Kickbacks in Wine Country—A Problem?
You are a winery in Napa or Sonoma and only open by invitation. It means you don't get just anyone off the street. But you do get your fair share of visitors/buyers at the winery.
Your wine is fairly expensive: $40 to $100 per bottle. And direct sales at the winery from appointments are critical to your bottom line. As are mailing list sales that come from those who visited the winery at one point or another. You don't sell out SO easily, but you come close.
You've honed your hospitality program to appeal to discerning buyers looking for unique wines, great service and a tasting experience different and more intimate than they can get at a tasting room open to the public.
One day a limousine driver who makes a good living chauffeuring visitors around wine country comes to you and let's you know that for a healthy kickback (say 5%-10% of sales), they will regularly bring you good buyers. They infer that without this kind of agreement, they won't be bringing buyers to your winery.
Do you agree?
This happens in Napa Valley and it happens in Sonoma County. It happens not only with tour guides and limo drivers making the request, but even the occasional concierge will make it known a "gratuity" is necessary for them to recommend a visit to your winery.
The competition in Napa Valley, for instance, for big buyers is intense. The best tour guides and limo drivers don't usually take their high paying charges to wineries open to the public. They tend to venture into the hills and side roads along the valley floor, taking their rides to out of the way wineries. And there are a lot more of these in Napa than there are wineries open to the public. These kinds of buyers regularly drop anywhere from $500 to $3000 on wine purchases and they join mailing lists and clubs.
Yet there is a quiet debate among those in Wine Country whether such kickbacks are ethical or should be encouraged. Two wineries I spoke with today, one in Napa an one n Sonoma, both said they most certainly would pay the kickback to the tour operator or limo driver if the "commission" were reasonable. Another said they simply would not do it. They refused.
Meanwhile, the executive director of CANVAS (The Concierge Alliance of Napa and Sonoma) says that such practices harm the customer as well as the Wine Country economy for the simple reason that when buyers arrive at wineries based on kickbacks, they may be getting less than the optimal match for them.
Colby Smith co-founded CANVAS with the idea that the hospitality community in Wine Country along with the Concierge community in the Bay Area need to know each other intimately, work well with each other, be able to provided educated recommendations and referrals and have a detailed knowledge of the amenities and properties in Wine Country in order to better serve the visitor and assure their experience results in more sales and return visits.
Smith has quietly built CANVAS into a formidable organization that has attracted considerable support from Napa, Sonoma and San Francisco hospitality professionals. Smith learned the trade while working at the Concierge Desk of the Villagio Inn & Spa in the middle of Napa Valley. Her experience there and running CANVAS convinced her that the practice of kickbacks is not the best way to protect the Wine Country economy
Smith explains that proper, educated and well-vetted referrals are at the heart of the Wine Country visitor economy. She knows that it is the concierges in San Francisco and Wine Country, tour guides and limo drivers and winery hospitality folks that tend to be essential in referring visitors to appropriately matched winery properties. Visitors often determine where they will visit based on referrals from these professionals:
"A great referral is one that perfectly matches a winery property to the visitor's wine educational level, palate preferences, expectations and means." Smith notes, "Focusing on finding the best experience for the guest independent of any personal gain is what has the most positive effect on the Wine Country economy."
I think Smith is absolutely correct. And yet in this economy, I understand perfectly why a winery might agree to pay the kickback.
I've started to think about these issues since I began volunteering with CANVAS on their advisory council. For years I've worked with wineries helping them craft a hospitality experience, working to help them build and maintain wine clubs, and working with them to draw visitors to their winery. But only since beginning to sit in on CANVAS meetings have I come to understand the remarkable importance of the Wine Country hospitality communities working together.
Supporting a kickback system isn't really working together, is it.
If these kickbacks are based on sales then the argument could be made that the organizers do have to consider the suitability of the match they are making. Customers poorly matched with wineries aren’t likely to result in sales and thus aren’t likely to end in kickbacks.
It is a slippery slope.
In my international travels I have noticed that this is just part of doing business. Whether it is a taxi driver in Vietnam or a Wine Tour in Argentina; there is a kickback. In my experience the negative outcomes haven’t come from the companines taking kickbacks but those that don’t. The kick back is based on a mutual success, the absence of such is a one sided relationship.
But again it is a slippery slope.
Coming to me and demanding a quid-pro-quo for bringing people to my shop is just a shakedown. Yes it has happened. When it has, I have invited the operator to take their groups elsewhere.
Livery drivers usually get tipped for good service by their fares. I am happy to do whatever I can to help drivers get better tips.
So if an operator comes in to get to know us so they can make an informed recommendation, wants to taste with us, brings us good customers and stays in touch on a regular basis, I am happy to voluntarily (and regularly) send them off with bottles.
But a percentage? No. I wonder if the wineries that are paying shakedowns are issuing 1099s to the guys they are paying off?
I support what Colby says – the best experience for driver, guest and winery is dependent on a great match. And I look at providing an exemplary experience to guests who visit us my part of the equation, allowing the concierge to receive kudos and return visits and recommendations, the driver to generate repeat business, referrals and better tips, and us to sell some wine.
However, I would be interested in hearing Colby’s thoughts on CANVAS itself. I understand that concierges pay a small fee to join, but wineries must shell out hundreds of dollars per year to be associate members. Do the wineries not expect that their membership will result in more referrals, and is this not a similar form of “shakedown” – pay-to-play, as it were?
Thanks for the post – you opened my eyes – I have taken many wine tours from various operators and it now is all clear why the tour operator wanted to take me to specific wineries – almost without exception, they seemed offended when I suggested places I wanted to go! In most instances, I did not buy wine at the places they directed me – it was simply too expensive and I didn’t particularly care for it (but I learned a lot). One tour operator even scolded me for not buying wine at a place he had really chatted up!
And while I am a frequent traveler to Wine Country and have taken many tours, I never realized there was a kickback system in place until now! Thanks for resolving an issue that has puzzled me for years.
And, yes, the kickback system should stop. I will have to learn more about CANVAS.
Tom, “They infer that…” Pitchers imply. Catchers infer. Good mnemonic device for using these words correctly. As for the issue, it doesn’t really bother me. You know that old saying “A fool and his money are soon parted”? Besides, if the person buying the wine leaves the winery feeling happy, then it’s a win-win-win situation for everyone.
We live in the real world and I don’t believe it is outrageous to give a a driver a gratuity for bringing guests to your winery.
I am sure that it is done more than you can imagine.
If the driver knows your wines and brings you buyers, to me that is a service to the winery.
When you consider the tremendous expense it takes to get a wine to the consumer, I believe that it is far better for the winery than the three tier system which leaves the grower/winemaker with very little to show for all the investment and hard work.
There is the love of the grape and that is what keeps us passionate about the process.
unfortunately this kickback perpetuates the underground cash economy that virtually ends up with no one paying taxes on the income and the FEDs/State go bankrupt.
There are two sides to this. I’ve gone with friends using private drivers and exclusive locations. Some wineries are so small. They take time from their day (usually the owners) to “serve” the guests with the hopes that they will buy wines; that’s the whole point of the visit. I wouldn’t be able to afford to make wine just to have people come and taste, party a little at my expense and then leave. If there is a cost to having the potential buyers reach the winery that arrangement needs to be 1) arranged between owners and drivers. 2) Driver’s should advise their group that this is exclusive and there is an obligation to buy so it benefits everyone. If the guests are just there to party, you’ll find out quickly. As far as the drivers; they can only enjoy so much wine. They don’t get paid all that much and there are a lot of limo companies out there so everyone is struggling in this economy. And for the record, I always purchased wine at private tastings in respect for their time and craft. And the wines were pretty amazing too.
The term “kickback” in and of itself will garner a negative reaction but the “activity” of attracting high-value indivuduals is a worthwhile activity. There is a distinction though between a “marketing expense” and a true cash “kickback.”
Wineries are in the business of attracting customers. Most any winery would pay for a database of proven wine buyers. Most would work the streets and establish relationships with hotels, concierges, bus and livery companies and their drivers. Most wineries already pay brokers or distributiors for selling their wines to third parties; effectively delivering buyers, but they are licensed to take a percentage of the winery’s sale.
There are potential legal problems with an unlicensed individual charging or receiving an actual cash percentage of sales (kickback). There are also potential legal/employment issues with paying drivers/concierges cash for services and not reporting that on a 1099. But beyond that – who wouldn’t try and establish relationships with someone who could deliver target-rich contacts? The winery owner would without hesitation develop that relationship by entertaining, gifting, handing a “sample” bottle of wine when at the winery door (a gray area), extend a trade discount, waive the tasting fee, send a gift card on their birthday, etc. Its a marketing cost that has a tail of revenue and its a good investment. I see that activity as legal, ethical, and prudent. I’m not an attorney but it seems to me cash payments are more than an just an ethical problem.
Ethics vs. money. Interesting subject. Can the kickbacks be written off as a business expense? That would surely influence a struggling winery.
Great post, Tom. Thanks for casting light onto a dark topic.
Ralph – I can’t speak for Colby and CANVAS but can say that most winery referrals come from (1) existing customers; and(2)tasting room staff from other wineries. The purpose of participating in CANVAS is to network so winery staff builds relationships with other wineries to create a referral network. Yes, concierge staff can join CANVAS too but they do not represent the bulk of referrals going on in the Valley. None of these cross-referrals are paid referrals.
There are a few limo drivers that expect payment for bringing guests to a winery. However, most wineries consider the practice distasteful.
Here is a comment from a limousine company. Our primary goal is to grow our business through referrals, either personal or Internet based. Our only customer is our passenger/client. We attempt to understand the requirements and vision of the day and then, to the extent possible, create for them more than a day trip, but rather a life-long fond memory.
To do this, along with timely, safe and friendly service, we must match the client’s wine taste, experience, buying habits and aesthetic interests to the wineries we are usually asked to select. For competitive reasons, I will not detail how this is done. Additionally, in this regard, we also never set an expectation with a client that access to a winery requires the purchase of wine. At the end of the day, the wine has to sell itself. We try to only match clients with a high propensity to buy, with wineries where purchases are expected. And we hope we have made a proper match where these two interests come together. In fact, there are some very good wineries were the winery’s expectation is that the price of entry is the purchase of wine and lots of it. Since we cannot guarantee this result, and for the comfort of our clients, we don’t recommend these wineries to our clients.
There is natural cycle to this arrangement if we do it right; our client has a great experience and memory, the winery has access to a new and perhaps valuable long-term customer, and we get great references which drives more future business.
In regard to the issue of “kickbacks”, we would never request such an arrangement from a winery because such an arrangement would violate our ethical premise that the passenger/client is our only client. Additionally, such a practice would cause us to focus on our compensation from wineries rather than referrals from our customers. Instead, we prefer accommodations from wineries we can share with our customers; that is; ease of access, customer discounts and complementary tasting fees, all of which the winery advises the customer is available because of our relationship with the winery. And, of course, a couple of nice bottles from time to time and during the holidays is appreciated, but not a requirement.
Ask around to the limo drivers/companies about whether they’d accept “payment” as a company check and receive a 1099 in return. If so, it’s a marketing expense. If not it’s a kickback.
Advertising is a wicked fickle mistress…
If a limo company said they would bring me 500 customers over the course of a summer, I would rather pay $500 for that GUARANTEED result rather than pay $500 for a newspaper or magazine ad that may/may not get any results.
I think it all depends on if the request is a request, or an ultimatum…
If the tour bus contains a certain clientle that does not really purchase anything but instead they look for the free items, the guide or bus driver would still get his ummmmm…. juice. This is why we only work with guides and companies that we know who is going to come to the winery. It’s easily predictable to know what wines will be moving depending on the age and nationalities of the guests too.
This is one of the reasons I created Wine Tasting Tab, a smartphone app (iPhone, iPad, Droid) so people can search for their own places to go based on tasting room fee, tasting room menu, amenities and varietals. It even accesses wineries open by appointment only. Check it out:
Where I come from, a kickback is a kickback, and it’s usually only the beginning. Plus, may I add that as a client of limos (not that I ever am) I’d be quite annoyed with the arrangement, knowing that it has nothing to do with how the limo driver feels about the wines or the experience. I remember a bed and breakfast owner trying to get me to give him free wine because he had dinners at his place and it would be good for my exposure. My answer was simple and vulgar.
And ditto on the comments concerning taxes and economy.
a gratuity to a driver should come from the people being driven to the wineries, not from the wineries. likewise for hotel employees that make referrals.
How about tipping the staff??
I resent this side of our industry–it makes us all look bad, when it seems to be a handful of individuals paying and accepting the kickbacks. I vote for public shaming….
Transparency and full disclosure would do a lot to make such practices less of a concern.
I believe it is dangerous to generalize about anybody including tour guides and tour companies. Speaking for myself and my employees I have been a tour guide/driver here since 1989 and I dare anybody to come forward that I have met along the way that would say that I have ever excepted a dollar or asked for wine from them in compensation for my clients visiting. I beleive this business, when done right is an art form and that we should all be held to a very high level of decorum. Perhaps I am “old school” compared to the hundreds of tour companies that have opened up lately but I would fire any driver of mine who is caught taking wine or money as compentation. If a winery wants to discreetly give a bottle of wine to a driver to be enjoyed with dinner once in a while it should be to educate their palate more than a regular habit.
On the other hand I am aware that there is a company that is known for being very selfish and does what ever it takes to get every account that they can. There is another company that offers to work as “consultants” in order to build a brand, and this simply means that they will send their cars to that winery if you hire them.
I can assure you there are a lot of great guides out there that simply want to give their guests the best experience possible in order to create repeat clients and the satisaction of providing a life long memory for them.
Infering that it is an epedemic is like infering that all “bloggers” are single 32 year old males living in their parents basement!
Well stated. Bravo Magnum!
Greedy drivers I can handle. It’s the endless wave of “I work at hotel/restaurant X, and we carry your wine. Can I have a free tasting?” I get so tired of the sense of entitlement among industry folks. If I showed up at your restaurant and said, “Hey, I told someone to come here. Give me free steak.” You’d probably show me the door.
It’s not that I mind professional courtesy. If you do in fact support our juice, please schedule it through your wholesaler (so we can verify it) and we’ll be glad to take care of you. Look, I’m not saying you don’t work hard, we all do, but I’m sorry, being a server in a restaurant doesn’t give you walk in freebie carte blanche. I send people to restaurants I enjoy because I want them to have a good time, and I want to support local business. Not because I want a free piece of cheesecake. Do us the favor of calling ahead, or expect to pay at the door like everyone else.
If a tour operator scolded you for not buying you were with a bad tour company and a bad guide – I hope you did not give them a dime in tip – that was bad service.
I think that taking a wine tour is a great way to relax. This last summer my wife and I took a tour in a Napa Valley limousine and it was simply divine. We absolutely loved traveling through those gorgeous vineyards in the luxury of a nice limo. It was a really fun trip!
I agree with what seems to be the majority opinion that kickbacks are wrong on a lot of levels. I suspect though, that since alcohol is involved, kickbacks are technically illegal. Are there any lawyers who can confirm or deny this?
If all parties conscientiosly do their job they will automatically help each other. No kickbacks are necessary unless you have nothing to offer!