Overall, the viticulture industry is doing well. Sales of premium wine (more than $20 a bottle) is increasing steadily and California is reaping the benefit of that popularity because If you buy or consume wine in the United States, it is most likely coming from California. There are more than 3600 wineries in California alone, which produce 90 percent of all the wine sold in the United States, according to the National Association of American Wineries.
The lion’s share of that market, however, is located in Napa and Sonoma counties. Multiple marketing sources place the marketshare of those two counties between 50 and 70 percent of the total market. Because of that volume, Large Napa and Sonoma wineries can produce enough product to supply retail stores. Smaller wineries with less volume rely primarily on direct sales of wine, at the winery or through wine clubs, the primary driver of revenue. Outside of those two counties, direct sales is 90 percent of the revenue, on average.
To see how this reality affects consumers, Footwasher Media sent a survey to more than 1100 people who stated they had visited a wine region in the past five years, with 30 percent responding. The respondents, between the ages of 21 and 50 with men and women equally represented, had all visited a winery in the past five years. The questions were:
- Do you remember where the winery was?
- Do you remember the name of the winery?
- Do you remember what variety of wine it was (not red or white)
- If you remember the name of the winery, have you repurchased their wine through a retail outlet or a wine club?
All of the respondents could remember where the winery was and a two-thirds could remember the name of the winery, but a less than half (44.4 percent) could remember the variety of the wine they sampled and 66.7 percent never bought another bottle of wine from the winery in the past five years. So for every 10 new customers, only a little more than 3 were returning.
That last response should be disconcerting to smaller wineries reliant on direct sales. The wine industry, as a whole, is somewhat recession proof with sales holding up rather well through economic downturns, but sales shift to low cost wines (between $4 and $10 a bottle) and away from higher end selections (more than $20). If two-thirds of your business is going away after the first impression, you are going to have a hard time surviving when the rest of the economy tanks.
What may be more disturbing is that millennials, who are replacing boomers as the primary economy drivers, prefer craft beer and spirits to wine and as boomer retire and die off, the primary market for the wine industry will also go away unless the wine industry can start attracting and retaining the millennials.
Looking at direct sales, Napa and Sonoma pretty much blow away every other region when it comes to tasting room sales. Statewide, the average purchase is $99, whereas in Napa, the average is $216 and Sonoma $120. Outside of those two counties purchases drop below $70.
Our research found that most wineries make use of wine clubs to bolster direct sales and larger wineries in Napa and Sonoma average about 2500 members per club. That’s a healthy return-customer list. However, outside of those two areas, average club member ship drops below 100. Both Napa and Sonoma winery clubs show a larger member attrition rate than the rest of the industry but members of clubs in Napa and Sonoma send almost three times more on wine than members of clubs outside of those areas.
There are many reasons for this discrepancy, including lack of effective marketing practices and the relative invisibility of any other viticulture area. Most marketing services purchased by wineries are winery-focused. The content, whether online or print, is about the winery and how wonderful each one is without identifying a single differentiation. Likewise wine associations and guilds lack anything in their content to differentiate one region from another. Every operation has pictures of beautiful scenery, stock shots of wine bottles and glasses and lists the most recent awards for their products. Without differentiation, however, customers will choose what they already know to be a solid choice: the wineries of Napa and Sonoma counties.
Experienced wine lovers can cite products from multiple areas, but those are not the customers that actually drive profits. The individuals that are occasional wine consumers make up the bulk of business and they focus of what is available in retail or where they can go for a vacation, which is well supplied by Napa and Sonoma.
To be able to survive the vagaries of our economy, the wine industry outside of those two counties need to rethink marketing practices and begin differentiate themselves from their competition and give customers a reason to do business with them.