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Wine Business

Terroir is Money

A truly unique product feature or benefit is a very powerful selling tool. Coca Cola and KFC safeguard their recipes more carefully than some countries do state secrets. Billions of dollars (in aggregate) are spent each year by companies applying for and defending patents, trademarks and the like. Packaging and advertisements often put more focus on these selling points than they do the brand behind them.

Terroir is exactly this type of tool for wineries. Almost by definition, the terroir of every vineyard or block is unique. No two plots of land can have exactly the same combination of soil composition, mesoclimate, microclimate, orientation to the sun, microbes, etc. Though I wrote otherwise, satirically, in a April Fool’s Day article “Terroir To Go,” terroir cannot be duplicated or transplanted. Many wineries use this to their advantage.

It may seem that terroir is a feature that comes to wineries for free. The earth and sun are simply there. On the contrary, terroir can be a very costly feature to “implement.” Since every terroir is different, and some are perceived to be better than others, there is a corresponding difference in the prices of the real estate involved. Buying a vineyard with a great reputation, or simply buying grapes from such a vineyard, can easily cost at least five times more than it would to work with a less prestigious vineyard.

In contrast to many unique product features that cost a lot of money to invent, terroir is mostly pre-existing but can cost a great deal to maintain. At nearly every step in the grape-growing and winemaking processes, choices are made that can either increase or decrease the extent to which terroir shows through in the final wine. Many of the choices made to highlight genuine terroir result in increased costs and/or diminished volume. For example, allowing the grapes to grow too large and juicy, which increases production volume, dilutes the flavors. Strong flavors from inexpensive barrels can easily overwhelm important nuances of the juice. There are hundreds of other examples.

When wineries make these pro-terroir decisions, they do so in the belief that it will eventually increase the quality and value of their product or because they have a strong philosophical leaning toward terroir-centric wines. But philosophy doesn’t put food on the table, so even the fiercest terroirists need to make their investments pay out.

European wineries have been particularly successful at using terroir to both increase the value of their wines and secure what some people see as a moral high ground. These producers have convinced many consumers that you can almost literally taste the famous vineyards of Europe. Some might even imply that the terroir is somehow only evident in European wines or that wines without evident terroir are not genuine.

The concept of terroir have also been used to justify flavor profiles that some people might otherwise find unattractive. And though some of these flavors or aromas could be eliminated, or at least moderated, by slight changes in the vineyard or winemaking practices at a particular winery, those choices are sometimes resisted because they might be perceived as masking the “genuine” terroir. While not a common practice, terroir can be valuable to a winery in this respect because it allows them to sell as a feature what might otherwise be considered a flaw.

Some wine “experts” are convinced that top quality wines cannot be made in California due to issues of terroir: its weather is too hot, its soil too fertile and its... name your excuse. Such generalizations are absurd. However, the success such arguments have had shows the strength of terroir as a sales and marketing tool.

The power of suggestion is very high when it comes to evaluating food and drink through tasting. However unconsciously, people tend to find those flavors, aromas and levels of quality that they have been led to expect. Dan Ariely, the James B. Duke Professor of Behavioral Economics at Duke University, has done a number of interesting studies that prove this to be the case. (Here’s a link to a YouTube synopsis of one such study).  Many more can be found in his excellent book, Predictably Irrational.) So, “selling” terroir not only offers both intellectual and romantic arguments to consumers for a wine’s superiority, it can work its way into the consumers’ subconscious mind and lead them to experience whatever claims have been made.

To be clear, I do not mean to suggest that terroir is a myth or the cynical creation of wine marketeers. Though there is no universal consensus on exactly how to define what variables combine to constitute terroir or the exact mechanisms that result in any particular wine’s characteristics, the general concept is both valid and useful. The fact that the concept makes intuitive sense and that differences in wines from different vineyards can be easily and consistently perceived in blind tastings compounds its value to wineries.

Terroir is more than a romantic notion and more than the sensory signature of a vineyard. Terroir is an important differentiating feature for wines and something that wineries put a great deal of effort and money into cultivating.

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Follow NorCalWine on Twitter for breaking wine news, information on events and more. Become a fan and join the NorCal Wine community on FacebookAlso check outour comprehensive Northern California winery listings. They are very useful for planning a tasting trip or just getting in touch with a winery.

This article is original to NorCalWine.com. Copyright 2010 NorCal Wine. All rights reserved.

U.S. Wine Consumption Increases for 17th Consecutive Year

According to the 2011 Wine Handbook, U.S. wine consumption continues to increase. Total consumption in 2010 was 303.1 million 9-liter (112 bottle) cases, up 2.1% over 2009. Total wine spending was $26.9 billion dollars in 2010. Domestic wineries benefitted disproportionately with a 3% increase. While purchases of imported wine dropped 0.9%, purchases of Australian wines here dropped precipitously, 12.5%.

The publicly released analysis related to this particular publication, created by the Beverage Information Group, isn’t very insightful. They say that “As the US economy slowly recovers, the wine industry is regaining its momentum to mark the 17th consecutive year of case gains.  This positive direction is directly attributed to the improving economy and the resulting increase in consumer confidence.” But, if growth in wine sales has continued for 17 consecutive years, then that trend cannot be attributed to improvements in the economy relative to the crisis of 2008-2009. And if their reference was solely to the increase in momentum, rather than the overall increase, then there must have been more significant thoughts they could have shared. While a shift from near flat to 2% growth is massive on a year-on-year percentage increase basis, the actual dollar and unit growth was not hugely significant.

If you have interest in the full report, which does include detailed information about sales, consumer preferences, ad spending and regional breakdowns, the 2011 Wine Handbook is available for $815 from Beverage Information Group.

Disclaimer: Neither I nor NorCalWine are compensated in any way for sales of the 2011 Wine Handbook.

Follow NorCalWine on Twitter for breaking wine news, information on events and more. Become a fan and join the NorCal Wine community on FacebookAlso check out our comprehensive Northern California winery listings. They are very useful for planning a tasting trip or just getting in touch with a winery.

This article is original to NorCalWine.com. Copyright 2011 NorCal Wine. All rights reserved.

9 Ways Wineries Can Improve Sales AND Prepare to Seek Investors

Lesley Berglund was a panelist at last week’s North Bay Business Journal Wine Conference. She has considerable experience with building and selling companies. She  also serves as a consultant to wineries focusing on change management. Ms. Berglund described nine things all wineries should do, whether they are seeking to be acquired or just trying to improve their business.

Make financial information more visible and use it to improve your business.
Understand your true costs, including selling, promotional and operational costs. Knowing all of your costs is not only essential to ensuring profitability, it allows you to make decisions on spending in particular areas to increase efficiency or drive growth.

Cut projects that don’t add real value.
There are a lot of things businesses do, because they are interesting or pet projects of management, that aren’t in alignment with key company goals or do not add significantly to profits. These projects not only don’t contribute, they suck resources from more important tasks.

Do SWOT analyses on a regular basis.
Many companies only look closely at corporate strengths, weaknesses, opportunities and threats every few years or as part of a major strategic overhaul. Making SWOT analyses part of quarterly or half-yearly business reviews and new product planning processes will help ensure that you’re always focused in the right directions.

Top-grade your team.
LesleyBerglund says, “‘A’ teams hire ‘A’ players and ‘B’ teams hire ‘C’ players.” There’s a lot of talented people looking for jobs these days. Don’t compromise. Hiring well usually delivers much more to the bottom line than the incremental cost of employment.

Motivate with metrics and open book management.
Employees are happier and more motivated to achieve corporate goals when they know the reasons for the goals and the impact of their work on the bottom line. Set goals that are measurable and tied to what matters most. Review progress openly and frequently.

Replace yourself. Repeat.
Very few wineries are truly one-man shows, but many are run that way. If a key person chokes on a grape or needs to shift to an unexpected yet arduous task, like selling the company, other vital activities may go untended. Make sure everyone, including yourself, has a backup that can take over on a moments’ notice. Executive management should turn special projects over to staff as soon as possible.

Make your own luck.
Ms. Berglund points out that wineries have been very fortunate up to now with regard to walk-in business. Consumer enthusiasm and wine tourism have meant that opening a cellar door and putting out a sign generated decent business. However, that approach is not sufficient when the economy declines or there is a problem with other channels that requires fast growth in direct-to-consumer sales. Work proactively to maximize sales in the tasting room, via mail and online.

Ask for the order.
Lesley Berglund’s company,
WISE, does a lot of “secret-shopping” in tasting rooms. These studies have shown that the 70% of consumer tasting room visits don’t end with winery staff asking for an order. Even fewer try to sell the wine club. You don’t need to be pushy and not every visitor will buy something but, even with a gentle approach, ensuring that every happy visitor is asked for an order will surely bring a meaningful uptick in sales.

Get contact data.
Most customers who take the time to go to a winery will welcome the opportunity to be informed about future events, new releases, etc. Yet, Berglund’s studies show that the vast majority of tasting room customers walk away without being asked for their contact information.  Direct customer contact is vital today, even if you sell most of your wine through restaurants or distribution. The market for wine is very crowded and you need to maximize your mindshare with the end consumer by communicating with them directly. And, if you’re looking to be acquired, the size and quality of your consumer mailing list is one of the first things investors will look at.

If you enjoyed this article, please share it! Icons for popular sharing services are at the above and below.

Follow NorCalWine on Twitter for breaking wine news, information on events and more. Become a fan and join the NorCal Wine community on FacebookAlso check outour comprehensive Northern California winery listings. They are very useful for planning a tasting trip or just getting in touch with a winery.

This article is original to NorCalWine.com. Copyright 2010 NorCal Wine. All rights reserved.

Brands Compelled to Bully

News came today that a small Novato winery won out in a trademark-infringement case which had been brought against it by the Trek Bicycle Corp. It seems that Trek Winery LLC had shipped three cases of wine to Wisconsin, where Trek the bike company is headquartered.

On the surface, lawsuits like this are maddening. They seem frivolous. How could shipping three cases of wine confuse consumers about the branding of a bicycle company? The judge took that point of view as well, “Plaintiff cannot argue seriously that three isolated sales show that defendants have made such purposeful availment [sic] of the benefits of Wisconsin’s laws that they could reasonably anticipate being hauled into court in this state.”

Beyond the frustration caused by what appears to be a gratuitous lawsuit, we also tend to root for the little guy. We see the larger companies as bullies. The headline in the North Bay Business Journal leads us to take that view as well, "Tiny Novato winery wins trademark case against Trek Bicycle." Tiny. It's David vs. Goliath.

In reality, things are not that clean cut. I am by no means suggesting that the winery was trying to prove a point by shipping into the Trek Bicycle's home territory or that they were looking for a fight. I'm sure that's not the case.

However, we should not automatically assume that Trek Bicycle Corp. was happy about bringing this to court either. Court cases are expensive. They take a lot of time from executive staff. Lawyers who can clock in at $500 an hour are involved.

There is also very little that a large company stands to gain from suing a tiny one. How much could David actually afford to pay in damages to Goliath? Damages are usually based on some percentage of demonstrable business losses caused by the infringement. Willful infringement may cause treble damages to be awarded. But still, in this case, how much could that be? It wouldn't be enough to make up for the time and effort required to bring the case.

So why would a case like this be brought? Why was the winery "bullied" by the bikers? Most likely, it was done because our laws compelled Trek Bicycle Corp. to do so.

Trademark law requires trademark owners to defend their marks. If a mark is not defended against an infringement by one party, no matter how small the company or infringement may be, then the trademark holder sets a precedent that may cause them to lose a case against a later and truly damaging infringement by another party. The reality of trademarks (and patents) is that the expense of holding them doesn't end when they are granted. You also have to pay to defend them whenever a conflict arises.

In this particular case, things more or less worked out for the best. The winery was spared any penalties, but probably won't ship to Wisconsin again. The bike company showed commitment to their mark, though at some cost.

Not all cases work out so well. Often, the smaller companies simply give in and settle out of court or give up their claim to a name. They can't afford the expense of a court battle, no matter how ridiculous the claim against them. But, that's the way the system works.

This article is original to NorCalWine.com. Copyright 2010 NorCal Wine. All rights reserved.

Follow NorCalWine on Twitter for breaking wine news, information on events and more. Become a fan and join the NorCal Wine community on Facebook.
Also check out our comprehensive Northern California winery listings. They are very useful for planning a tasting trip or just getting in touch with a winery.