Sign of the Times II (Washington wine)

I wrote earlier in the week about the conumdrum faced by allocated, mailing list wineries (and their customers) in Washington state. Now comes another signal that economic conditions are not sparing Washington wineries, this time in the form of a winery that is not fully allocated, but is plenty boutiquey.

Nicholas Cole Cellars is a Walla Walla winery focusing on Bordeaux-style blends from excellent vineyards, and their wines have been roundly praised. And just tonight, I received an offer from one of my e-mail lists selling their 2004 Camille for $28. We stock this wine at Cellar 46. This wine retails for $50. And it sells at $50!

This is a serious wine. Robert Parker scored it 92 points. Gary Vaynerchuk scored it 91+, and he has only reviewed a handful of Washington wines. Paul Gregutt gave it 92 points. Wine Spectator gave it 90 points. It is bloody difficult to make any wine that scores 90+ from multiple critics, and now it’s 5 years old, just coming into its prime, and selling for 56% of full value?!?

That, my friends, is a sign of the times.

I will be picking up some bottles of this. If you would like me to pick up any for you, just shoot me an e-mail (see the Contact section).

Sign of the Times (Washington wine)

There are five wineries in Washington that I know of with closed mailing lists: Abeja, Betz, Cayuse, Leonetti, and Quilceda Creek. As Sean Sullivan pointed out in a recent post, when wineries like these sell direct to consumers, they reap a much higher portion of the profits than when they sell to distributors or retailers. While there is a little doubt that these wineries are in an enviable financial position, they also face unique business challenges around pricing, minimum buying requirements, and maximum numbers of bottles to allocate.

My theory is that these wineries made many of their decisions during boom times, and what seemed like good strategies in a bull market might not look as favorable under the shadow of the bear. But before I get into all that, I should tell you what picqued my interest in this topic. Yesterday, I received an e-mail from McCarthy & Schiering (a very well-respected Seattle wine retailer) announcing their February newsletter, and it contained the following passage:

In the good old days, as in less than a year ago, the usual method of selling many of our more sought after wines was that our suppliers would tell us how much we were “allocated”, and then we would have anywhere from 30 to 60 days to bring them into the shops. With the economic conditions of the last six months, this style of wine sales has been changing. Many wines that were previously allocated to us are now being sold as “first come, first served.” The following wines are no longer being allocated to us, we can buy as much, or as little as we see fit. We have no way of predicting how long supplies will be available to us.

Two of the wines to which they were specifically referring are Abeja’s 2006 Cabernet Sauvignon and 2007 Chardonnay, and this is especially interesting to me, because I managed to get onto Abeja’s mailing list just before it closed last year. To remain on Abeja’s list, I need to purchase at least 12 bottles every 2 calendar years. I joined in Autumn 2008, which means that I need to purchase 12 bottles from their Autumn 2008, Spring 2009, and Autumn 2009 offerings. The Autumn 2008 offering was solely their Reserve Cab, which is out of my price range, and I presume the Autumn 2009 offering will be the same. That leaves me with their current (Spring 2009) offering to put together 12 bottles, and the current offering has 5 choices: Cab, Syrah, Chardonnay, Viognier, and a Red Blend.

So I am left with a choice: a) purchase 12 bottles at full price and either pay $30 in shipping or drive to Walla Walla to pick up; or b) purchase 3 bottles of Cab from McCarthy & Schiering (3 is the number of bottles of Cab that I actually want).

Advantages of option a: it keeps me on the mailing list; the range of selections is better (my ideal order would be 3 Cab, 2 Blend, 1 Syrah, 1 Viognier).

Advantages of option b: price per bottle for the Cab is $36.52 (as a member of the Mc&S wine club) vs $42 per bottle through the winery; I could get the bottles immediately and at no shipping or driving costs; I don’t have to purchase additional bottles to meet a minimum threshold.

I’m really not sure what choice I will make. I suspect that in this new economic paradigm, there are hundreds of consumers like me making decisions like this, and some percentage will choose to be dropped from the mailing list. So now let’s return to my theory: that strategies pursued during boom times might not be as favorable in bear markets. In a bull market, it seems prudent to take the following steps:

• Increase prices every year;
• Set a high minimum for annual number of bottles purchased; and
• Set a high maximum for number of bottles allowed to be purchased.

This creates a narrow, deep, mailing list, which is profit-maximizing if you can pull it off,  because fewer customers means lower costs, both in managing the mailing list and in sending fewer shipments. While this approach might maximize profits in the short term, I’m not sure it maximizes brand loyalty in the long term. As prices go up each year and the minimum number of bottles increases, I believe it can create a perception among the mailing list that every last dollar is being squeezed out of them. And when times get tight, those members are more likely to jump ship.

I would argue that for long-term growth, a broad, shallow mailing list is best, with price increases that closely parallel inflationary increases. By decreasing the minimum annual purchase size to 3 bottles, wineries can serve more people and alienate fewer. Who will this anger? Perhaps the customer who really wants to buy a case each year, but even within that subset, there is a smaller subset that actually wants that case to drink over time. I know plenty of mailing list members who buy a case of wine, keep six bottles for themselves, and sell the other six at profit to help offset the costs of cellaring.

Given that a lot of my thoughts here are based on personal opinion and conjecture about the choices these wineries make, it would be great to hear from others on these mailing lists, and it would be fantastic to hear from someone with actual insight into how allocation decisions are made at these wineries.