subscribe: Posts | Comments      Facebook      Email Steve

What’s happening to producer-retailer relationships?

26 comments

The conventional wisdom — and it was taken very seriously all the years I was coming up in wine — always was that a winery’s suggested retail price (SRP), which was determined by the producer, was going to be higher than the price consumers could find it at retail. That was because wineries did not want to compete with their own retail accounts by undercutting them on price. That rule was ironclad: thou shalt not undercut your own retail accounts!

I thought that still was the case until yesterday, when I ran into Marcus Graziano. He’s the owner of Capitol Cellars, a retail establishment in Roseville (Placer County). Marcus not only sells wine from his store, one of the best in the Sierra Foothills, he also supplies private buyers throughout the country with ultrapremium wine. And according to him, ever since the Recession, wineries are “destroying retail relationship” by undercutting prices on their websites, usually to their club members, by as much as 50% off SRP.

This really pisses Marcus off. The first thing he told me is that “The wine business is all about relationships.” That traditionally meant that wineries understood the role of retailers, which was not only to sell their wines, but to help promote them, and thus form over time a solid friendship based on mutual interest. The merchant hand-sold the wine, and made a little profit on it, while the winery was able to deplete merchandise through the store.

“But now, they’re screwing me!” Marcus says, passionately. “When Nickel & Nickel is giving more off on their website than I reasonably can, it makes me look like the bad guy.” Same with Rosenblum and Bighorn. “Grgich Hills’ sales guy stopped by to make an appointment to taste,” Marcus says. “I pulled up their website and saw a huge discount, so I told the guy, ‘I have no interest in working with you. I think you guys don’t care about my business.’” The same thing had happened with the Nickel & Nickel account. “I called them and talked to their hospitality person, and explained my situation. She completely understood — but she said she doesn’t write policy.”

Marcus estimates that up to 40% of wineries are massively discounting on their websites.

Marcus is frustrated. His business is still doing okay, because for every winery that he longer does business with, there are others “who still support us.” He mentions Ghost Block and Pahlmeyer, in particular, as producers “who get it. They don’t want to screw me or any of their producers by discounting their wine.”

Still, Marcus seems a little spooked by the times. Direct-to-consumer is the Holy Grail among producers these days, what with the distribution system impossibly choked and dominated by a few giant companies, consumers in a stingy mood, and the future bleakly uncertain for many. The light at the end of tunnel, wineries feel, is direct-to-consumer, especially club sales.

But Marcus warns that that light may be “a disaster.” Wineries need retailers and will for a long time, he asserts. Proprietors who think otherwise — who don’t want to take the time and energy to form and maintain retailer relationships — “are lazy. They don’t want to work with us. They’d make more money charging full retail to their clubs, instead of ruining us.”

Marcus sees his own light at the end of the tunnel. “At the higher end, which is where we work, consumers are returning to speciality wine shops, who appeal to their needs and tastes.”

I’ve tried to penetrate the conundrums on this one. One the one hand, I can understand why wineries would look to DTC as a way out. If you can heavily discount to stimulate your club sales, that must look awfully attractive to beleaguered owners. On the other hand, this discounting has to be hurting merchants, and merchants are a winery’s friend. Like Marcus says, it is all about relationships. So I’m not sure what the solution is. This seems to be just one more example of how topsy-turvy everything is in the wine industry these days. The old paradigms are disappearing, and what will replace them, nobody knows.

  1. Steve:

    Treating people as you’d like to be treated never goes out of style. Being aware of how your actions affect everyone who may buy your wine is a big part of having a successful business.

    The direct to consumer sales stream, while crucial to small wineries like mine, is just one of the streams small brands need to survive. When you decide to play in the retail stream, you have to abide by the “rules” that allow great shops like Capitol Cellars to survive and thrive (and help you in the process).

    At Steven Kent and La Rochelle we make an explicit promise to our wine club members…the wines we make for you…we make only for you. We don’t ever sell those wines to the broad market. The wines we do make for the broad market, generally speaking, are for THAT stream. Assuming the quality of the wine is good and fairly priced, there is a way to appeal to the needs of both of these different buyers.

  2. Hi Steven, that’s a great policy you have — not to sell the sames wine at club and retail. Good for you.

  3. One of the strangest things to me living in the wine country in Northern California is that the U.S. is the only place I have ever visited where the most expensive place to buy the wine is at the winery. We have traveled to many wine regions in Europe and it is always cheaper to buy wine at the winery.

    Many wineries sell their wine at wholesale to restaurants and retailers often at 50% discounts but don’t discount at all to the person that has driven up to their place of business. Many retailers in our area discount from suggested retail pricing set by the wineries and wine club members are upset when they see deals on wines they are paying top dollar for.

    I work weekends at several tasting rooms and many locals come to taste the wines and then go and purchase wines at retail outlets where prices are often much lower. A high end pinot producer in the area recently sent a letter to their wine list members apologizing for the fact that retailers were discounting their wines and offered to refund the difference to anyone that had purchased from both the winery and retailer where the retailer sold it for less.

    I think the whole wine industry has to take a look at their pricing scheme. Buyers in this economy have learned to bargain for deals on everything. Nearly everyone I sell to asks about specials, discounts, free shipping offers, etc.

  4. Hey! I worked with Marcus back in the day – “hi Marcus” if you are reading this. Glad to hear that CC is still chugging along.

    All I have to say is “duh.” One, I never put Wine Club pricing on the website. Two, if I’m running a special deal on a wine for the Club it’s on a wine that is not available to my brokers and house retail accounts (and vice-versa). Three, I check Wine Searcher pretty regularly, and if I see some retailer deep-discounting I will buy the wine myself to get that horrid price (which screws any other retailers carrying the wine) off the web quickly.

    Believe me I get it that many producers are scrambling and desperate to maintain some level of cash flow. But for those of us who make it through this, folks will remember who did their best also to maintain their standards, and who didn’t.

  5. Clay, maybe wineries feel that they can justify charging full retail because the tasting room customers aren’t just buying wine, they’re paying for the whole experience: ambience, personal attention from the pourer, education, etc.

  6. Steve Boyer says:

    It is sad to see the massive discounting that is being offered by some of the larger “cult” producers from Napa. The sad part to me is that the wines were so obviously overvalued to begin with that these huge price cuts can be offered now that the average consumer has chosen (been forced by financial reality) to spend less per bottle than a few years ago. I can understand how a retailer who has spent many years helping wineries build brand equity and build a loyal customer base, being upset when these same wineries suddenly show the real value of the wines through such massive discounting.

    In the local market here, Nickel & Nickel (just to name one brand) is being offered at slash and burn wholesale pricing, and not just to past loyal purchasers, but to anybody and everybody. Each and every brand has the prerogative to set their own pricing (sometimes affected by wholesaler policies as well) of course, but the brands that are cutting prices so drastically (or offering buy one get one case deals etc.) will soon discover that their brand equity has been devalued permanently.

    The lesson seems to be very “emperors new clothes” in nature. The market will always determine the value of any product, and the market is letting us know the real value of these wines. For years we have been told that these wines were of a certain value because they were the benchmarks, because they were the trendsetters, because they were the best… Meanwhile prices just kept going up and up. Now that the market has forced re-valuation, we can see these ideals as nothing more than marketing and sales talking points.

    The slash and burn approach to pricing is certainly moving boxes, but is is certainly not building brand equity and customer loyalty. Unfortunately, the ones to suffer from this policy are the smaller producers that previously had set realistic price points and are simply trying to maintain that level. Many buyers here refuse to even consider wines unless there is a huge discount being offered, regardless of quality or previous price point. Why would they buy lesser known wine X which will require hand-selling, when they can just buy N&N (or any of the dozens of other big discounters) which will fly off the shelves at the new price. The tough part of this, from a buyers perspective, is knowing/guessing which label is next. It is difficult to want to buy anything over a certain price point when next month the same wine could be half off and now you are left sitting on inventory (hmm… housing prices for 100, alec) that is worth less than you paid for it.

    Mr. Heimoff you ask very pertinent questions… as for what is next? My hope is that buyers both at the wholesale and consumer level will stop buying based on name recognition and spend more dollars rewarding the producers (small or large) who have always given good value in the bottle or are starting off doing so.

  7. Mr. Graziano ought to get a clue. Small producers, even or especially wineries like Grgich because of their production quantity, are struggling. The Great Recession has taken its toll. Retailers should understand that if wineries can’t offer Internet or tasting room deals, they can’t survive this downturn and the Capitol Cellars of this world will have fewer wines to hawk (which could be a good thing, I suppose). Capitol Cellars offers plenty of wines that don’t have the two price situation; don’t begrudge those few that do. Reference: http://bit.ly/94BR5l

  8. Morton Leslie says:

    To me the rules of never undercutting the retailer and always selling to them thru your wholesaler are ironclad. It’s like a wedding vow that you never break. In good times and bad, in sickness and health; even in a recession when expensive bottles become hard to move. You expect that relationship to hold, that you will help each other. So, who was the first to break their vows? I don’t have the answer, but I do know that is an increasingly rare retailer who will go out, promote, and actually hand sell that delicious wine of yours that somehow only got 90 points from Parker and sells for $50. If there were more of the latter, these rules might stay ironclad.

    Another contributing factor to the demise of the rules… maybe retailers like Marcus, who pay attention to these things, are rare. Perhaps most true wine merchants, who provide that special degree of service to their customers, are too busy trying to stay afloat to notice the transgression. And the big stores like Costco, BevMo, Argonaut, or Applejack? Do they pay attenton to such details or do they just have a plethora of SKU’s that they display and ring-up? Is their anyone at the corporate level who appreciates your loyalty?

    The good news for Marcus is there is a lot of good wine out there and if he truly wants to help build some brands, he will find some loyal partners.

  9. Most of the retailers I’ve dealt with have always personally liked my sauce, but they said it wouldn’t sell as their clients like fatter, higher alc wines with more fucking oak as “that’s what sells”. Therefore, it’s tough to have an once of love lost to those retailers who ran among the herd, not wanting to disturb the scores and rating boat. Not knowing Mr. Graziano, I wouldn’t put him in the category.

    Besides, retailers are often 90-120 days late with payment, even after getting the 42-50% off and then maybe the check will arrive with a post date of two weeks from then… More than three occasions has this happened.

    DTC is the ONLY future for small wineries. There is no room for us in a supermaket of markets… That is unless you “hit the lotto” with some ridicules score you parrot over and over, put prominently on the webpage, include in all of your marketing material and showcase in your emails. Yeah, then you’ll grab the attention of retail number monkeys.
    With DTC marketing, the money is posted to our account THE VERY NEXT DAY.

    Forget it, they can keep their archaic way of wine marketing.

  10. Randy, thanks for a forthright comment!

  11. Steve,

    At Grgich Hills, we are a little confused about Mr. Graziano’s claim that he checked our website and we were discounting our wines. If he had gone to http://www.grgich.com and clicked on Wines/Current Releases, he would have seen we offer one special a month on our website (usually something a wine store would not carry, such as magnum, a vertical, etc.). All other wines on our website that he supposedly checked are listed at full suggested retail price. We would like to see the discounting that he says we are offering.

    I talked to our sale rep in the area, and the price we would have offered him, if he had not become abusive, apparently screaming at him, is the same price we offer every other account in California.

  12. Hey, what about assessing export market opportunities? I read something about a “California Wine Export Program” in the Wine Institute website.
    Many economies like BRICs, South Korea and Southeast Asia, withstood this crisis much better than the US. And by going global even small wineries can minimize cash flow volatility and eliminate credit risk.
    There is, however, one sine qua non condition for exporting: competitive pricing.

  13. I am a retailer, but I understand why wineries have to do what they are doing. I have been in the wine business for the past decade and I have to ask who said there is loyalty? We are all in business to make money. Why should a producer have to sit on product because retailers can not move what they have and the pipeline is backed up. I would rather see the winery do the discounting then see it in the hands of a retail level discounter. If I have a higher price then the winery that is understandable by my customers. It does not damage my reputation. The same wine at ABC Warehouse Discounters Library discounted below my cost just makes me look like I am trying to rip people off and that harms my reputation. To Randy, preach on brother! I have posted before about the stupidity of buyers who only want scores. I still do not use them and have built a nice reputation for finding great wines that are off most stores radar. So do not give up on us retailers so quickly.

  14. Great topic Steve.

    As a winery I have to navigate this topic all the time. If I sell to this retailer that discounts, will that cause another retailer to drop my wine? (often yes) The funny thing is I sell at the same wholesale price to everyone but its the retailers markup that determines whether or not my brand is damaged. This is mostly out of my control.

    Retailers make back their money for selling 8 bottles out of a case. The last 4 bottles are their profit. Shouldn’t they be able to decide how much profit they are willing to take?

  15. I’m a very small winery and a newer one at that (4 years old) and I find Randy’s comments lamentable. Yes I need DTC business, but to undercut the retailer shows bad professional ethics. Randy’s negative feelings about the retailers are also sad.

    This isn’t to say that a one a year pre-release offer to the best club members shouldn’t approach or beat a retail price slightly(including shipping), but to just be out there undercutting is a short term decision that the winery will regret in the future.

    While I take no pleasure in the difficulties of other wineriers, I do think that this downturn will show who is in this business to stay and who never should have entered the business in the first place.

  16. David,

    Believe me, it’s not sad story over on tis side of the fence. I have anywhere between 8-10 retialers I deal with at any given time mostly becuase I am friends with them and can call or text them and say, “where’s my money!”. For the most part, my unappreciation for retailers stems from their lack of desire to carry wines that are unique and also their inability to hand sell unique wines that moght not fit some easily identifyable, marketable product.

    They are frankly lazy. It’s so easy to blurb, “WE 93″ than telling their story with passion, how the grapes are grown, why they place the wine in old barrels and why the wine is aged twice as long as others, etc… that makes a compelling story that makes people want to take the wine home and try it. That’s retail showmanship. These cats in retail shops either don’t get it, or as I precluded to earlier, they’re lazy asses who probably should be behind some federal office desk like the SEC downlaoding porn or something;)

  17. Oh Relationships…. As a guy that has been in the retail business for 27 years now and currently owner of MHWS here in Denver. I say let the winery do what they want on there online store or at the tasting room or wherever. They want to lower the prices on the wines and let them.

    Now on relationships. The only thing I have ever asked for is a thank you, a note, a voicemail hell a text that says “thanks for the order would be nice” Wineries have chosen not to pay attention to the product after it has left the Distributors door (may be different in wine country).

    If i owned a winery I would be the “thank you” king and I would not have enough wine to discount out of my winery or on my online store….Retailers love selling wine… The wines that appreciate them!!!

    Our business is up 35%!! Why? Because we thank people for coming in the door….(BEFORE THEY BUY ANYTHING).

    Its easy folks… comon

    Keith Miller
    The Winery Group
    WineguysTV.com
    MHWS

  18. Keith, you’re right, a nice “thank you” goes a long way. Thanks for the comment!

  19. Peter, export is expensive – each country is different (much like the US) and one can only hope to get paid. (Not just BRIC). And it takes different labels, travel, agent, bribes (known as facilitation payment in US laws) to get the stuff off the ship/dock….
    So, Randy’s lament is not so terribly off target from what I hear and I only hear a tiny bit. (Same late/failure to pay happens with barrel makers, Italy is a terror.)
    Is this different from any other industry? I sorta doubt it but don’t know.

    Now, when are we going to hear from the silent majority, Steve? (Distributors with 7,000 wines on a list in a flyover state).

  20. Kathy, although it is a fact that there is still quite a bit of bureaucracy in international trade, agreements between buyer and seller overcome their concerns about credit risks by relying on a letter of credit for payment. The letter of credit replaces the risk of the buyer with that of their banks. It is this ability to shift the risk of non-payment from the buyer to their bank (in the eyes of the exporter) that makes the letter of credit such a popular and powerful payment tool.

  21. What amazes me continually is the winery pie in the sky vision of what their desired RSP should be, vs. the reality of the competitive set and what the customers will pay. I have continual problems with “brand management” issues centered around “the retail price at XYZ account is too low…what happened?” Then, when the wineries have inventory stacked to the ceiling at their warehouses, which inevitably happens because it was too expensive in the first place… they blow out the wine and let the chips fall where they may. Then, when they are out of distributor billback money, the program ends, inventory backs up again…repeat this scenario until nauseous. Or, the deep secret deal for restaurants only that perpetuates their hallucination of what the wine is really worth, Or, the even deeper deal they give to the big box stores/Chains so they can make a 45% margin, all the while “protecting” the RSP. The real problem is fake price point driven logic that they base their financials on, and are hell bent to see succeed, because they told BofA they’ll be able to sell their wine at XYZ FOB, and certain retail price points, and got the money based on those projections. Meanwhile, back at the ranch, they have to face the music that maybe their beloved single vineyard hoo hah wine with all the new oak fancy package is in competition with wines at literally half the price, imports included. In fact, imports are beginning to control this competitive set, for now anyway.
    RE: Lazy retailers…are a thankfully dying breed. The successful ones are passionate, involved and educated, as are most of the people that shop in their stores. You cannot succeed in the retail wine business without some serious education, guts and determination to wade through thousands of ill thought out winery marketing plans and mediocre wines, to find and develop the brands that your customer wants.
    RE: Slow pays for the smaller wineries…this is a huge problem that has ditched more than a few small brokerages, but it seems to be confined to the minor, mostly new (also underfunded) retail and restaurants. Established accounts for the most part pay on time, hence the crushing competition to develop relationships with them.

  22. The distinction — as I see it — is between a customer and a prospect.

    Once someone has purchased directly from the winery (tasting room, online, etc.), he is theirs to treat as they choose. Knowing what it takes to acquire a customer, they should do everything they can to keep him — special pricing, special allocations, special blends, you name it.

    Prospects, on the other hand, should not be enticed with discounts. That’s bad for the brand, bad for the trade, and undermines the relationship the winery has with its existing customers. (“Hey, I thought I was special! Why is everyone getting the same price I pay?!”)

    That said, discounts are but one lever. There are ways to create offers that, for lack of a better word, disguise apples-to-apples price comparisons.

  23. I’m kind of skeptical that retailers wouldn’t buy Randy’s wines because they’re too original. In my experience, a unique wine is WAAAAY easier to sell than a common one. People will buy whatever you tell them to buy, as long as you make them feel that you believe they will enjoy it. It’s so much harder to build a following over something common anyway- e.g. we have so many Napa cabs that are good, my basis for a recommendation usually is based on how much I like the sales rep who sells it to us, and sometimes how much I like the label, because really, the customer will be happy with whichever. But an original wine- you can always get excited over something like that, tell the story, and the customer usually feels super special that you think they’re enough of a connoisseur to appreciate something special like that.
    They don’t REALLY care if it’s a grape, or a region, or a style they’re unfamilliar with. The recommendation is always enough. The only thing they’re truly inflexible is the price- which makes me wonder if Randy’s wines are more expensive than they should be. I totally agree with Tracy- I think winemakers live in a bubble sometimes about what their wines are worth. Of course relationships are important all over, but when push comes to shove the relationship with the customer is usually going to trump the relationship to the winery- if I think I can get them better value for their money some place else, I’m probably going to.

  24. I’m getting in on this super late, but I just wanted to share something that happened earlier this year. I work for a distributor and one of my retail accounts which had recently had a wine dinner with be an unnamed winery (and actively supported their wines) forwarded me an email from the winery’s wine club. My retailer said they would be ceasing to support the winery. The problem? The wine was so heavily discounted it was actually a fraction of what we paid for the same wine as a distributor. The winery made it seem like we were hosing our clients. When we brought this to the winery’s attention, they gave the usual business speak reactions, but eventually honored a similar price to us, which would still have to go through our markup and a retailer markup, but it was better than nothing. When I tried to pass on the new reduced price to to my retailer, they told me to get lost. Eventually, other shops jumped at the opportunity (it really was an incredible steal), but the winery lost a good customer. The amazing part is that in this day and age of connectivity, the winery thought they could do this without anyone noticing. If they had just passed along the savings to start with, the wine would have quickly worked its way through the system and business relations wouldn’t have been harmed (they would have probably been improved). I know this is an isolated incident, but when discussing who’s to blame for the woes of the wine industry, we too quickly focus in on one or two levels (mostly distributors), but bad business is bad business no matter where you fall in the food chain.

  25. Theo, amazing that the winery thought they could get away with that. Thanks.

  26. Uhhh Kim… $22-32 bucks retail for 95% of my wine. No, not too expensive. I totally disagree that unique wines sell easier or that retailers want to take on unique wines. Total BS. As the grower, winemaker AND marketer/sales guy, I have the “unique” position to be hands on in all three divisions of winery operations. I assure you that most retailers I have dealt with are indeed interested in tasting and drinking wines of lower alc, less oak, and no silly scores or medals or stars, but they really don’t want to or have the ability to hand sell these small production wines.

    Try and market elegant 12.5% alc Cab Sauv and Pinot Noirs among these melt-your-face type of bullshit California Cocktails that seem so prevelant in today’s wine market. Yeah, bring these delicate wines into a shop right after a guy serving up big, viscous, jet fuel aged for a mere 9 months with 80% new oak. Good luck. The retailers pallet is fried. Pallet fatigue after two wines.

    However, getting this balanced type of wine in the glass of an end user, they get it and ultimately join the club and send a case home. Must explain my average of 28% annual increase in club membership over the past four years. Or maybe they just like the brown dog lying in the corner of my TR.

    Again, DTC is the ONLY future for small wineries.

Leave a Reply

*

Recent Comments

Recent Posts

Categories

Archives