Wine marketing issues as we work our way out of the recession

Noted in the Napa Valley Register, December 24, 2010 …

The On Wine column by Dan Berger contained several interesting (if not surprising) observations about the state of the wine business, as we work out way out of economic recession.

First, regarding pricing …

(The) only price cuts of which I have heard are based on discounting. No one, apparently, wants to drop their front-line (suggested retail) price … I phoned three executives with good-sized wineries and asked if they had cut their front-line prices for even one wine. All said no. “No, we haven’t,” said one. “The only thing we did do was to adjust the tasting-room pricing on all of our wines to spark sales … But once you discount the front-line price, trying to get it back up again if, well, you have to claw your way back to the original, and that could take years.” Discounting can also have a similar effect, “but it’s a little easier regaining your old price point.”

An even better rule of thumb, in my opinion, is to set your pricing where it needs to be or should be from the first release of your wine. Discount back if you have to, but never reduce your front-line price, unless you intend never to sell at the higher price, ever again. It is, indeed, very difficult to claw back up in price. If the entire market moves up, or if your wine is in great demand (and not easily replaced) you may be able to take price increases over time. But if you cut your front line price, you may never get back up.

Second, regarding “bonus packs” …

More than a decade ago, some larger wine companies dealt with an earlier recession by offering retailers 15-bottle cases (instead of the traditional 12-packs). The three men I spoke with said they hadn’t heard that strategy employed recently.

Which really surprises me, because we’re about to embark on my first 15-bottle pack in many years. It’s sort of like discounting, but it uses additional bottles (instead of fewer dollars) to create the incentive to buy. Further, it puts more wine into circulation, which, in a time of glut and downward price pressure, is a good thing. Another important feature of the 15-bottle pack: it creates some excitement, some different energy, within the sales channels for that wine. “For a limited time only, the Adobe Red (and White) 15-bottle packs!”

Third, the most lingering issue, major retail discounting …

All said, however, that the current recession has hurt the wine business harder that most of the similar flat spots the industry has faced in past decades. As a result, they all said, wine prices at most retail shops should be about 30 percent lower than suggested retail prices.

Brand building is difficult when prices are low. Differentiation is difficult in wine in any market, with so many competitors making variations of “fermented grape juice.” Discounting is wonderful for the wine consumer, but it cuts margins for producers, wholesalers and retailers, which makes it more difficult for the small companies to stay afloat. We’ll continue with some shake-out at all levels of the industry for another couple of years.

DAH is David Anthony Hance