Is it Time to Rethink Revenue Streams for Small Production Wineries?

For those who are unfamiliar with the acronyms in the title, BTG is a wine industry term for “By the Glass”. BTG refers to a wholesale price generally between $5 and $16, which can be sold by the glass ay a restaurant due to their less expensive price point. DTC or “Direct to Consumer” refers to wine sales where the consumer buys directly from the winery. DTC sales generally come in the form of purchases at the winery’s physical location, online sales or wine club membership sales.

During the past ten months of COVID-19 lock downs, a few issues have surfaced in the wine and food service industries. These industries are closely intertwined because of the special relationship wine and food share. Both wine and food complement each other greatly. Moreover, wine is sold at a large number of sit-down restaurants. For a restaurant, wine can greatly increase the average bill per table as well as enhance the overall dining experience for the customers. It is obvious that wine has been critically important for the service industry in this way. Simultaneously, the food service industry has been critically important for the wine industry, in that it gives winemakers and the wine they produce exposure to a broad audience and consistent income when the restaurant sells large quantities of wine and frequently reorders.

One thing that has become very apparent as small service industry businesses attempt to keep their heads above water, is the delicate balance and symbiotic relationship between the wine and food industries is not resilient enough to withstand carte blanche lockdowns imposed by some of our government leaders. We have seen how one event such as COVID-19 can tilt the balance of business relationships such as this. Here is my logic behind these statements of concern: If restaurants have to operate at a minimum capacity, they cannot sell wine at the rate they used to. Furthermore, if government officials enact lockdowns, wine sales at those restaurants that have to close will be little or non-existent. Besides decimating the restaurants, this greatly effects Small Family, Boutique and Garagiste wineries who rely on restaurant sales as one of the pillars of their small production wine business. Smaller production wineries generally don’t sell to BevMo or grocery store chains, which have remained open and are giant sources of revenue for large well know wine labels. This is the quintessential chain reaction happening right before our eyes.

I believe we are beginning to experience a paradigm shift in the wine industry. I’ve noticed more wineries focusing on Direct-to-Consumer sales through the work of Brand Ambassadors who’s many rolls include focus on marketing and social media presence. Moreover, I don’t believe this shift in sales focus has to be temporary. If there has been any benefit to this pandemic and the lockdowns, I believe the benefit has come in the form of time to think about contingency plans and other revenue streams for selling wine outside of the old pre-pandemic alliances with restaurants. Many wineries have begun hosting weekly Instagram and Facebook Live chats or educational series just to keep eyes on their brand since traffic to the wineries has all but halted. During the pandemic, many wineries are experiencing success promoting their winery and adding to their consumer sales pool by these social media avenues. Some of these wineries are offering great discounts in order to entice sales from their consumer audience. The important thing to remember about the three-tier sales system we currently have in place, is that a winery will make less selling to a restaurant at wholesale versus selling at a 25% discount off of the retail price directly to a consumer. This is why I believe a heavier reliance on DTC going forward is more beneficial and sustainable if marketing efforts stay consistent.

Another sales avenue for wine that is becoming increasingly popular is the independent wine club. Many small wine vendors and restaurants are starting independent wine clubs for their client bases in order to make up for lost revenue due to lockdowns and restrictions on dining. Restaurants have also been given the opportunity to sell wine to-go when their clients order food. These wine clubs can help the small wine vendor, the restaurant and the winery stay in the front of their client’s minds, especially when government agencies relax rules on taking a bottle of wine with your to-go dinner. I’ll clarify a bit here, because while these wine clubs and relaxed restrictions help to maintain the business relationship between the wineries and the restaurants that are able to weather the storm, all the while adding revenue for both, it’s far from a sustainable path forward on its own. In addition to the wine club, there are concepts in the wine industry that operate in a non-traditional way in comparison to the three-tier sales system. For example, I have a wine event and tour company which focuses on brining Small Family, Boutique and Garagiste wines to my client base, instead of my clients traveling to wine country. Generally, working class wine enthusiast can’t get to wine country nearly as much as they would like. There are always work obligations, other things that require your hard-earned money and kids in some instances. I bring wine country to them in the form of wineries they have never heard of, because the wineries I promote aren’t found on grocery store shelves and many aren’t widely distributed outside of the county where they are produced. This concept provides a unique way to promote the small wineries and also bring my clients fantastic wines for a great price. I believe if small wineries are able to minimize their reliance on restaurants and instead work with more concepts like the independent wine club and wine event companies in multiple states who are cultivating a good-sized client base and producing regular wine events, the small family winery can begin to rethink their percentage of reliance on the restaurant industry. Maybe, thinking of wine sales at restaurants as secondary or a bonus to the DTC model, may be the way forward.

There are lessons to be learned from the pandemic as it pertains to the wine industry. One of these lessons is, one new virus can decimate or at minimum shake up small businesses in the wine and service industries that had a long history of symbiotic reliance. What’s more, the importance of the direct-to-consumer revenue stream has been reemphasized. Many wineries can stimulate the DTC aspect of their business by offering discounts big enough to entice consumer sales, but small enough to still make more money than selling their wine to vendors at wholesale pricing. This isn’t to say that new restaurants won’t be built or started in place of ones that have closed, but the reality of a post-pandemic service industry is a tough road forward of cutting costs, to the detriment of both restaurants and wineries. Now is the time to think about new creative channels of revenue in the wine industry in order to maximize the potential of non-traditional income streams. It is also clear, that our collective support of small wine and food businesses has never been more important.

by Josh Neimeyer
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