What is your staff doing to WOW! customers in the tasting room?

Last week I attended Viticulture 2010 in Rochester, New York.  The event takes place every three years and is geared toward vineyard managers and winery owners.  This year there was a lot of talk about the state of the economy and how wine and grape-related businesses can best position themselves during our current tough times.  A theme that came up during one of the presentations that generated a lot of discussion amongst participants was the level of impact that tasting room staff customer service has on customers’ purchase intentions and the amount they spend in the tasting room.  The speakers,  Dr. Miguel Gomez, Assistant Professor of Applied Economics and Management at Cornell University, and Annemarie Morse, graduate student within Cornell’s Food Science & Technology, Enology Program, talked about the importance of customer satisfaction in the tasting room and how taking a customer from satisfied to highly satisfied can increase that person’s chance of buying by 20% as well as spend $10.00 more on purchases.  The speakers claimed that customer satisfaction in the tasting room should be a priority for winery owners and tasting room managers because of the high price retailers pay for losing existing customers:

• The cost of attracting a new customer is five times the cost of retaining one
• The average company loses 10% of customers a year
• A reduction in customer defection increases profits
• Customer profitability tends to increase over time

The speakers went further to say that through their preliminary findings they discovered that when winery owners think about making customer satisfaction improvements in the tasting room, focusing efforts in making sure tasting room staff is present, helpful, knowledgeable, and friendly has a bigger impact on increasing sales than anything else.  Wow, I thought that this was a pretty big statement to make considering some of the other areas the speaker talked about were such significant things as signage, lighting, displays, cleanliness, price, quality, ambience, discounts, cost of the tasting, and number of wines.  From my customer perspective, I think all of the above areas are important to my overall experience in a tasting room, and winery owners should pay attention to each of them.  As I sat through the talk though, I couldn’t help but think about a few recent experiences I had where it was clear that management was focusing its efforts on moving its staff from good customer service to exceptional customer service and how this move ultimately affected my perception about each of these companies.

1. Employees at a local hotel were warm and welcoming when I checked in.  Upon checkout, when I went out to the parking lot I discovered the staff had brushed off all the cars in its parking lot after a big snowstorm.
2. The company that designed my printer now offers online chatting technical support.  Not only did the company understand and fix my problem right away, its staff is trained to be prompt, greet its customers in a friendly manner, and use words such as how else can I be of service,  I appreciate your patience, and it was a pleasure assisting you today—all while communicating on line!
3. After giving me great service by bringing me items to try on, an employee at a local clothing store made sure I was comfortable with the high price of an item I was planning on purchasing before she rang me up. 

In all of the above examples, the staff started out with high-quality customer service. As a consumer though, I expect good customer service from all businesses.  What’s great about the hotel, computer company, and clothing store above though was that each company’s staff went above and beyond good customer service and gave me a memorable experience.  They all had a wow factor that made a lasting impression on me. 

When I think about winery tasting rooms, customer service and the interaction between tasting room staff and customers is such an integral part of the selling process from the moment that people walk in the door to the moment tasting staff close the deal and sell wine that it makes sense that level of service is such a big driver in purchase intentions and dollars spent.  As a customer, I then ask what can you do to wow me?  What can you do to take me from a level of being satisfied to the level of highly satisfied?  What fun and creative customer service ideas can you and your staff come up with that will be unique and memorable enough to set you and your winery apart from the other wineries on your wine trail?  I hope you enjoy the fun challenge!

Join the dialogue!  What do you think?  Do you think improving the level of customer service in your tasting room has a bigger impact on customer buying intentions and actual purchases than other changes?  What feedback do you get from your customers?  Please include your thoughts in the Comments section above.  Want to contact me directly?  You can email me, Kelly Richards, at info@wineryprofitability.com.

The use of relevant financial ratios helps winery owners accurately evaluate their business performance.

Business analysis helps winery owners and managers evaluate their winery’s financial performance throughout the year. While there is no universal agreement among experts on which ratios to use in a financial analysis, this posting represents the key financial ratios that I think are most useful to winery operations.  I have divided these ratios into categories of retail sales, wholesale sales, cost control, inventory, capacity, financial leverage, and profitability.

Retail Sales

I have already profiled these ratios in my previous blog posting, Tasting Room Profitability:  Sales Data Analysis.  Please check out that previous post to see why number of visitors, number of purchases, average transaction size, and conversion rate are very important retail sales data.

Wholesale Sales

Most wineries use a distributor to fulfill their wholesale sales.  Other than top-line measurements (growth in wholesale sales or growth in case sales), one really has to pay attention to cost of goods sold, the cost of sales, and the gross margin received through the wholesale channel.  Key measures to consider are the following:

• Wholesale marketing—are you tracking depletions, buybacks, and promotions? 
• Wholesale cost of sales—if you are not using a distributor, are you tracking delivery costs? 
• Wholesale gross margin {Wholesale sales – cost of goods sold – cost of sales} 

Cost Control

Almost every vintner worries about the cost of goods (grape costs, packaging costs, barrels, chemicals, yeast, etc.).  The real culprit in cost overruns, however, is labor cost.  Labor costs for a winery operation can run higher than 30% of sales.  The vineyard is even worse since the cost of grapes produced in the vineyard can run as high as 80% of the value of the entire crop!  So when I look at cost control measures, I typically focus on the following points: 

• Labor as % of sales {total labor/gross sales x 100} 
• Vineyard labor as % of grape value {vineyard labor/total grape market value x 100} 
• Winemaking staff costs per case produced {winemaking staff costs/total cases produced}
• Cost of Grapes from Vineyard (per ton) {total vineyard costs/total tons harvested}
• Retail staff cost per case sold {total retail staff cost/retail cases sold}
• Wholesale staff cost per case sold {wholesale staff cost/wholesale cases sold}

Inventory

One of the hardest parts of running a winery is that inventory is a black hole, sucking up almost all the available cash.  The trick is to move the inventory quickly enough to sustain the cash flow of the business.  These measures give us a clue about inventory management:

• Inventory turnover ratio {Cost of goods sold/average inventory}
• Average age of inventory {365 days/inventory turnover ratio}
• Years of sales in inventory {Sales value of inventory/annual sales}

Capacity

Capacity refers to the volume of wine sold and how that relates to overhead costs and capitalization of the winery.  Overhead costs are those costs not directly tied to cost of goods sold (e.g. interest, depreciation, taxes, insurance, repairs, etc.).  These ‘hidden’ costs are what get a small winery in trouble, since these costs are no different at a 1000-case winery as they are at a 7000-case winery.   To make sure a winery’s capacity is in balance with its overhead costs, I keep my eye on these measures:

• Overhead costs per case sold {overhead costs/total cases sold}
• Overhead expense ratio {overhead costs/gross sales}
• Asset turnover ratio {gross sales/total winery assets}

Financial Leverage

Winery businesses are very capital intensive—meaning you have to spend a lot of money in order to get started and established.  No matter what business you are in, I always say that the least money you need to get started, the better.  Financial leverage ratios let managers know how debt commitments impact their operations.

• Working capital including inventory {current assets – current debt}
• Working capital excluding inventory {current assets – inventory – current debt}
• Term debt and capital lease coverage {(net cash income + interest)/loan & lease pmts)}
• Market value debt to asset ratio {Total Assets (market value)/Total Debt}

Profitability

Honestly, if the above measures are in line, then profitability is the result of good performance in all the other areas.  That being said, the profitability measures that mean the most are simply net profit (in dollars and percent) and net profit per case sold.  The only other tweak is that you should look at the profitability of each enterprise (winery, vineyard, events, etc.) and each distribution channel (retail, wholesale, off site sales, internet sales, etc.).

Financial analysis provides valuable insight into a winery business, but it does have a drawback—the analysis must ultimately be compared to similar businesses in the wine industry.  In this manner, financial performance can be ‘benchmarked’ against a standard of performance.  If you would like to take your financial analysis a step further and participate in the Winery Benchmark™, please visit the Winery Benchmark page for more details.  You may also call me, Steve Richards, anytime at 1-800-929-7102 or email me at info@wineryprofitability.com if you have any questions.

A winery staff that "owns the problem" increases customer loyalty and retention.

What is the customer service culture at your winery?  How do you winery staff members feel about solving customer problems?  Do your employees own the problem and seek out solutions from beginning to end?  Or if the problem did not start with them, do they tend to pass the buck?  In this article I’ll relay a recent positive experience I had with an employee of a local business and share what I think from my customer perspective were the positive steps he took to ensure I felt good about his company and would therefore keep coming back.

This past November my sister flew in for a holiday visit.  Knowing she likes arts and crafts, I decided to take her to a museum close by where for a small fee the staff lets visitors make art projects.  Christmas was coming up and she thought her project might make a great gift for my parents.

Our day at the museum was great.  We had a lot of fun using our creative side.  We even took pictures of the experience.  My sister thought, “Wow!  Mom is going to love this.  How unique!”  When we were finished with our projects, a staff member came to retrieve them from us.  The projects first had to be fired in a kiln and then either shipped to customers or customers could pick them up at a later date.  To ensure there were no mix ups, the woman also took our ticket stubs with our names on them and lined them up with the projects.

A few days later I returned to pick up the items.  I told my sister I would ship her project directly to my parents.  Excited to see how they both turned out, I immediately un-wrapped them.  “Hmmm,” I thought.  The gift labeled with my sister’s name didn’t seem like the one she made.  When I went back inside, the woman at the front desk explained that it must be the right gift since it lined up with the right name tag.  “Hmmm, I thought again.  Well, I guess Mom is going to get the gift.  It’s just don’t think it’s going to be the one my sister made.”

After speaking with my sister and confirming the project I had was indeed not hers, I decided to give the museum a call.  I relayed my situation with the person on the phone, and she said someone would get back to me.  At this point I honestly didn’t think I had a chance at all in getting the project back.

But this is where the story changes.  Not too much later an employee from the museum’s shipping department called me back.  He apologized profusely for the situation.  He listened to me give my details of what happened.  He said he wanted to do everything he could to see if he could track down the item.  Again he apologized.  He then said he would look at all of other projects that had not been picked up from that day.  He even said if he had to, he would call the other customers from that day that picked up their items to see if they had the wrong gift.  Next he said he would call me back by the end of the day to give me a status update.

Well, the museum employee did in fact call me back that day.  Luckily, another woman left a voicemail to say she had just received her project in the mail, and it was not hers.  The employee called me and excitedly relayed the voicemail and told me that he would call me again when he had reached her to get a better description of the project.  He then explained that once he got a positive description, he would have a box shipped to me.  I was to wrap up the project I had, and he would call UPS to have the box shipped back to him. 

A day later the man called me to say that the project the woman had was indeed my sister’s.  He then took my parents’ address and shipped the project directly to them.  Amazingly my parents got my sister’s gift in time for Christmas!

So what did the employee from the museum do that made me feel so good about him and his company?  Below is a list I put together:

1 – The employee owned the problem

What I found refreshing about this employee was that it didn’t matter who was responsible for the mix up.  He didn’t go into how it happened or name other staff people’s names.  He was just going to own the problem himself and come up with a solution.

2 – The employee sincerely apologized for the mistake

Again, it didn’t matter whose fault it was.  The employee apologized on behalf of the museum.

3 – The employee actively listened to me

The man let me explain my situation without interrupting me.

4 – The employee did what he said he was going to do

He said he was going to call me back by the end of the day, and he in fact did just that.

5 – The employee saw the problem through from start to finish

The man didn’t just discover what was wrong and then pass parts of the solution off to others.  He stuck with the problem himself to ensure I would end the experience with a positive feeling about his company.

6 – The employee had a good plan in place for fixing my problem

He really took charge and explained step by step what he and I should do to get the project to my parents.  His confidence really showed which made me feel like he and the museum were very professional.

What about your winery employees?  Would the members of your staff have acted the same in a similar situation?  Do you have clear policies and procedures set up to handle common problems?  Please share your thoughts in the Comments section above.  Want to contact me directly?  Please email me, Kelly Richards, at info@wineryprofitability.com.

Free-standing display tables help bring products to customers

Are your wine and wine gift displays reaching your customers?  I’ve written about merchandise displays in past posts, but this time I mean it in the literal sense.  Are your displays near where your customers stand?  Or do your customers have to walk to your displays?  In this article I’ll talk about how the placement of free-standing display tables positioned throughout a winery can help encourage customer spending.

A couple of weeks ago I visited a winery that had a very large and spacious tasting room.  The tasting bar was positioned within the center of the space while gift display shelving lined all four walls of the room.  While I enjoyed my comfortable wine-tasting experience, nothing within the display units was close enough to catch my attention and make me want to walk over and browse the shelves.  What if, I thought, the winery owner moved some of these gifts away from the walls and out onto free-standing tables closer to the tasting area? 

Bob Radcliffe Jr., President of Display Dynamics, Inc., in his merchandising presentation, Merchandising 101: Anecdotes & Methodology, claims that “Point-of-Purchase [a place where sales are made] is the most critical component of any successful marketing campaign because it exists at the point of ‘convergence.’  At no other instance are people, products, $$ in the same place.”  Radcliffe highlights the retail giant Gap as a good example of a retailer that understands POP merchandising.  “Gap Stores’ trademark is to initiate contact between shopper and goods.  That merchandising policy dictates that the displays are wide, flat tabletops; not racks and shelves.” 

When I think about my experiences shopping at Gap, I know I gravitate to this store because of how easy the designers make it for me to purchase the retailer’s products.  As soon as I walk in the shop, the clothing items are right there in front of me to look at, pick up, and examine prices.  And when think I am done looking and ready to try on items, there are always more display tables with more merchandise to grab as I walk to the back of the store to the dressing room area.

So how would a winery owner decide what kind of free-standing tables to use and where to place them?  Before making any merchandising decisions, Radcliffe suggests observing the flow of traffic.  Try spending some time in one place and taking note of what you see.  How do people move?  How are people reacting to your displays?  As a winery owner, I would suggest also thinking about what image you are trying to convey at your winery.  What look would compliment your wines and wine products?  A couple of antique-looking tables?  A few modern pieces?  Once you have purchased one or two tables, experiment by putting them in different locations with different displays.  You may have to try a few different ideas to get your display tables working for you, but I bet you’ll learn a lot and have a lot of fun in the process!

What do you think?  We would love to hear your thoughts in the Comments section above.  Have a question or comment you would like to send me, Kelly Richards, directly?  Please email me at info@wineryprofitability.com.

Vicious cycle #1: Management Time Drain

Winery owners and manager have a lot of tasks to manage on a daily basis.  Some of these tasks are unexpected—causing even more work each day.  One very busy winery owner put it to me this way:  “I miss having time to think!”  The preponderance of daily tasks causes a vicious cycle—as one becomes busier, the occurrence of unplanned problems becomes more likely, resulting in a drain on management time.  I call this vicious cycle #1.

Vicious cycle #2: The Do-It-Yourself Dilemma

In order to make more time for management, one has to delegate some daily tasks.  This delegation can be one of the hardest tasks for any manager—trusting someone else to do something you know you could do better!  Surely, if you let other people do some of the work, they will mess it up!  If you have hired and trained the right people, then this thought process is an illusion.  If you never give others responsibility for tasks, they will never learn how to do them right.  This can make the management time drain even worse.    

Success Cycle #1:  The 80/20 Rule for Managers

A very efficient manager once told me that the effectiveness of her daily work follows the 80/20 rule: 80% of the meaningful work gets done in 20% of the time.  In her case, 20% of the time was spent organizing and planning, while the remaining 80% of the time she spent doing “busy work” such as answering phone calls and solving small problems.  In order to stay efficient, she made it her primary focus to constantly shave down the busy work (or make it more efficient) so that she could concentrate more on the effective work.   

By taking a time out each day to plan and organize your business, you will reduce the possibility of unplanned problems—reducing the amount of busy work in the long run!  I call this success cycle #1 and it is the opposite of vicious cycle #1.  

Success cycle #2:  Effective Delegation

Effective delegation breaks the do-it-yourself vicious cycle.  If you are imaginative, you can also see how effective delegation can also solve the management time drain vicious cycle.  If the opportunity exists to delegate tasks, take it.  This is a critical piece of success cycle #2.

How do you take a time out?

The missing key ingredient in many small and mid-sized winery operations is time.  In order to have enough time for management, it has to be a priority and you have to schedule time for it, otherwise it will remain elusive.  However, when you start viewing management problems in cycles, you begin to realize that there are a lot of vicious cycles that exist simply because the solution takes time to implement. 

One of the focuses for the 2010 Winery Benchmark will be work routines and task efficiency.  How long should certain jobs take?  How many personnel are required?  What are industry best management practices?  For more information on this topic, consider becoming a participant in the Winery Benchmark program.

Have comments or questions you would like to share with the group?  Please include your thoughts in the Comments section above.  Want to contact me directly?  Please email me, Steve Richards, at info@wineryprofitability.com.

Are your display decorations helping your customers get in the holiday spirit?

It’s that time of year again—the winter holiday season.  Once again my favorite stores have jump started me into thinking about what to buy my friends and family.  It’s amazing how as a consumer my brain shifts gears once I see the sparkles and shimmers of wintery merchandise displays.  As I navigate through aisles of red and green, I can’t help but wonder what wineries can do to take advantage of the holiday season and what for many retailers is the biggest shopping time of the year.  In this article, I’ll talk about what some of the big market research companies are saying about this year’s  holiday season.  I’ll also include a list I pulled together from my customer perspective of what I think are some simple ways winery owners and managers can use this information in their tasting rooms.

First, let’s define the “winter holiday season.”  In its 2009 Holiday Retailer’s Survival Kit for retailers, the National Retail Federation classifies the “winter holidays” as the months of November and December—in total 55 days.  “For many retailers, the holiday season can represent anywhere between 25 to 40% of annual sales.  In 2008, holiday sales represented 18.5% of total retail industry sales.” 

Is your winery ready for Black Friday and Cyber Monday?

Included in the “winter holiday” time period is Black Friday, traditionally the day after Thanksgiving, and the day that many retailers go from being “in the red” (in debt) to being “in the black” (making a profit).  To many shoppers, Black Friday is known as the kick-off to the holiday season and one of the biggest days for sales and promotions.  Black Friday ranks up with the Saturday before Christmas as the busiest shopping day of the year.  The Monday after Thanksgiving, now called Cyber Monday, a term coined by the NRF in 2005 after retailers began to see a clear online consumer trend in 2003 and 2004, is also a busy shopping day.  Over the past few years retailers have seen consumers who were not able to purchase items over the Thanksgiving weekend or did not find what they were looking for, shop online the Monday after Thanksgiving from home or work to find bargains.

Now that we’ve defined the “winter holiday season,” and its importance to many retailers, what are some of the largest retail market research companies forecasting for this year’s holiday sales as we continue through our current recession?  (Click here for a list of major market research forecasts and surveys put together by NRF.)  Here are some of the things they are saying:

Nielsen Company, 2009 Holiday Forecast, 9/30/2009

Households continue to focus on “essential gift giving” such as staple consumables, candy, beverage/alcohol   and entertaining at home.

The NPD Group, 2009 Holiday Survey, 10/13/2009

 I think consumers will be looking for the right gift, rather than the most extravagant or expensive one. 

Miller Zell, 2009 Shopper Behavior Survey, 1/12/2009

 68% of shoppers are staying home versus eating out

 5 out of 10 shoppers have brought special occasions or family nights into the house

So how can winery owners and tasting room managers use the above information during this year’s winter holiday season?  Since

Are you helping your customers visualize practical uses for your wine and wine gifts this holiday season?

 many consumers are looking for practical and essential gifts as well as bringing special occasions into the home, wineries need to help customers visualize how their products meet all of these criteria.  Steve and I recently visited a tasting room that was selling apple wine.  At first the tasting room manager offered samples of the wine cold just like all of his other wines.  He later began offering his customers the wine heated and mulled.  Sales increased dramatically once he offered the wine this second way.  While the manager explained to us that people really liked the taste of the wine heated, I’m curious how many of these customers also bought the wine because they could visualize using it for a specific purpose.  I know I always buy cider during the winter months and look forward to serving it to friends and family.  Fall and winter parties just aren’t the same without it.  I’m guessing this hot mulled apple wine is for many of this winery’s customers a practical and essential winter party item that puts an interesting twist on an old tradition.

Above I talked about how Black Friday and Cyber Monday are important retail days during the winter holiday season.  In fact the National Retail Federation in its 2009 Holiday Survival Kit claims that the whole weekend—Friday through Sunday—is big.  In 2008 consumers spent an average of $372.57 during the weekend.   The NRF also claims that 1 in 2 retailers said Cyber Monday was the biggest sales day last holiday season and that 76% of online shoppers know the term “Cyber Monday.”

What can wineries do to gear up for these important days?  How about creating signage within the winery as well as on your website that talks about how consumers can avoid mall crowds on Black Friday and Cyber Monday while getting great deals on certain products?  You might include a flyer with each receipt about your specials for these days.  Are you in contact with your customers through email or an electronic newsletter?  If so, don’t forget promoting the convenience of online shopping and your specials on these days as well as the rest of the holiday season through these forms of communication as well.  

What do you think?  What winery shopping trends have you seen during the winter holiday season?  How about on Black Friday or Cyber Monday?  Please include your feedback in the Comments section above.  Want to contact me directly?  Please email me, Kelly Richards, at info@wineryprofitability.com. 

Are you a member of the Winery Benchmark?  Be sure to check out Steve’s latest password-protected article Changing Wine Buying Behavior where he talks about the value in promoting wine as gifts as well as safe ways to bundle and discount during the holiday season.  Want to learn about how membership in the Winery Benchmark can help you save money and drive business to your winery?  Click here.

I recently attended an excellent conference held by a number of combined Farm Credit Associations.  At the conference, I listened to some great economists who tried their best to prognosticate the future.  I took home three messages:  1. the recession is over; 2. the government stimulus package is helping to mitigate the effects of the recession; 3. growth in the future is going to be positive, but slower than it was prior to the recession.  I thought I’d pass on some of the details of these findings and then give my best shot at predicting future wine sales trends.

The recession is over!

A recession is deemed over when the economy has reached the end of its contraction (or the bottom of the trough).  I think a better way to phrase this is “things have stopped crashing.”  And just because the economy has stopped crashing, it doesn’t mean things will get better right away.  Personally, I think it is too soon to tell if our economic troubles are completely over—mostly because the government stimulus package had such an effect on our economy in the third quarter.  The graphs that the economists were showing clearly demonstrated that it is entirely possible that economic improvement in the third quarter was due almost completely to government spending.    

Unsteady growth going forward

The billions of dollars spent propping up the economy are going to disappear eventually.  And as one of the speakers put it, “What happens after the training wheels come off?”  The consensus seemed to be slow economic growth through 2010 and into 2011.  However, there is the possibility of a ‘double-dip’ (a short period of growth followed by another decline), depending on events in the next six months.  The key factors to watch going forward will be: 

1. The unemployment rate (always lags a bit, but for how long?)
2. Consumer savings (reduces consumer spending)
3. First-time homeowner mortgage foreclosures (we’re not in the clear yet)
4. Housing values and commercial real estate values (have we hit bottom yet?)
5. The amount of small bank troubles due to bad commercial real estate and first- time mortgage holdings (they aren’t too big to fail).
6. Government spending, taxation policies, and health care reform (this is a very critical time for our politicians to make the right choices)
7. Possible risk-premium demands from foreign debt holders which can affect the Federal Reserve federal funds rate (which will then passed down in higher bank interest rates).

What does this mean for wine sales? 

Wine sales are fairly dependent on personal income (or people feeling like they have more money to spend).  Wine sales continued to rise through September 2009, but which wines were selling?  A lot of the discussion in the wine periodicals is about what price points are selling and if there has been a fundamental shift downward in wine price points. 

I would argue that the buying down phenomenon is due to the way we typically market wine—in tiers.  Low to moderate priced wines are normal or inferior goods and high-end wines are luxury goods.  So as income (or perception of income) rises, demand for inferior goods falls.  Demand for normal goods rises, and demand for luxury goods increases faster than demand for normal goods.  So when personal income falls, you get the picture of the wine industry today. 

Will this change?  My bet is on people’s perception of their personal income and how the seven factors above effect this perception (also, don’t forget how the local economy can affect things in your state).  To add to this discussion, let me summarize what news tidbits I have read recently:

• Wholesale markets have suffered due to wholesalers reducing inventories and restaurants going out of business.  The decline in restaurant sales may have already bottomed out.
• Wineries planning on high growth levels got stuck with excess inventory when the growth rate in wine consumption slowed.  High-end wine sales slowed a lot faster than wines in the lower price points.
• Grape growers are experiencing the most pain from the inventory problems.  The downward price pressure is showing up here the most. 
• Imports haven’t kept up with domestic wine sales growth, thanks to the weak dollar and the growing buy-local trend (Australia has really suffered, but I’d still watch out for South American wines).
• Consumer buying behavior has changed, but the $9.99, $14.99, and $19.99 price points are still good (and have always been good).  Now they are better for those producers who were producing in this segment before the recession. 
• Just like the housing market, there was a bubble of sorts in the wine market that is now being corrected.  After fifteen straight years of wine sales growth (and corresponding income growth—with a hiccup in 2001), things were bound to slow down a little.    

My view on what trends to expect in the future: 

• High-end wine consumption will come back (to a degree) if there is not a ‘double-dip’ in the economy or a problem with the stock market.  My leading indicator will be the unemployment rate.  Also, keep your eye on income growth for households.
• People are paying more attention—if you charge more money, you’ll have to pay close attention to your product quality and differentiation. 
• The media has made it cool to save money.  In fact, it has been somewhat cool to be ‘cheap’ with other products for years (thanks to big box stores and other factors), now it is headed toward the wine industry.  Try to buck this trend.  This doesn’t mean that all wineries should try to compete at low price points.  It just means there is less room at the top. 
• Our next big wine drinking generation, the millennial generation, is more product savvy—mostly due to their incredible ability to quickly access information.  Don’t try to fool them.
• There will be winery and vineyard consolidation.  As with any industry that is forced to produce products at lower prices, there must be efficiency gains through increasing the scale of operations and driving down overhead costs.  Similar to any industry in flux, the pressure will be on the middle-sized operation.

National trends are eventually reflected in the local economy.  What trends are you seeing in your state?  Please comment.  Winery Benchmark participants are encouraged to check out the trend report that is available on the Winery Benchmark Participants password-protected page (due in November, after the harvest reports are all in).  If are not currently a participant in the Winery Benchmark, check out the Winery Benchmark page for details on how you can join.

Halloween.  It’s not just for kids anymore.  Lately more and more adults are getting in on the fun.  Maybe it’s because Halloween offers adults a sense of escape and excitement.  But what does Halloween have to do with wineries and selling wine?  Just like other top-selling holidays, Halloween offers winery owners and tasting room managers the chance to increase customer spending.  In this post I’ll talk about how from my customer perspective, I think  incorporating Halloween into wine displays could increase wine sales.

According to the National Retail Federation, Halloween is the sixth-largest spending holiday after Winter Holidays, Valentine’s Day, Easter, Mother’s Day, and Father’s Day.  While many of the higher spending holidays cited above are days when customers purchase high-priced gifts for friends and family, over the last twenty years or so, Halloween has grown in popularity among adults as a day for parties and celebration.  Have you noticed in the last decade or so that Halloween decorations seem to be getting more sophisticated?  I walked into a local Michael’s Craft Store the other day and was amazed to find a full assortment of lawn and home decorations that could turn anyone’s house into the Bates Motel.  I’m not kidding.  There was a life-sized Frankenstein, a three-foot motorized spider, skeletons, and full-sized tomb stones.  Martha Stewart has even started her own Halloween product line that can be found in craft stores along with a special Halloween issue of her popular magazine.  Stewart is not the only one to jump on the Halloween hay wagon.  Other popular retail magazines including This Old House, Better Homes and Gardens, and Woman’s Day have all devoted issues to Halloween this year.  Many of them have key display locations in grocery store check-out lines.  Their covers grab readers’ attention by boasting to have over a hundred fun ideas for Halloween parties and celebrations.  These smart retailers are big drivers in Halloween’s increase in popularity and consumer spending.  I know as a consumer, I can’t wait for late August and early September to roll around because I know I will be able to come up with something new from ideas from these magazines. 

Again, so what does Halloween have to do with selling wine?  I will argue there are two connections:  First, I believe merely telling the story of Halloween throughout your winery and wine displays will bring excitement and a sense of escape to your customers–making them stay longer and therefore spend more (see my June 2009 article on this topic).  Second, showing your customers how they can use your wine during Halloween parties might also increase spending.  Martha Stewart does a great job of showing consumers how wine can be a part of their parties in some of her displays in her Halloween issue this year.  On one page she shows three spooky skeletons in what appears to be a cobweb-filled library.  One skeleton is reading a book, another is holding a bottle of wine, and the third is holding a wine glass.  While her idea is a great one, I don’t believe you have to spend much money on this display.  You also want to make sure you help your wine stand out not detract from it.  Stewart’s skeletons retail at $149.00 each–see what I mean about Halloween decorations getting more sophisticated!  You might try going for almost the same effect with a skull instead of a skeleton.  Instead of library books, you might find some of your other retail gift items could be incorporated.   I suggest experimenting by going low budget the first year and gathering customer feedback and sales data for the next year. 

On another page in this year’s special Halloween issue, Stewart again demonstrates ways consumers can have fun with wine.  She shows a picture of a silver tray with three bottles of wine and a couple of wine goblets.  Each bottle has a different frightful label:  “Witch’s Brew,” “Swamp Cider,” “Goblin Grog.”  Again, with this idea I would go low budget.  Instead of adhering custom labels right from the start and running into inventory problems later, you and your tasting room crew might get creative.  Consider enlisting some employees’  help in brainstorming ideas to increase the sale of the wine surrounding this display without spending a lot of money.  What about the idea that if your customers purcase two or more bottles of this wine, they will get these bottles with complimentary Halloween labels you and your staff adhere on the spot or include in their gift bag?  Again, I believe Halloween has a lot of retail potential.  As winery owners and tasting room managers, if you show your customers how they can incorporate your wines into their festivities, I bet you will get them purchasing your products.

For the National Retail Federation’s latest consumer research on Halloween spending, click here.

What do you think?  Do you think Halloween is an opportunity to increase consumer spending at your winery?  What have you tried in the past that did and did not work?  Please share your feedback with the rest of the group in the Comments section above.  Are you a member of the Winery Benchmark?  Click here to access the Winery Benchmark Participants: More Halloween Display Ideas page for more useful and inexpensive Halloween display suggestions.  Have a comment that you would like to send me directly?  You can reach me at info@wineryprofitability.com. 

What kind of data is crucial to managing retail wine sales?

The first step to assessing any retail business is to answer two questions:  (1) How many customers came in the door; (2) How much did they buy?  Everything else is fine tuning.  For a winery retail tasting room, these questions would be only slightly different:

(1)   What was my number of tasting room visitors?

(2)   What was the number of purchases my visitors made?

(3)   What was my visitors’ average transaction amount?

(1)   The number of tasting room visitors

Ideally, it would be nice to count every warm body that enters your winery.  Realistically, you need to at least keep track of the number of tastings served.  This number is very important—if you can’t get customers in the door, you can’t sell them any wine.  Some causes of low customer counts could be the following:

Your advertising   Are you part of a wine trail or on a tour map?  Have you targeted the customers who are most likely to visit your winery?

 Your location   Having an entrance on a major road is an advantage 

 Your signage   Road frontage is one thing, getting people to stop is another.

 Your building and grounds   Does your building look like a winery?  Are your grounds well kept?

Your parking area   Is your parking area congested?  Is it hard to see from the road?  What condition is it in?  Do you need sturdy footwear to navigate it?

Your winery’s reputation   Maybe you’ve aimed your product offering at a small niche, so you only draw a small percentage of area customers.  A bad reputation is also possible, but this usually shows up as a steady decline over a longer period of time.    

(2)   The number of purchases your visitors made

How many people decided to buy your wine?  This number is measured by the number of transactions (or sales) that were made.  You should be able to pull this number from your point of sale (POS) software system.  Even if you don’t have a POS system, most cash registers number every transaction (simply subtract the beginning-of-the-day number from the end-of-the-day number). 

With this data in hand, you can also determine what I call your ‘conversion rate.’  Conversion rate is the number of purchases divided by the number of visitors.  Since not every customer will end up becoming a buyer, your conversion rate will never equal 100%.  Likewise, visitors may come in groups and buy in groups, further reducing your conversion rate percentage.   However, even with these data distortions in mind, your conversion rate will be somewhat predictable within a certain range.      

Both the number of transactions and the conversion rate are useful to track to see how your winery is performing over time.  Changes in these numbers can point to possible tasting room problems such as under-staffing, running your facilities at over-capacity, and marketing (product mix and price).  

(3)   Your visitors’ average transaction amount

Your visitors’ average transaction amount is the same thing as your average sale—total sales dollars divided by the number of sales.  By looking at this number, you can tell how much people are typically buying.  For wineries, this number is fairly dependant on the number of bottles purchased and the price per bottle.  Other items, such as gifts and food can add to the total transaction amount, if managed correctly.  Don’t forget tasting fees, as these dollars add up as well.    

There are many ways to tweak average transaction size upward through adjustments in your marketing and product mix.  But don’t forget that total sales is the ultimate goal here–maximizing average transaction size works best when you also maximize the number of visitors and the number of transactions.

Using this data to enhance tasting room sales

If you aren’t collecting the above retail sales data, then you should plan to start as soon as possible.  This data can be easily collected and is extremely valuable.  The next step in the process would be to compare your retail performance with other wineries.  This is one of the benefits of being a member of the Winery Benchmark.  This month’s Winery Benchmark Participants article describes the ideal conversion rate/transaction size combination as well as gives tips on how to increase your performance in both of these areas.  If you aren’t already a member, check out the details on the Winery Benchmark page. 

If you want some additional tips on how to collect the above data, or if you have other tips to add, please provide your feedback in the Comments section above or email me at info@wineryprofitability.com.