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Rising Above

Author: Bonnie Durrance
April, 2010 Issue


As the U.S. economy slowly recovers from near collapse, North Bay wineries are finding new ways to stay relevant with consumers.

 
When driving through Wine Country, one tends not to think of Dickens. But underneath the glamour of grapevines, the glitz of mansions and the natural splendor of the Napa and Sonoma valleys lurks a complex reality of crisis, conflict and creativity. As Elizabeth Slater, owner of In Short Direct Marketing, a Windsor-based company that works with wineries and winery associations to help them market their wines to consumers, describes it, “It’s the best of times; it’s the worst of times.”
 
“We’re in a difficult downturn,” says Carol Collison, managing director of Global Wine Partners in St Helena. “When the financial system almost collapsed in the fourth quarter of 2008, businesses throughout the economy felt the impact. Consumers were still drinking, but distributors stopped ordering.” She says she knows of a 30,000-case winery that, during that time, had one order. “This hadn’t been seen before.”

“We’ve been in business for so long,” says Tom Davies, president of V. Sattui winery in St. Helena. “We’ve seen the cyclical nature of the business. But the last downturn has been the most challenging.”

“What we’ve seen here in the Sonoma Valley is pretty universal,” says fourth-generation winegrower Jeff Kunde, whose 1,850-acre Kunde Family Estate has been family-owned and run for five generations (since 1904). “We don’t see traffic like before the economic slowdown. During the weekend, it’s busy—but during the week, it’s much slower.”

Napa Valley’s largest independent grower agrees. “It’s a tough time,” says Andy Beckstoffer, who’s farmed in the valley since 1969. “It starts with the restaurants and retailers that aren’t buying the expensive wines, and filters all the way back to the grape growers.”

“Last year, the nurseries were moderately affected,” says Sebastopol viticulturist Dr. James Stamp, “but continued to do well; sales were a bit down, but nobody was complaining about it. This year, nurseries appear to be significantly affected. Some have very limited orders for 2011. That, in my experience, is unheard of in the industry.”

When the going gets tough

From second-generation vintners to new marketing MBAs, those doing well in the current climate tend to practice and possess the innate secrets of success: flexibility, innovation, creativity and insight. And, of course, hard work.

“Last year was one of our most challenging,” says Davies, who’s been with V. Sattui for 30 years. “But at the same time, it was one of our most rewarding. All of us just said, ‘Let’s turn everything upside down. Let’s be the innovator again.’” Back in the ’70s, led by Dario Sattui, owner of the winery his great-grandfather founded in 1885, V. Sattui practiced direct-to-consumer marketing. “We pioneered the model,” says Davies. The winery sold everything out the front door or by mail order, and was the second winery, after Inglenook, to start a wine club.

“Now everyone wants to do direct-to-consumer,” he says. “Everyone wants to have wine clubs.” But it’s different today than it was 30 years ago. Now, there are sit-down salons, pairings, emails, websites, plus Facebook and Twitter. “Tweets!” Davies lets go a big, friendly laugh and describes a recent wine dinner where the person beside him was twittering throughout the meal: “Now I’m having the Chardonnay…Now they’re bringing the chicken…” He acknowledges Twitter’s power—“it’s another way to communicate about wine, because people love to talk about it”—but doesn’t have his own account.

Instead, he does a homemade video show on his website, which he calls, “The Wine Guys.” These shorts feature an interview, with the camera held by his wife (who does a very good job, we must say) as he and Peter Godoff, senior vice president of operations, sit out in the vineyard and chat about some wine and cheese they’re sampling. Watching longingly from snowy Minnesota, one might be persuaded to pick up the phone and order a case of the Napa Valley lifestyle.

“‘The Wine Guys’ may be corny, but we see our customers as part of our family,” says Davies, “and we treat them that way. If we’re bottling, we let our guests walk in and watch. If we’re crushing, we let them eat the grapes.” It’s all about the wine, but it’s also all about the relationships.

Creating relationships

For Jeff Kunde, relationships with customers on his family estate have always come easily. He loves sharing his eco-friendly approach to land and nature, along with his wines, and working in harmony with the Slow Food movement. His wines are 100 percent estate produced and grown, “eco-premium” wines. But now, with the economy soft and competition hard, he has to run faster just to stay in place.

“It’s a challenge,” he says. “But there are some really exciting and fun things we’re doing. We do eco-hikes, hikes with dogs, hikes with friends and family—and they all include tastings in the vineyard. We’re doing ‘dinner and a movie’ nights at the winery—we set up a screen and make it kind of cozy. We’ve also started offering harvest tours in the Spring and Fall. We take people in the vineyard, where they have fabulous views of the Sonoma Valley, and let them taste wines there so they can see where it came from. Some [wineries] buy grapes from all over, but we produce everything right here, so you can actually see and feel the source.”

Giving back to the community is big for Kunde. He gives a portion of the money from the hikes to various Sonoma nonprofits such as the Sonoma Valley Ecology Center, the Sonoma County Humane Society, Canine Companions for Independence and other animal shelters in the county. “Times are very, very tight,” he says, “so we’re donating to some of these organizations that need funding. It’s also a wonderful feeling when dogs are actually adopted from the hike on our property.”

He fosters relationships by offering free tastings for locals and conducting sales over the Web using Twitter and Facebook. Another new concept is online tasting. With TasteLive, a group of bloggers can get together in the virtual world and taste and talk about the wine in real time. Kunde and his staff sit in his tasting room, bloggers sit somewhere else (anywhere in the country), they all taste the same wines and tell stories, and the bloggers write about it. “We’re trying to give as much of a personal touch as we can,” he says. “That’s what makes it special for the consumer—they learn what we’re all about.”

The personal touch

You wouldn’t think so, driving up the curving, cypress-lined drive to the looming, “newly completed, authentic medieval” castle—a concept that proves less an oxymoron when one steps inside—but the personal touch is epitomized at Castello di Amorosa. While he’s pictured in front of his castle in authoritarian hauteur, Dario Sattui, designer, builder and proprietor of his castle, is the warmest of hosts. To take a turn with him through the labyrinthine, candle-like lit caverns that house the many tasting rooms is to confront room after room of cheery greetings, spontaneous introductions, gathering for photographs, and quick quizzes about where everybody’s from and how everything is going. From the office staff to those manning the cash registers, every contact feels generous and genuine. It’s a castle, but they want you to feel at home.

“A lot of people thought the world was going to come to an end last March,” says Sattui, leaning back against the stone wall in his second story office in a medieval-style outbuilding behind the castle. Through the glass-free, wooden-shuttered window—everything is medieval—comes a cool, damp mist. (“Would you like a coat?” he asks. There’s no heat. No problem. It’s a cozy, stone room.)

“Now, people are a lot more careful with their money,” says Sattui. “Not using their credit cards. Spending less. But they’re still buying wine. We’ve found that in bad times, you commiserate over a bottle of wine; in good times, you celebrate over a bottle of wine. You’re still buying wine, but wines that don’t cost more than $10 or $12.”

The discount conundrum

Many say the market is crushing the higher-priced wines. Many are struggling over whether or how to discount. “Everybody’s hurting,” Sattui says. “But some to lesser degrees. Some of the wineries that are selling good quality wines at moderate prices are doing OK.”

Down at V. Sattui—the castle and V. Sattui are separate businesses—Tom Davies, who mirrors Sattui’s hospitality and outright affection for his customers, sees the discount not as a brand-damaging shame, but as a way to thank his customers. “I think this is a perfect time to give back to the customer,” he says. “It’s a perfect time to say, ‘We really appreciate your business. We understand it’s hard times, so we’re going to give you some great wine deals.’”

The issue for all wineries is how to strike the right balance, to adjust prices to reality while maintaining the ineffable link between price and value. Napa and Sonoma valley vintners weigh the benefits and consequences of discounting. Nick Frey, president of the Sonoma County Winegrape Commission, acknowledges the problem. “I think every brand struggles with that conundrum,” he says. “As a result, wineries get pretty creative. There are deals to be had out there of one sort or another.”

“As a vintner,” Davies explains, “you’re concerned about perception, because price and quality [seem to] go together. So everybody thinks, ‘Oh my God, I need to lower my prices. But if I lower my prices, what will everybody think? Did my wine quality go down? Or was I overcharging them before?’ So what I’ve said is, ‘I appreciate your business and we’re going to give you some great deals and thank you very much.’”

Meanwhile, back at the castle, visitation is way up. Wine sales aren’t up as much as the visitation, says Sattui, but the sense of a quality experience, appreciated by guests, is unmistakable. “My idea is, you add value and prestige to your product if everything you do is quality,” he says. “We want value in everything we do. We do a nice tour and tasting. It’s not cheap, but people are lining up to pay for it.” He smiles. “Our sales are up.”

Start with quality people

“When we get a new employee,” says Sattui, “I sometimes say, ‘Critique this place. Don’t tell me what’s good. Tell me what we can do better. Because you can see with fresh eyes.’ We may fall down in places, but our heart’s in the right place; we’re trying, and I think, to a large extent, we get there.” He boasts many long-term employees, and it’s not unusual to find someone in the tasting room who’s been with the company 20 years. They welcome visitors as if they own the place. “I’m trying to make them owners, in a sense,” says Sattui. “If you see a piece of paper on the floor, don’t wait for the cleaning staff, you pick it up, like I do. Make this your place. Love this place. Treat people right. Do the best you can, and at the end of the year,” he grins and opens his arms in Italian expansiveness, “if we’ve done well, we’ll give nearly a third of company profits back to them.” That attitude filters down to the customer, and one’s visit with the lord of the castle ends with an armload of elegant gifts.

Starting over

Pulling open the door to the newly opened Long Meadow Ranch tasting room in the freshly renovated Logan-Ives House in St. Helena, one is welcomed by a crescendo of resounding piano chords. Inside, the room is crisp and spare with new paint and freshly done hardwood floors, a gleaming counter and, over to the left, sitting at an old upright piano, Ted Hall—proprietor, farmer and father of coproprietor Chris Hall—is just folding shut some Sunday afternoon music. He’s beaming. This tasting room, the newly opened Farmstead restaurant, wine flavor and vegetable gardens, and the neighborhood’s own Whiting nursery, all form the culmination of an idea. The Halls are bringing together the organic bounty of their land—the wine, grass-fed beef, sustainably produced produce, eggs, olive oil and honey. Opening a discussion about the woes of the wine market feels almost inappropriate, under the circumstances, but Hall’s ready for it.

“We lost everything we had in the 2005 fire on Mare Island,” he says. “We lost our entire inventory and library.” Such a loss might cause some to bail out, but not Ted Hall. “My father used to say, ‘When God gives you lemons, make lemonade.’” So he innovated. “All of this,” he gestures around at the room, and through the tall windows to the construction remnants outside, “is a logical extension.”

Starting over, he could reenter the market on a different price basis. “We wanted to be sure,” he says, “that when we came back to the market, price was not the issue.” So when he reentered, he repositioned all of the wines. “Our top Cabernet had been $60. We came back with our 2003 vintage—which was the same wine—and sold it for $39.” He pauses, acknowledging that lowering prices is a controversial thing, “I think the easy way to think about it is, it doesn’t do you any good to have high-priced wine that doesn’t sell.”

Millennials and perennials

The Halls seem to know a good story contributes to the sense of product authenticity. They talk with reverence about the organic garden, the farm-to-table restaurant and the nursery, all of which form a perfect frame for experiencing quality wine. They know, too, that depth of experience enhances the story, and as Ted talks about having been involved in making wine for more than 30 years, Chris speaks with pride about raising and selling vegetables since he was 10. As a member of the “millennial” generation, the 29-and-under group that inspires marketing optimism because of its numbers, independent thinking and accessibility on social media, Chris is ahead of the pack in social media connectivity. His marketing milieu is a young vintners group called NG: The Next Generation in Wine, of which he’s president. “What I’ve learned from the NG,” he says, “is they don’t know who Robert Parker is—and they don’t care. They never buy a bottle of wine to make themselves more important. They don’t have deep collections. But they’re totally prepared to buy a bottle of wine to have an experience, to make a gesture of friendship, or to share it with other people. It isn’t about ego, it’s about enjoyable mutual experiences.”

Direct-to-consumer

“I love the millennials,” says Slater, who is also cofounder of the Wine Industry Network, a business-to-business Internet marketplace providing product, service and educational information to the wine industry. “They’re the generation that grew up with instant access to information. As they’re driving in your gate, they’re checking out your winery on their iPhones. They’re texting and tweeting their friends as they’re tasting your wines. They’re going to push our industry forward because they make their own decisions. But once you bring them in, they’ll stick with you.”

Slater teaches winery managers and staff how to reach customers, millennial and otherwise, on their own terms. “I do a lot of training,” she says. “I work all over the country, from here to the Finger Lakes, up through Canada and down to Southern California. What I do is not only help owners clarify their vision, but make sure that vision trickles down to the people who are dealing with the customer.” For Slater, it’s not so much what you have to say about your wine, but what you can learn about your customer. “Find out as much as you can about them, and relate back. It’s not a new concept, but it takes some work.” This particularly applies to social media. “It’s not about sales, it’s about connection,” she says. “I encourage my clients to think of value-adds rather than discounts.”

Tammy Boatright, president of VingDirect, a business created to help wineries establish and grow their direct-to-consumer sales, takes the “know thyself” approach. “Most wineries have a story,” she says “but they may not know how to tell it. And if they don’t, or their tasting room staff doesn’t, how will a visitor get it?” She teaches that the first step toward creating a relationship with a customer is the obvious but difficult one of knowing your own story, your own identity, what makes you distinctive.

Boatright, whose enthusiasm is seasoned with a tart Texas lilt, says now is the time for reflection and change. “Take this time to get creative,” she says. “Use social media. Use networking. Use the Internet to drive traffic to your site.” With Facebook and Twitter, wineries are creating a personal connection with their audience. “So if I’m a winery owner and I have a Facebook page, my audience can connect with my winery that way. Twitter lets an audience follow a winemaker or an owner through his or her daily activities, like a kind of a mini-reality show.” The impact of personality is not to be underestimated, she says. It may be “all about the wine,” but, she says, “What we hear guests say, more than anything, is that if they had a good winery experience, it’s because of a person. They base their experience on a personal connection. That’s why social media is important. It helps wineries build that connection.”

Continued outreach

But despite its growing popularity, experts say social media shouldn’t be the only channel of outreach. “It’s also important for wineries to take advantage of business-to-business channels to find the information that will help grow business,” says Slater.

Direct marketing only really works when the audience segments are differentiated and messages can be tailored accordingly. Lesley Berglund, co-founder of The WISE Academy, which teaches wine industry managers and professionals how to communicate with different levels of customers according to their own needs. For example, you wouldn’t send a mailing to a VIP customer with the same message you’d send to someone who’s never heard of your wines. “Each group has different psychological needs,” she says, “and one of the things we teach is how to identify those and to tailor what you’re going to pitch appropriately. We call it ‘positive profiling.’”

WISE currently has 12 different consumer direct and/or leadership certification programs, focused on front line staff members in the tasting room to tasting room managers, wine club managers, all the way up to winery executives. “We’re finding that many winery executives also attend WISE because they want to understand the foundation of what we’re teaching,” she says, “so they know how to hold their team to a new, higher standard.”

Expanding events?

A segment of caterers and event planners, considering the economic pinch, are urging Napa County officials to “open up” the county’s Winery Definition Ordinance to allow for more diverse events at winery facilities. This might include hosting corporate business meetings and events with and without wine education components, as well as a broader range of private events including (quite possibly) private parties and weddings. In Napa Valley, this is prompting an urgent outcry from defenders of the Agricultural Preserve, Napa Valley’s unique zoning device for keeping the quality of the valley—and the brand—intact.

Veteran event planner Mary Ross, whose Five Star Productions has been staging wine-centered events and parties in the Napa and Sonoma valleys for 18 years, has concerns about how such a change could affect the rural nature and prestige of the “Napa Valley” brand. “I think we need to be cautious that any decisions made now based on a lagging economy doesn’t jeopardize the future of the Ag Preserve. I can’t speak for the wine industry, but as a business owner and resident for nearly 20 years, I deeply value what we have and care about how changes will impact us.”

For Ross, the event business must reflect the quality image that the vintners, grape growers and food industry professionals have worked so hard to achieve. Increasing the quantity of events and venues may be a solution that, even if temporary, could have a long-term effect. “For me, it’s about making changes that are tempered in caution,” she says. “Studying the environmental impacts must include finding out how many wineries want to participate and whether more and different types of events will negatively impact the county. It’ll take time when some businesses feel they can’t afford to wait.”

Landowner Andy Beckstoffer is adamant about defending the Ag Preserve. “Once you become inconsistent with the county General Plan’s policy to protect agriculture,” he says, “then sooner or later, you don’t have an Ag Preserve!”

Tom Davies of V. Sattui defends weddings and would like to see a careful, case-by-case approach to allowing a few more in the valley. “In 1986, we had our first wedding here. If you’re having a corporate party or appreciation event for your best customer and you’re having wine, food and dinner and you’re having fun, what’s the difference between that and a party that happens to be a wedding?”

Ted Hall points out the problem. “Once we make a decision to allow certain kinds of activities on agricultural lands, it becomes completely arbitrary as to which commercial activities are permitted and which aren’t. So what’s the difference between a wedding and a corporate retreat? What’s the difference between a corporate retreat and a jazz concert? What’s the difference between a jazz concert and a sports car rally? Ag land has to stay in agriculture.”

But what about Sonoma County, which has all kinds of events and manages to maintain a glorious countryside atmosphere? “Here,” says Nick Frey, “we’re a larger region, more disbursed. Maybe better balanced. So you don’t get the congestion you can get on Route 29 and Silverado Trail.”

Linda Reiff, executive director of Napa Valley Vintners, says, “A major part of our association’s mission is to maintain the integrity of our precious national resource. We’re working with our entire community to find the best path forward, as the business of selling wine is very different than it was 20 years ago.”

“We’re not against ‘stuff [such as weddings],’” says Beckstoffer. “I’m for the Ag Preserve. And if activities are inconsistent with the Ag Preserve, we’re against them. We just have to protect this very delicate thing, because it’s a miracle that agriculture exists as the primary use of land in this beautiful valley here in the midst of the Bay Area. It’s the major part of the sense of place that’s here.”

What’s the prognosis?

“I think there are some positive signs,” says Frey. “Last year, in a national survey conducted in late summer, 17 percent of consumers said they were buying more Sonoma County wines. However, in general, the people with high-end portfolios have seen a drop in sales. The question is how much rebound they might get this year.”

“Over the long term, growth in the wine business has been steady,” says Collison. “People in a downturn trade down and get more conservative in spending, but when things look up, people do what they always do—aspire to better things.”

“For the grower, in the short term, we can’t afford to cut our quality,” says Beckstoffer. “But if it keeps up long-term, we simply can’t farm this way and be paid so little. For wineries, in the short term, they can’t risk damaging their brand by cutting prices to increase sales. But if this keeps up, they may have to. So we have the same type of long-term/short-term dilemma the wineries have. We’re just going to have to suffer through this a bit. In the 40 years I’ve been here, I’ve never seen a well-managed winery go out of business.”


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