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