gets to 20K members - a decent size - and every one of them actually looks at the offer, that is just a drop in an ocean of wine consumers).
    Thanks again for such a rocking analysis. Much appreciated and look forward to a glass of wine together soon.

    All my best,

  5. Paul thank you very much for taking the time to post. After reading through your answers, I think my conclusions ended up matching them for the most part.
    From what you're saying, two things jump out at me. First, the onus is in fact on the winery to provide great customer service to the people who purchase their wines (talking within this closed system), in order to nurture that budding relationship. If they succeed then the questions I asked become largely moot.
    Second, you're assuming the consumer is a reasonable person who at least has a basic understanding of a "deal" and that group of consumers is going to be, by nature, relatively small. Both of these factors combine to limit exposure for the wineries that participate in yours (and other) flash-sale sites.

    Great discussion, I love it!

  6. Jefe, you make a very interesting and valid point given my questions. The scope of flash-sale sites is broader than just moving discounted wine and I can imagine a lot of wine consumers have been exposed to new brands through such sites. It would be very interesting to see some numbers behind who buys, what they buy, and how often they re-buy. I think that's a good way of determining the level of success of any given flash-sale site, from the perspective of the winery at least.

  7. Interesting discussion Beau. One thought that really came to mind is the effect on established customers. I, like most people, am kind of bummed to see huge discounts on stuff that I paid retail for, but it's mitigated in two ways for me. First off, I don't mind throwing extra money toward retailers I respect, or wineries I like. I know they're making some extra dough off me, but in my mind I'm happy to pay that premium to support channels I'm attached to. But, the big factor here is that you can't ever COUNT on getting your premium wine of choice at a discount. For sure, there will always be SOME premium brands popping up for deals. But, you can't count on YOUR wine coming up. Even if you find a great deal on it once, you pay full price on release to guarantee that you get any! Because when the economy picks up, and as wineries grow in popularity, they won't need to flash out inventory. Maybe I'm missing something, but I haven't seen any Harlan online for 40% off the release price.

  8. Great. So the Deals From the Vines link goes to a closed group on Facebook? Sorry, but I thought the idea was to do real business in a mutually respectful way.

  9. Christian, can you elaborate? I'm curious as to your viewpoint. If it helps, ANY member who is already in the Facebook group can invite people on their friend-list to join the group.

  10. It's simply that Facebook doesn't seem to me to be the place to do business in a profitable way. And I'd rather not be forced to join a group to serenade several hundred-or-thousand members based on chat. Social media isn't that serious yet but I applaud your efforts and wonder how may of those member have made a purchase via the platform. And I wonder how many wineries can make such a medium work in a way that DOESN'T dilute the ideals they've cultivated. $45 zinfandel is still $45 zinfandel; the consumers who realize this don't expect to grab it for $7.99 (say, cost), standing by to watch their beloved wineries go under. It's the winery's responsibility to understand micro- and macroeconomics because those factors don't turn on a dime. Overstock wholesalers aren't much more than predatory hooligans, I say unabashedly. But I respect every person nonetheless. So, namaste.

  11. Great comments! Thank you for elaborating, I appreciate your viewpoint. For what it's worth, I have no professional relationship with Wines From the Vines, I was merely asked if I had any opinion on this (and other flash sites) by a friend. I felt it merited a blog post.

    Cheers Christian, thank you for your contribution!