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2015 DTC Shipping Report Recap

It is an exciting time to be making wine in the United States now that our nation officially holds the number 1 spot in consumption of wine throughout the world. The 2015 Direct to Consumer Shipping Report featured in the February issue of Wines and Vines Magazine highlights the continued rise in interest of wine throughout the United States. A collaboration between ShipCompliant and Wines & Vines Analytics, the database/ research arm of Wines & Vines Magazine, tracked winery-to-consumer direct shipping channel sales from January 2014 through December 2014 throughout the country. The 2014 time period experienced its most significant growth since these figures started being tracked in 2009.

 

The DTC shipping channel increased 15.5% over 2013 and reached $1.82 billion in sales. The total volume of wine shipped throughout the country increased 13.6% to 3.95 million cases. Combined, California, Texas, New York, Florida and Illinois received 59% of these shipments. As states continue to alter their policies regarding direct to consumer shipping laws, more channels are expected to open in the coming years. Montana (245%) and North Dakota (61%) have experienced dramatic increases in wine sales following changes in DTC laws. Record numbers are expected in 2015 with Massachusetts opening its doors to DTC shipping. The nation’s seventh largest market for wine with a population of 6.6 million, it is estimated that Massachusetts could easily spend $29 million during this first year of DTC sales.

 

The bulk of shipments made throughout the year take place during the last quarter. October, November & December account for 40% of all shipments placed throughout the year. November 2014 proved to exhibit the highest growth with a 21% increase in the value of shipments over November 2013 due in part to an 8.1% increase in the average bottle price to $45.44

 

To date, Napa remains at the apex of direct to consumer shipping in the Unites States. The region accounted for 32% of all DTC shipments made during 2014 calendar year.

Tasting Room Conundrum: To Charge or Not To Charge

Have you ever questioned the value of providing a discount to customers, especially the ones that sign up for a wine club at your tasting room? A survey conducted by Silicon Valley Bank/WBM helped to answer that question. They found that the average length of time a customer remains in a wine club is barely over 24 months, and it does not appear that those customers receiving a discount upon signing up for a club stay in the club any longer.

They concluded that a better question is not whether to offer a discount on the first purchase, but how to keep that customer in the club and continually buying your wine. SVB on Wine contends that you must know your customer’s likes and preferences, must send a different shipment each time, or allow the shipment to be tailored, and perhaps offer benefits to long term wine club members.

The short answer is that you haveto keep that customer happy and coming back for more. If you’d like to learn more, we can help tailor your wine club program to increase membership retention.

Massachusetts opens for DTC Shipping

Starting January 2015, Massachusetts will allow limited, regulated winery-to-consumer shipments: Massachusetts’ adult residents will be able to purchase wines directly from wineries licensed by the state to ship.

The move comes after years of closed door laws. The change in Massachusett’s law brings to a close a decade-long effort to open the state to direct shipping, pulling it out of the ranks of Pennsylvania, South Dakota, Kentucky, Utah, Mississippi, Delaware, Alabama, and Oklahoma.

“The budget language is based on the model direct shipping bill being used successfully by the majority of U.S. states. It requires wineries to apply for a state-issued shipping license, to mark boxes as requiring signature at delivery, to pay taxes, and to limit the quantity of wine shipped to individuals.” — FreeTheGrapes.org

Read the full press release here.

BottleRecap

BottleRock 2014 has come and gone. While we do not have specifics on the financial results of the 3-day festival, the general consensus is that the event was a success. More importantly, the residual bad-taste from Bottlerock 2013 has been erased. We were there Friday night and it was great! The Cure played an amazing 2 ½ hour set that ended with a power pull…Latitude 38 (festival organizers) promised neighbors the show would end at 10pm and it did, even if The Cure continued to sing. Attendance was somewhere in the 70,000-80,000 range, according to the Santa Rosa Press Democrat and the Napa Valley Register. The largest complaints were due to traffic congestion and long waits for shuttle buses to remote parking areas. Arrests were minimal and the majority of the vendors have been paid (according the Santa Rosa Press Democrat 6/1/14). The organizers have committed to Bottlerock 2015 and are very pleased with this year’s event. Looks like Napa will continue to hold this annual nod to that perfect combination of wine, music and the great outdoors.

BottleRock 2014

BottleRock 2013 was an outrageous failure financially. The ownership group, BR Festivals LLC recently filed for bankruptcy. The LLC listed $4.5M in liabilities and $610,000 in assets. In the aftermath of so many creditors left unpaid, is Napa ready for BottleRock 2.0?

Yes, says Latitude 38 Entertainment, the proud new owners of the BottleRock Napa brand. L38 paid $60,000 for the rights and claim they will produce an even better BottleRock than last year.

We think the entire BottleRock discussion is interesting for a number of reasons. On initial consideration, one could make an argument that BottleRock is good for Napa as it will bring crowds and generate lots of restaurant and hotel revenue. A music venue also excites another demographic: not your typical Napa visitor. Developing a younger set of Napa wine devotees could be a good thing. And, diversifying the Napa brand away from just “wine” could also be considered beneficial. But will all wineries, big and small, benefit from increased crowds in the neighborhood? Or, will only the wineries offering their wines for sale at the festival benefit, or the biggest wineries? And let’s not forget, the concern over traffic, noise and trash…can this be managed and will it offset benefits of a music festival downtown?

The L38 guys feel so. In an interview with the Napa Valley Register, David Graham of L38 states that he got involved with BottleRock 2014 because he thinks he can help, he thinks BottleRock should stay in Napa, and he thinks he can make money.

There will be some changes to this year’s BottleRock. The festival will be just 3 days this year (May 30 – June 1) as opposed to the 4.5 days last year, and the number of bands will be fairly comparable at just over 60. But one could argue that the lineup is not as spectacular (according to Stereogum 4/21/14, BottleRock 2014 could be considered the “strangest lineup of 2014”). L38 wants there to be something for everyone so multiple genres are included in the lineup and many were particularly popular in the 90’s. L38 also claims they have listened to neighborhood complaints and sound and traffic will be better under control.

We love music and we love music with wine, so we are excited to see how the event fares. We hope this event succeeds, both as a musical venue that’s good for Napa and as a business venture for L38 as well as the entire community. We do feel that if BottleRock 2014 is poorly attended, or if there are any major mishaps, that would be horrible press for Napa as a whole.

So let’s Monday morning quarterback June 2. We’ll get back to you with a full report. Can’t wait.

Sources:

  • Napa Valley Register (NVR), 2/6/14, “Updated: Producer of BottleRock 2013 files for bankruptcy”
  • San Jose Mercury News, 2/7/14, “BottleRock Napa Valley festival returns for 2014”
  • KQED Arts, 4/14/14, “What is up with BottleRock 2014?”
  • NVR, 3/26/14, “Meet the chief of BR 2014”
  • Stereogum, 4/21/14, “Is BR the strangest festival line-up of 2014?”

Do you want fries with that?

April 2014 marks the 25th anniversary of Wine and Spirit Magazine’s annual restaurant poll. The magazine polls restaurants around the country for their top-selling wines. The top 10 sellers this year are as follows:

  1. Cakebread Cellars
  2. Jordan Vineyard & Winery
  3. Duckhorn Vineyards
  4. Sonoma-Cutrer
  5. Silver Oak Wine Cellars
  6. Frank Family
  7. La Crema
  8. Stag’s Leap Wine Cellars
  9. Decoy
  10. Franciscan Oakville Estate

Much has been written about what the poll means.   Some facts: of all the 50 brands, only 7 have an average sales price of less than $50 (average price for the wine in all restaurants polled). Oregon, Washington and New York state wines are poorly represented. France had only 2 wines on the list and they were both Champagnes. Perhaps most interesting of all: 70% of restaurants reported wine sales increased as a percentage of restaurant total sales for the year.

While some find the average sales price of over $50 to be surprising given the sluggish economy and trend in more casual dining, we do not find this unreasonable. Well-managed wineries make it a priority to get to know sommeliers…to woo and push their wines. It’s also not surprising that California is the heavy-hitter on the list and that wine sales have gone up as a percentage of restaurant revenues.

There’s a couple different ways to explain these phenomena. One is to say the trend in dining is towards a more casual experience and accordingly the cost of a meal goes down. If people are still seeking out those California Cabernets priced over $50/bottle, then wine will be a larger percentage of their restaurant tab. In other words, people who eat out enjoy premium California wines with their burgers. We also believe that rising consumer confidence coupled with a strong stock market has led consumers to return – cautiously – to the enjoyment of luxury wines at dinner. Where this trend goes in the future is anyone’s guess.

–KG

New Manufacturing Exemption from the State Board of Equalization

A new law intended to stimulate the acquisition or lease of manufacturing and Research & Development equipment by certain qualified businesses will come into affect on or after July 1, 2014.  Wineries are considered qualified businesses under the law, which means their qualified purchases or leases will be partially exempt from sales taxes, in most cases.  The partial exemption reduces the tax rate to 3.3125% plus applicable district taxes.  Purchases cannot exceed $200 million in a calendar year and the purchase must remain in California and have a life in excess of one year.  We recommend consulting with your accountant, in addition to seeking written approval from the Board of Equalization to ensure that any proposed purchases and/or leases be qualified for the partial tax exemption.   More information can be found in Assembly Bill No. 93, Chapter 69.

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