Friends and Enemies

So, it seems my last post created a request that I look at online wine sales, with a specific nod to VinoMofo.  The tone of that request was not entirely complimentary to the online dealers, but I do think it bears a quick look.

So the wine sales game was all about cellar doors. And local, knowledgeable retailers. If you were lucky, a smart restaurateur.

And then it became about distribution, and sales teams. And relationship building with venues and stores.

Then the experience side of things blew up again – wine tourism. A great time for the wine game, and a chance to grasp your punter by the heart, and let the wallet follow.

And then… Coles and Woolworths became the dominant players.  A game-changer. Collective buying had an entirely new identity. Or rather, two identities. Producers had a route to market on a national scale. Out of that has grown the collective price pressures. Wine exclusivity for one rather than the other. Demands of time, deliveries, and sometimes, shortening margins. But national exposure in the major supermarkets.

Until they became wine warehouses, with an overwhelming interest in ‘own’ brands. How to stand out from the crowd in that pasture sized concrete cavern? Price pressures. Or other agreements… whatever they may be.

And, more recently, the online forum. Cracka. VinoMofo. Winery Lane. Get Wines Direct. Deal-a-day businesses too numerous to mention. The deals are sharp, and the wines are generally pretty smart. Many of these businesses are run by wine lovers, taking advantage of an avenue which requires no bricks nor mortar, and can be often run on a shoe-string.

And we use them. We are all using them. We buy from them as much as we sell to them. We all like a deal, and the world market today loves a deal. There is less brand loyalty (outside of super-premium, global brands), and more snap purchases.

You know what? I wish the industry didn’t need to ‘clear’ wine through any avenue. But occasionally we do. It might be a failed export order, the last pallet of the last vintage, a label change, or just selling through a wine declassified out of the regular labels due to vintage variation (see: Vintage, 2011).  It might be revenue raising, as, at times, cash flow can stall for whatever reason. Or the distributor has gone broke. Or for whatever reason there is. And the chains, and the online businesses provide that channel to a growing market.

In an ideal world, perhaps we would like everyone to pay full RRP for everything, all the time. But the world is evolving, and e-commerce is the name of the game. Ignoring that is extremely dangerous. And stupid, truth be told.

In an ideal world, I wish the prices were not quite so low, but they are. And we need not fling mud at the purveyors, because that pricing is at the very least approved by the brand. A conscious decision has been made to sell that wine at that price. Be it through Coles, Dan Murphy’s, Aldi, Costco, Cracka or VinoMofo. Or even Get Wines Direct. Choices are made. And at the moment? At the moment the smart consumer can get some truly fantastic deals. Ethically? Well, some questions have been raised in every area of the market. But the wines are on the market. And somebody chose to use that channel to the market.

If you want to be smart about it, sell the wine as cleanskins. Or create a second label, in order to protect your brand integrity. Or find another channel. Think around the edges, and make your wine the best deal for a buyer without selling your soul into the bargain. Sell as it is, but know the effect this may have on your brand. Be aware, and – if you are smart – be proud about it . Scream it from the rooftops: “This is my wine! It is great, and this, my friends, is the deal of the century!”

Because then, they might come back and find you for a less bargain-oriented wine.

Oh, and tell your distributors if you are going to trade like this. They deserve a heads up.

The market is more bargain-focussed than some of us might like. But each of these channels is a path to the consumer. Take that path at your own risk, but you cannot say that you are unaware of the consequences. You simply need to make a decision, as a consumer, and as a producer – do the rewards outweigh the risks?

Make a choice – who are your friends in this business, and who are your enemies? My friends are the sellers I use, and the consumers buying my wines. My enemies? Well, there may be a list of people with whom I have chosen to not conduct business. For better or for worse.  I make no endorsement of any of the players mentioned here. I simply see each as a valid path to market. Make your choice, and be proud of it.  This is the world today. It might not be ideal, but it is us who makes the choices.  Choose to be smart.  Whatever that means for you and your brand.

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13 comments on “Friends and Enemies

  1. Mark Gordon says:

    Rampaging, great insights, and we, as a new brand are ‘aware’ of the ‘slash and burn’, ‘discount and learn’ teachings, Being based in Tassie, we are somewhat insulated from mainland retail pressure, both online and off. Tough for the consumer, not to snatch and grab wines on sale or at auction, I often liken this to a riot situation, where they grab whatever is there, even if they have five T.V’s already.

    Long and slow is the way to go…I hope

    • Thanks, Mark.

      And as in my response just now to Andre – many of these channels are not actually discounting. They are a more simple path to market, with fewer middlemen taking a cut, hence the lower sell price to the consumer. But as a producer, with a price point to respect, this needs to examined within the context of the modern market.

      Long and slow could well be the path for you – I hope it works.

      I look forward to seeing some of your wines in the future.

      Cheers,
      k

  2. Something everyone seems to forget is that “RRP” or “full tote pricing” is a product of stacked margins, from producer to distributor to sometimes another distributor to retailer, and then to the poor consumer. In this day and age, we’re skipping a couple of steps, and therefore a couple of margins. So how is it fair or right or pure or ethical or noble to aim to keep your price, as a producer up there? Should you want to get your margin, which you deserve for being a creator of good booze, and then see your precious wines in the hands of consumers for as little as they should have to pay after that?

    Something to think about when preaching about the damage of “discounting”. Could be it’s the only honest reflection of price in this age of direct marketing. Cheers.

    • Absolutely, Andre. And I guess my response was more a reaction to yesterday morning’s twitter ‘debate’. This backlash against channels, be it the majors, or online outlets such as yourselves seems to be rooted in price expectations being lowered. And the consumer sees only the end price, and the potential discrepancy between that and the RRP. There are many middlemen in the wine game – the distributors, the wholesalers, the retailers/on-prem venues before it gets to the punter. At each of those levels tax is also being collected.

      Where VinoMofo and others sit eliminates a number of those middlemen, and I have absolutely no problem with that. It is a valid path to market, and one which in the current world, is often more effective than many others. It is, however, perceived as a ‘discount’ by the end consumer. And the brands need to be aware of how to deal with that.

      In terms of maintaining our prices – and being pure, ethical and noble – whilst skipping a couple of steps? If that is what you have drawn from last night’s musings, I will need to go back over it. In no way am I advocating price protection in an environment where those levels – and the ticket clipping therein – are elided. If anything, I think that I was coming down in favour of your business, and other similar ventures, as valid, and smart channels to market. My only concern was how some brands are bleating about discounting and lowered price expectations, rather than seeing opportunities, and alternative paths to the consumer. In no way do I see myself as a ‘producer up there’. Like most producers, I just want more people drinking my wines.

      As I think you said yourself yesterday morning – you are simply connecting consumers with brands (and wines, obviously). It is that simple. I see no point in complaining about the method, and the fact that there are a terrific number of brands with more consumers, thanks to businesses like yours, is a marvellous thing. I would simply rather those whining about the state of the market either start seeing the good, or get smarter and find another way which may suit their model better.

      Thanks for the response. It is appreciated.
      k

  3. David Bowley - Vinteloper Wines says:

    The time for the standard sanitised rhetoric of the margin compounding middlemen is over.

    What I seek to do, via twitter & other means, is spark a debate between wine industry decision makers of both small & large wineries.

    This wine industry is more than a job to me, it’s a life, a journey, one I want to protect & one I wish to contribute to in a positive way. It is my belief that deal-a-day / rampant discounting may ultimately lead to the demise of fine wine in the domestic market & knowing this, it pains me to see industry stakeholders supporting them (VinoMofo in this case) so wholeheartedly.

    I don’t begrudge Andre, Justin, Leigh & the team for having a go; business is business. What I do have a problem with is publications providing editorial, wineries or distributors providing the wine and support and no one speaking out that maybe this is cannibalistic behaviour.

    Why are we making these guys out to be rockstars?

    Kate, you may choose to sit on the fence, but my side is clear & I ask others to join me.

    • David, thanks for your comments. This is a discussion open to all and sundry.

      However, I am not sitting on the fence. I think that I came down firmly on one side, which happens to not be yours.

      As the producer and salesman for a small brand, with a tiny production, you may not need to take into account the considerations of a larger business. Many of us do have wholesalers, and distributors each taking their cut. Sanitised rhetoric? Would you like me to send you the figures for how a wine reaches its price on the shelf? And we need to be very careful with our pricepoints and market perception. Many of us also have significantly larger productions to deal with, and along with that various issues with which to contend. Sometimes, these channels are the best fit for our needs at that time.

      As with you, the wine industry is my life, and something to which I am attempting to contribute in a positive manner. You are certainly not alone there. I would think that most of us see this as a lifestyle, rather than a job, and as something we wish to better.

      Rampant discounting? This is not merely the province of the wine industry, but the world as a whole market. And it is not the fault of the businesses taking advantage of the open, internet-driven market economy. And without the producers offering their wines up for these channels to market, there would be no market.

      As I wrote, yes, I would prefer that the perceived discounts are less widespread. I would hope that people might learn to appreciate the value in spending more. I also appreciate the fact that via these channels, there are more people buying more wine, from a more diverse series of producers. There is more access, and that is not a bad thing.

      As to cannibalistic behaviour? Well, sure, if you choose to see it as an evil, rather than as an opportunity. There are more people spending, and possibly taking a chance on a style which is not their staple choice. There are more people trying more brands. Some of those are bargain hunters, sure. And some of those are people looking for something new and different.

      I like to see this as an opportunity. It is not one I choose to take advantage of every week, but it is a valid option for many producers. But, in my business, I also have brands and labels targeted to markets. I have on-premise only wines, which will never be seen through these channels. I have premium wines which will never be offered to the chains. I have a chain-only label. And why? So I can look after my customers, be they trade, or the end consumer, and protect labels from market pressures to a certain degree.

      People are still buying premium wine. People are still paying a premium to order your wines from a wine list. I think ignoring the opportunities afforded by various channels – be it online, chain, direct, export, bulk, on-trade or off – is dangerous.

      And as to media fluff pieces, and rock stars? Out of my domain, I am afraid. You know what? People who do well, get feted. You should know that after last year’s Young Guns of Wine media blitz. Suggesting that other businesses should not be afforded the same courtesy is, well, a little hypocritical.

      I see opportunities. And yes, I see discounting, and price pressures. And a widening perception amongst the consumer that wine can be cheap. We should not blame the channel for this – it has been going on in various channels for decades. And the brands choose the price at which they sell.

      Wine is not an elitist luxury any more. And the more, the merrier, I say. At the same time, we have writers and bloggers singing the praises of wines both expensive and cheap, and everything in between. We just need to face the fact that there is more wine, at a broader range of prices, and more avenues by which to reach the consumer.

      We just need to be smart about our own brands, and make the best choices for those brands, and the ongoing development of said brands. What is right for my brands may not be right for yours. And you know I am a fan of yours, and of your wines, and I see where you may not be suited to every channel. But some of us are, and some of us see this as a great chance to get in front of more people. At a price we set.

      You just need to be smart about it.

      Thanks again, DB. I look forward to a long conversation over a beer one day soon!

      k

    • Anonymous says:

      With you Dave.

  4. Zoltan Heinrich says:

    I thought it prudent to add my two-bobs-worth as a consumer.

    Firstly, a great article Kate on a debate that has become more and more passionate recently with the success of the guys of Vinomofo and how they have seemingly revolutionised an industry that has been around for some time, just not as well executed by others. There is clearly plenty on the line for small batch winemakers like David above and his views certainly should not be dismissed as they are very real concerns.

    As a lover and buyer of wine, I say there is plenty of room for both schools of thought. As David is aware I have thoroughly enjoyed his fine wines in the past and am also highly supportive of other small batch and artisan winemakers from my local McLaren Vale. I have also made a number of purchases from Vinomofo over the past few months. Am I sitting on the fence? I don’t think so. My reasons for purchasing with each group are substantially different.

    Vinomofo is a business that sucks you in (and I do say that in a non-disrespectful way) to make impulse purchases of wines at insane prices. On the other hand, buying from artisan wine makers, for me at least, is a decision. A carefully made one based on who’s wines I would like to try, stock, and enjoy with family and friends and given everyday financial constraints. Unfortunately, given the clearly well-deserved price-points, these are not your everyday quaffers because a) I am not a millionaire and b) it would actually seem almost disrestpectful to drink some of these wines without a purpose.

    The question is, does Vinomofo damage the the industry in reducing consumers expectations on what “acceptable” pricing should be and ultimately what small winemakers can charge for their wines so as not to price themselves out of the market? I guess one answer to that would be dependent on volumes. But I mean that in terms of respective volumes. Ie if Vinomofo move 5000 cases a week, and David moves somewhat less, if then Vinomofo increased their volumes to 6000 a week, would that mean David may as well shut up shop because his weekly supply to the market has been swallowed up? I wouldn’t think so. Of course another simpler answer would be that people are smart enough to make distinctions between why a bottle of wine might cost $5 delivered at Vinomofo and why David would charge $40 for a bottle of his fine Shiraz. And I’m not necessarily talking about quality, although this is in many cases a real consideration when purchasing the bargain basement stuff, but also because consumers know that making and selling wine by one guy who’s mates help him harvest will likely need a bigger return on his investment that he never had in the first place. If he makes good wine and good relationships, nobody will begrudge the higher pricepoints knowing this fact.

    With that said, there is also one other aspect to competition, that is often ignored. And it has nothing to do with price. And it is also something that Vinomofo do extremely well, which is why they have been singled out in this debate as they are not only offering bargain basement prices, but also personal engagement. THAT is the biggest weapon of a small batch winemaker to battle the price competition. Relationships sell more than discounting. In my experience, the personal touch is why I keep going back to the small winemakers, who, in growing numbers I am happy to be calling friends.

    Cheers, Zoltan

  5. Interesting to look at models like Rockford (at least with their Basket Press), Noon Wines, Lakes Folly, etc. The Basket Press is $60 (or thereabouts) full stop. It’s $60 at cellar door if you want to buy a bottle and drink it. It’s $60 if you are a retailer and you want to sell if for $90 to make some money out of it. It’s $60 if you are a restauranteur and you want it on your list at $180.

    That’s “pure” pricing. The producer gets what they want to get for the wine and what they feel they deserve, and everyone else works it out for themselves.

    So what’s the “RRP” or “non-discounted” price of a Basket Press? $60? $90? Are Rockford discounting their wine by selling it for $60 at cellar door? They are compared to what you’d normally pay in a wine store or restaurant?

    Take it outside the wine industry for a second – a lot of Australian “normal” pricing was set on account of the exchange rate. Now that’s putting massive pressures on local retailers, given we can all buy a lot of the same things much cheaper online from the US. Eg: A Billabong T-shirt. Now Billabong have gone to great extremes to try to preserve the price of their T-shirts in Australia at $50, when they’re firmly set at $25 overseas.

    Again, what’s the “honest” price? What should consumers pay for the T-shirt?

    I think Dave (and Dave, you’re not alone, of course!) and a lot of people are going to have to re-think this idea of pricing and discounting. You can’t fight the pure economics of supply vs demand, and as supply distribution costs change, pricing will change, unless that item is scarce enough to be driven by demand, over supply.

  6. Wes Gilson - Vinosity Fine Wines says:

    I wonder whether I’m unwise to enter this discussion, respecting very greatly the achievements of both protagonist and antagonist to this argument (you may choose who is who according to your own tastes).

    I represent one producer who uses Vinomofo to pump some volume product – still good quality, but objectively inferior to his branded product – and is very happy with the guys as a distribution channel. It’s reasonably smart business, and he’s been able to keep his branded product completely insulated from any potential blowback from distributors, end clients etc.

    But…I can’t say that I disagree with DB. The online industry is being dumbed down to one of two models: deal-of-the-day, bull-at-a-gate marketing, or pure price/points marketing, based on who can shave the most dollars off the wine with the highest points.

    Add to this the concerted downward pressure on prices being exerted by the duopoly retailers, and I’m left acutely worried that the customer perception of the true ‘value’ of a bottle of wine is being reduced to dollars and points. I’ve watched with slack-jawed dismay, the exact same effect trickling through the restaurant trade, where consumers now expect to be able to get two courses for 2 and bottle of wine for $39. It’s not sustainable, and it will drive diversity and competition out of the market.

    Even many of the larger producers in this business still trade on the various intangible elements of wine – terroir, scarce earth, history, artistry, family lineage – and much as the hard-heads would like to scoff at these, they are the foundations of our wine industry. It’s not an industrial product, but an agricultural one at least, and an artistic one in many instances. The artisans who create their works can only thrive in an environment where the market values what they create.

    I graduated from an Economics degree centuries ago, and in my head I understand the mechanics of the free market. Andre and the Vinomofo guys identified a gap in the market and have exploited it beautifully, and credit to them. It doesn’t prevent me worrying in my heart about the portents for the industry as a whole.

    • Thanks for your comments, Wes.

      And on the whole, I think you will find that I agree with you. I do have concerns about the downward pressures on pricing, and the bargain hunting mentality of the punter.

      But this is not, I believe, something which is able to be fixed. It pervades all markets – shoes, clothes, cars. And given that we would struggle to change it, I think that we do need to be smarter in working within the current market.

      Full points to the brand you referenced – they are being smart.

      And I think writing off a serious sector of the wine-buying community for the actions of the bargain hunters is a little dangerous. There are people out there prepared to spend. And they do. They are not in the market for bargain wine or a meal-deal. And these are the same people to whom we have been targeting our premium products for decades. Apart from those affected by the GFC, and other economical/financial pressures, many of these people are still spending, and building relationships with brands.

      But many have been affected by financial impacts on their lives. So they spend less. They budget better. And for these people, being able to still have access to the ‘luxury’ of quality wine is a huge thing.

      Sure – I would like to see ample respect for brands, for the terroir, the artistry and the legacy. And I think that to a degree that still exists. But now it has the additional burden of financial pressures for many people who may not have thought twice about spending freely in the past.

      We are farmers, and artists, and we would love to see ongoing respect for our work, but perhaps we also need to listen to the market, the customer, and understand their limitations.

      And, as mentioned in earlier posts and replies, it is the brands choosing – for whatever reason – to take these paths to market.

      Thanks, again Wes, for your point of view. Perhaps we can grab a coffee soon?

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