21 Sep Event and Hospitality Constraints Strangling Direct to Consumer Sales Vital to the Wine Industry
This story originally appeared in Wine Industry Advisor.
Across the entire wine industry, there are significant challenges, stated Robert McMillan, executive vice president and founder of Silicon Valley Bank’s Wine Division at the recent forum of Santa Barbara’s wine industry.
Premiumization is the dominant trend, but continuing consolidation of distribution is significantly limiting wineries access to consumers. To address this issue, McMillan stressed the need for direct-to-consumer sales. While direct sales are not necessarily more profitable than through wholesalers, explained McMillan, “it is more about necessity.” However, direct to consumer sales have their own constraints and require an investment in hospitality to attract consumers and make the emotional connection.
“In the past year, I’ve seen firsthand the impact of regulations gone haywire. They are frustrating family winery owners across the country, increasing the cost of doing business and reaching the point where some of the regulations will put family-run wineries out of business. The problem can’t be ignored, and it’s not going away by itself.” McMillan wrote in his State of the Wine Industry 2017 report (p55).
As a small winery producing 1000 cases, Sonja Magdevski, owner and winemaker of Casa Dumetz Wines explained that the only way to reach consumers is directly. “I sell each bottle, one by one, in my tasting room every weekend. Wine is a byproduct of the experience, and I want to share that. I need to connect with the consumer and explain why it is important. I take them into the vineyard, show them the process, show them the soil. That process is vital. That experience is what people are drawn to, and why they come back.”
Francesca “Frankie” Lindley from Sanford Winery & Vineyards agreed that the emotional connection is so important to wine tourism. “We need to give people experiences,” she expressed. “Sales are proportionally greater at our winery than at our downtown tasting room. When guests have an experiential tour, they are that much more connected. Immersive experiences, such as a one-on-one with the winemaker or a walk the vineyard, make them feel more like a part of the community and they come back again and again. They will not get these connections if they just go from tasting room to tasting room to tasting room.”
The wine industry’s increased push to attract visitors to their wineries and tasting rooms has been met with local pushback and concerns of noise, traffic, and environmental strain in many of the most successful wine regions. However, few have had to fight as steep an uphill battle for growth, development and, most importantly, customers as Santa Barbara’s wineries, and it may end up killing a golden goose for the local economy.
Santa Barbara, like other wine regions, relies on winery direct sales more than ever. But at the same time, Santa Barbara has faced immense community pushback that is clearly reflected in the statistics. Santa Barbara produces quality wines on par with Napa, Sonoma and Paso Robles, but the average bottle price of a Santa Barbara wine is $30-$39, compared to the national average of $43. And despite the quality of wines, Santa Barbara ranks near the bottom of average monthly visitors per winery, with only 731 average monthly visitors, compared to the national average of 1,136.
In fact, Virginia leads with 2075, followed by New York with 2051, Texas with 1609, Napa with 1497 and Paso Robles with 1342 average monthly visitors, according to McMillan. While San Luis Obispo County to the north of Santa Barbara receives 1.5 million visitors each year, Santa Barbara County only receives 860,000 visitors annually, 68% of whom are day trippers. Paso Robles sells 73% of their wine in direct sales, compared to Santa Barbara which is at 64%. And while 80% of Napa County wine is sold to tourists, only 53% of Santa Barbara wine is sold to tourists.
The bottom line is that Santa Barbara County is at the bottom, not just in California, but nationally and internationally. Santa Barbara has seen revenue drop 3% and case sales drop 8% over the past three years. It is a common feeling that the county does not understand the value of what the wineries are doing. “Everything we do is pushing people away, but wine is a valuable business that is part of the community,” said Lindley.
Investing in communicating the value of the local wine industry to the surrounding community, and working to understand their concerns may be a viable way forward. Recently Sonoma may have felt the same way after they faced outspoken criticism over the topic of hosting events at wineries.
In January 2016, a survey was commissioned by the Sonoma County Winegrowers to gauge how county residents felt about the local industry. Opinion research firm FM3 interviewed 401 registered voters within the county, they found that the majority (64%) of residents appear to view the industry in a much more favorable light and feel the wine industry is beneficial to the county’s economy, quality of life and environment.”
2016 also saw the Sonoma County Vintners expand their efforts of reaching out to the local community. Faced with pushback from local groups, Jean Arnold Sessions, Executive Director of the Sonoma County Vintners, explained that their goal is to be transparent. The Vintners formed a government relations committee three years ago to work closely with the board of supervisors and “it has been very helpful for our vintners to have one-on-one time with the board of supervisors to help them understand who we are and what we are.”
In addition, the Sonoma County Vintners provide outreach and education to their wineries. “Our wineries want to do the right thing and they believe they are doing the right thing. They want to be good neighbors,” Sessions said. With direct to consumer being more profitable and more traffic being drawn to the wineries, it is important to make sure the hospitality and event departments understand all the guidelines and restrictions.
The economic impact of the wine industry is likely greater than most locals realize. According to the Santa Barbara Vintners, wine is Santa Barbara County’s number one finished agricultural product, and the county’s wine grape crop is the second most valuable agricultural crop. The 2016 Santa Barbara County Crop Report established the economic value of wine grapes harvested at $151,629,764 and 2013 Stonebridge Research established the economic impact of wine annually at $1,700,000,000.
However, half of the total number of grapes grown in Santa Barbara County are shipped away and sold elsewhere, translating to a value loss of $1.28 billion, a loss of 2200 jobs and a loss of $25.8 million in tax revenue, according to McMillan. That is money that could have stayed in Santa Barbara had it not been for the strict regulations and inflexibility from the county, as well as anti-growth sentiment from the community that limits the wine industry’s ability to grow and thrive.
The local community benefits tremendously from a successful wine industry, and faced with distributor consolidation and the necessity of making direct to consumer sales to survive, wineries have to attract visitors. “I believe for county planning, we all have to come to the table to talk,” expressed Jean Arnold Sessions. “We have met with our vocal opposition a few times and have agreed to disagree on issues but recognize that we cannot move forward if we cannot have civil discourse.” Working with the community, communicating the value of the industry, and dispelling misconceptions is becoming a necessary investment for successful wine regions to continue to thrive.
Read the original story in Wine Industry Advisor.