Wine Clubs and the Economy

The success of the wine industry is dependent on the state of disposable income. In other words, wine is not a staple in American life, but rather a luxury. Granted, their are a variety of ways one can luxuriate with wine be it through a bottle of "Two Buck Chuck", a nifty 15 Australian Chardonnay or with a $60 Napa Cabernet. But no matter what, it would be a mistake to disregard the fact that wine purchases are not like cereal or energy purchases.

I’ve often looked for ways to evaluate and measure the state of the American economy and the health of the wine industry. One very simple way of doing this is to look at sales trends? Are wine sales in general selling more? Are higher priced wines flying off the shelf?  Are consumers trading down to lesser priced wines? These figures can tell you quite a bit.

However, yesterday it hit me that there is another type of measurement that can tell us not only the state of the wine industry but of consumer confidence: Wine Club Cancellations.

Anyone who runs a wine club follows cancellations in club memberships very closely. At the very least the level of monthly, quarterly or bi-annual cancellations in a club’s memberships tells one the satisfaction level of its members.

Tracking membership cancellations is tricky and dependent on how the club works. For example, every club sees more cancellations right before or directly after a shipment of wines is made. This is for the obvious reason that the person’s membership is not top of mind between shipments. It only arrives there when the shipment is imminent or has just arrived. It’s only then that the financial consequences or satisfaction level of membership is evaluated.

Still, a certain number of cancellations will occur between shipments also. The good club manager keeps a close eye on cancellation trends and knows what to expect at any given time.

So how about this: My informal survey of a few wineries shows that cancellations of wine club memberships has increased over the past two or three months to a rate not ever seen by some and to a point for others that correlates to times in the past that were clearly recessionary.

This informal survey makes sense. We appear to be moving through an economic moment that is somewhat perilous and consumers confidence in the future of our economy is not great. I’m not an economist, just an observer. But neither am I blind.

The Consumer Confidence Index hasn’t been as low as it is now since March of 2003. This measurement of consumers’ confidence levels in the American economy has fallen for six out of the last seven months, an ominous movement that correlates to the late 2002/early 2003 period when the run up to and launching of the war in Iraq hit folks like a brick. If you negate the 2003 plunge in the CCI a related to confidence effected by a war rather than an economy then the last time the CCI was at this level was 15 years ago.

Wouldn’t it be interesting for someone to work up a Wine Club Cancellation Index. I have no doubt that were it being done for the past 15 years we’d see that at this moment that Index will be in a severe downward trend.

Of course when economic times such as this are with us we learn where the creativity, business acumen and solidity really exists in the wine industry. This is the moment when agile companies and business people put their ingenuity to work. Perhaps those that rely on wine clubs will institute a new type of club that allows the wine lover to still indulge in their periodic box of vinious surprises without breaking their bank. Perhaps some retailers will will find cost effective ways to reach out to previously unappreciated consumer sectors.

Whatever must be done, I think we can say that we are moving through an economic moment that will challenge many in the wine industry.


13 Responses

  1. Randy - March 20, 2008

    Very cool, to come up with an “at-a-glance” economic indicator for wine.
    That the indicator points to hard times ahead, that’s not so good…

  2. Taster B - March 20, 2008

    Very timely post. I was just thinking about the impact of the economy on wines sales the other night when I noticed that my tank fill-up costs are up *another* 20% over a couple months ago. They used to have a word for this…

  3. Oenophilus - March 20, 2008

    Pretty scary for the small wineries for whom Wine Club and follow-up sales are meat and potatoes. Clearly those who manage to stay top-of-mind and insinuate themselves into members’ daily lives are the ones who will survive the gleaning. Success involves so much more than making good wine.

  4. Thomas Pellechia - March 20, 2008

    It would be interesting to lay your chart over a chart of wine auction activity or over the path of futures and/or cult wine prices.

  5. Jeremy - March 20, 2008

    I think there is no question that wineries are seeing a tick up in club churn as the “marginal customers” scale back on their purchasing budgets.
    Declining club sales is proably occuring with a pullback in direct sales generally. Couple this slowing top line growth overall with expense pressure in the form of higher input costs and you have a nasty situation developing for the weaker players that might be undercapitalized.

  6. Epicuria - March 20, 2008

    Concomitant with this reality is the necessity to get wines to consumers in as many states as possible. In such a downturn, the smaller, less distributor dependent producers don’t have the luxury of taking out permits and paying all the taxes, plus absorbing the staffing costs of monitoring such a bureaucratic nightmare. Let’s hope the states don’t gin up their enforcement a la Mr. Bar-booty.

  7. Liz - March 20, 2008

    Tom, very interesting. As a wine club manager, this is something I follow very closely. A few of my colleagues and I have chatted just recently about standardizing a method of figuring cancallation rates so we can compare apples to apples. I will keep you posted!

  8. John Gavin - March 20, 2008

    Makes lots of sense except for this: there are new wineries starting up every month, almost all with new wine clubs, and many well-established wineries are only now getting into the club game. So an index of club cancellations would only make sense if it took into account new membership growth, and, ideally, how many cancellations resulted from the member taking the same cash and putting into another wine club at a similar price point.
    That said, there is no doubt that we’re in a recession. Just the fact that W refuses to say it’s so means that it is so.

  9. Thomas Pellechia - March 20, 2008

    “That said, there is no doubt that we’re in a recession. Just the fact that W refuses to say it’s so means that it is so.”
    But wasn’t he nice to set up that pander-stimulant payment just in time for us to buy a tank of gasoline with it?

  10. Christian Miller - March 21, 2008

    A clever idea, but there is also the issue of supply. The number of clubs and the amount of outreach and promotion has increased a lot in the past few years, as John Gavin points out. To the extent the number of club offers grows faster than the number of joiners, and people don’t increase the average number of clubs they join, there will have to be an increase in cancellations even if the total club membership grows. But if you could control somehow for this factor, I think club drop-out would be a nice “bleeding-edge” indicator.

  11. Mark Koppen - March 21, 2008

    We dont’ have enough history yet here at August Briggs to draw any real conclusions, but we had a fairly significant number of club cancellations (around 6%) right after the first of the year when we announced a structural change in our club (going from 3 to 2 shipments, and from 6 to 8 bottles total). The good news is that not quite three months into the year we have already made up that loss with new memberships. We’re still not sure what to make of the cancellations, but we generally think that just calling attention to ourselves via the announcement made some folks think that “here’s one way I can cut my spending a bit” in a recession.

  12. epicuria - March 21, 2008

    There is one more variable to put into the mix: number of states that wineries are willing to ship to. Just a few years ago we had 13 reciprocal states (and yes, far fewer wineclubs). For those larger wineries that follow the shipping rules to the letter, this number has tripled. It would be interesting,for example, to ascertain what a wineries like, say, Duckhorn or Silverado or Dry Creek are experiencing. Like August Briggs, I’m sure new memberships are outpacing cancellations as the potential customer base expands. This too, would make it hard to tease out the impact of the downturn.

  13. Christina Anderson-Heller - March 21, 2008

    Tom, Great Blog. I always say that the backbone to any winery is its wine club. Our club has surely seen its growth but has seen the numbers gaining vs. losing lately.
    The best thing to remember is that even during times of depression wine is a constant. After 9-11 so many companies saw a decline while we maintained. I think that says something.

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