Do The Math
How important is a tasting room to a small winery on a well traveled wine road?
Consider:
$2000 worth of wine sales per day (conservative estimate) is..
$14,000 per week is…
$56,000 per month is…
$672,000 per year is…
Less 10% for discounts is…: $604,800 per year in sales
But wait, there’s more.
Sales of "other stuff": $100 per day (conservative): $35,600 per year.
But wait…there’s more
Every day at least one person or couple will walk in your tasting room and connect with you. They’ll love your wine, they’ll love you, they’ll want to make you and your wine part of their life and they will sign up for your wine club. That one person is worth roughly $300 per year in automatic sales. After a year you have 356 people in your club who pay you $356 per year: $30,000 per year.
But wait, there’s more. Fifty percent of those who come in your tasting room every day sign up for you mailing list. Say 20 people on average come in making that 10 names on your mailing list per day. That’s 712 people per year sign up for mailings that offer them wine, say, twice per year. Five percent will buy when you offer them wine and they will buy an average of 6 bottles at, say, $25 per bottle: $10,500.
So, in your second year your tasting room grosses: $680,000
But wait…there’s more.
The pure promotional/advertising/name recognition you develop from having a tasting room helps your sales in restaurants and retail stores because visitors know you, are more likely to buy and order your wine and are more likely to tell their friends about your wine. Your wine will sell faster and your distributors and restaurant and retail accounts will order more wine faster due to this exposure.
So, one of Wark Communications clients is about to open a new tasting room in the middle of the Russian River Valley. It should gross them an extra $700,000 per year and net them at least $250,000 per year.
What can they do with that extra cash?..…yes…for a small winery this is how important direct sales can be. Besides pay their publicist, they can hire more people, spend more on marketing, buy better equipment, pay off debt, etc, etc…
Across the country there is a lobby of wholesalers who 1) don’t get that direct sales by wineries help them sell more wine and 2) are trying to stop wineries from selling direct.
Do the math.
Great article Tom from two viewpoints.
I work in the tasting room of a family owned, 40K case winery in the Alexander Valley – Sonoma Co. I know both what we do financially in the tasting room and I have a good sense of what happens financially with the distributors.
There are approximately 200 other wineries in Calif. that are our size and many of them are also carried by the distributors we work with. The amount of time, effort and money we have to spend to get them to promote us over their other clients like us leaves very tiny profits for the winery. It’s imperative that the tasting room creates as many sales as possible to offset that. This IS the reality of wineries our size in the 21st century. It’s the only way we can stay in business. Direct shipping to consumers is a HUGE part of that tasting room business. If Illinois closes it’s doors to direct shipping, we lose 198 wine club members and many, many other opportunites to ship wine to consumers who call us or order from our web site.
The other point I wanted to make is how poorly tasting room staffs are compensated for the fact that THEY generate such a huge percentage of the winery’s profit. It’s like that almost everywhere in the industry. Tasting room staff are essentially on the bottom of the food chain when it comes to compensation.
While it’s obvious that the quality of the wine HAS to be there to interest a potential customer, it’s the experience of the visit that, both at the time of the visit and also later, that makes sales go. A great experience at a tasting room can last a long time in the memory. And it can easily translate to sales off the shelf later on. The tasting room staff creates that experience and generates that profit all for a pitance of compensation. Winery management everywhere needs to rethink this and do better…much, much better.
David Sharp
Great post, Tom. I’ve had discussions with some wineries out here who don’t have tasting rooms (there aren’t that many, but at least two have great wines) and they always talk about the start-up costs.
Where did you come up with these numbers? I’d love to share them.
Lenn,
Point well taken. Start up costs for a tasting room can be prohibitive. It depends on what kind of room you want, where it is located and the type of regulatory hoops a particular jurisdiction might impose. However, considr that at Corison in Napa Valley, you have essentially a board over two barrels inside the wine making facility.
The numbers are very conservative based on a $20 to $25 per bottle average price and they come from experience I have with various winery clients.
We work with one client that did the math on tasting rooms afer opening their first in 1997. Today they operate 5 different tasting rooms all in Sonoma County.
Well if THIS doesn’t encourage more wineries to hire you…
Terry…you’re right!
Tom…ever think about opening up an East Coast branch of Wark Comm? I’ll quit my day job and sign on!
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Hi Tom,
I know this post is old, but I found it really interesting. Using your numbers, 700K in revenue and $250K in Net Income is a profit margin of 36%. Do you have a more detailed breakdown of the cost structure – COGS, direct and indirect costs for tasting rooms?