Perception vs. Reality of the Wine Business

Most people outside (and some inside) the wine business have a romanticized view of what this business is all about.  Most things look different when you are an audience member.  Once you go behind the curtain, you can become extremely disillusioned by what you see. 

So if you love wine… STOP READING NOW!  KEEP BELIEVING IN UNICORNS! 

However, if you want to look behind the curtain… come on backstage.

 Courtesy of Warner Bros

Courtesy of Warner Bros

When you say wine business, most people have a vision of a winery owner on the veranda of his home overlooking the vineyard, sipping a glass of wine while he speaks to some visitors about signing up for the exclusive wine club… uh… no, that’s not how it usually works.  One last chance to get out... No? Okay, keep reading. It’s your soul.

Here’s the skinny...

The wine business is generally broken down among vineyard growers, wineries/winemakers, dry goods vendors, production, production/bottling facilities, sales & marketing teams, distributors, restaurateurs and retailers.  These are the companies that play a role in getting that bottle of wine to the shelf of your retailer or to your local restaurant.  It’s a complex dance that requires all the companies, and the people in those companies, to work together to produce a bottle of wine that is consistent in quality, price and availability in stores and restaurants… that doesn’t happen because a guy sips wine on a veranda (probably wearing a beret).

Most people who have been in the wine business since the beginning of their career usually have a very deep understanding of the function they are involved in, e.g. sales teams know sales, winemakers know winemaking, etc. Very few people have actually been involved in all the various aspects of the entire cycle… I am one of them (OMG, did I just break my arm patting myself on the back?). I have been fortunate enough to be involved in all of these areas.  I am no expert in any of them, but I know how they fit into an overall pie and I have a great deal of respect for all the people who make each of those components work. They all have a story to tell, so let’s tell the story on how the vast majority of wine is made and sold in the good old US of A.

Vineyards/Growers

Contrary to conventional thinking, most wineries don’t have vineyards.  Certainly some do, but vineyards are typically entities to themselves. Vineyards are owned by “growers.” I am not sure why we they are called “growers” and not farmers. My Missouri roots always make me cringe a little bit when I say “growers”. I had lots of uncles who owned farms in the Midwest. I think they would have punched me in the face if I called them “growers”. Nonetheless, that’s how we refer to vineyard owners in the wine business. Wineries contract with growers to buy grapes over multi year periods. Growers like to have the majority of their vineyards contracted for so they don’t have to sell their crop every year. When growers don’t have grapes contracted for, they have to convert those grapes to wine and try to sell the finished wine on the bulk wine market (too complicated to go into in a “rant”, but the bulk wine market provides an efficient vehicle to get all the wine produced in California utilized and on a shelf.) Growers are my reminder that the wine business at its core an agricultural business. Growers are far more concerned about growing practices, machinery failures, harvest time frames and the weather than they are about whether the market likes merlot or not. I like these guys… they could have been my uncles growing corn!

Wineries and Winemakers

 Winemaker Adam LaZarre of Cycles Gladiator. Courtesy of Ken Hanson.

Winemaker Adam LaZarre of Cycles Gladiator. Courtesy of Ken Hanson.

Once the grapes come out of the vineyard, they go to a winery to be crushed and start their journey of becoming wine. Grapes can be transported as far as 750 miles to a winery to begin that journey. The quaint idea of picking grapes out of a vineyard and carrying them in straw baskets to the winery to be crushed still must exist somewhere; it’s just not how 99 percent of the wine is made. Once the grapes come into the winery, the winemaker takes over (but actually, it happens more and more where they work with the grower to establish growing practices and monitor the vineyard during the growing cycle). The winemaker drives and directs the crushing and fermentation of the grapes. From that point on, the baton is passed to the winemaker from the grower. How that winemaker treats the wine before it goes into a bottle will determine the taste profile and ultimately the quality of the wine you end up buying. Barrel aging, stainless steel tanks, oak additives, micro-oxidation treatment; these are all tools for the winemakers to use at their discretion (and cost parameters) to provide wines that are consistent in quality, price and availability (notice a trend developing?). Winemakers are part artist, part scientist and part cost accountant. The best winemakers I have worked with have all these skills. The skills are not perfectly weighted, but they have to possess all of them to be successful.

Dry Goods Vendors

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As the wine is sitting at the winery being tended to by the winemakers, waiting for its bottling day, all of the “dry goods” components have to be purchased. I don’t know why, but I have always hated the description “dry goods.” It sounds like a second-class citizen designation, or maybe like being put on the second string of a football team. I know it’s weird, but it’s my rant. Anyway, “dry goods” are the glass, cork/screw cap, capsule, label that are part of the bottling components necessary to complete the package in the form you see at the store. Each of these dry goods components are purchased from different companies, with many of these components coming from different parts of the world. Since I am beginning to bore myself with the complexity of this part of the wine business, I will simply ask you to look at the different bottles on the shelf. If you look closely, you will notice there are literally hundreds of types of bottles on the shelf. Almost all of them hold 750ml of wine and that’s where the similarity ends. Take into consideration the different labels, capsules, corks/screw caps and you can see how this part of the wine business gets really complicated, really fast. Most of the folks who work in this part of the wine business never get any recognition. Without them you wouldn’t see the myriad of “art” on the shelves in the form of a bottle of wine. Come on, admit it… you’re a sucker for a good label and/or overall package of a bottle of wine.  I know I am.

Production/Bottling Facilities

The winemaker we discussed above is now bored with the wine he made a year ago.  It’s ready to be put to bottle. Ironically, winemakers hate bottling. You would think most of them would be happy to hand off the wine to the sales and marketing teams via getting the wine into the bottle. It must have something to do with judgment. Once the wine is in the bottle and sold to customers, the winemaker’s efforts will be judged by the only person that matters: the consumer. The production/bottling facility can be part of the winery or a completely different facility that the wine is transported to (wow, we didn’t even talk about trucking. Sorry guys, I ran out of rant juice). Bottling lines are the most complex pieces of machinery we deal with in the wine industry - lots of moving parts. The men and woman who make the bottling lines work are magicians. They manage to get all the wine and dry goods to the bottling line in order to put together a “package” (i.e. a bottle of wine with label, cork, and capsule). Bringing all these components together in a “just in time “ environment always strikes me as a minor miracle. It gets done time after time because of the efforts and skills of all these production workers.

Sales & Marketing Teams 

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Well, we have a bottle of wine. Congratulations, now stop looking at our masterpiece and start selling. Long before we bought any grapes from that “grower”, long before we decided on how the wine was going to be made, long before we decided what the brand was going to be called, and long before we had a label we had a brand concept that took all of those factors into consideration. By the time the wine is put in the bottle, the sales and marketing team of the winery/brand owner has been poised to take this wine out to distributors. Pricing and marketing efforts have been prepared and sales assumptions have been forecasted. We are out of the bubble and into the competitive world of distributors.  Speaking of which…

Distributors

Notice that I said the internal sales team takes the wines to distributors. Although some wines are sold directly to retailers or consumers, the vast majority of wine sold in the US goes through distributors across the country. Wineries like to call distributors the ”gatekeepers” of the industry. The “gatekeeper” refers to the fact that every winery has to get its wine through the vetting process of the distributor. They are the gatekeepers of what actually gets presented to a retailer or restaurant to purchase. If you can’t set up and manage a national distribution network, all the work put into producing a great bottle of wine that is consistent in quality, price and availability will be for naught. That last part (availability) is where the gatekeepers hold the key to a wine brand’s success.  You cannot achieve availability if you don’t have distributors across the country who believe in what you are doing and will take an interest in your brands. No availability = no sales = no bueno.

Retailers

Stores and restaurants are the final destination for our bottle of wine. If we have done our job properly and made a quality bottle of wine (at an attractive price) that our distributors have then made available at the right accounts, it is either grabbed off the shelf or ordered by the glass at a restaurant (most wine sold at restaurants is by the glass). If so, we have completed the cycle and now can put on a beret and sip some wine!

Now… repeat that process thousands of times and you now know how the wine business really works. It’s a glamorous business! Cheers!  

 Dennis Carroll. Courtesy of Ken Hanson.

Dennis Carroll. Courtesy of Ken Hanson.

 

By Dennis Carroll, CEO of Wine Hooligans  

 

 

This blog post was written by Dennis Carroll in his personal capacity. The opinions expressed in this article are the author's own and do not reflect the view of Charles Communications Associates.


All the Swirl is a collections of thoughts and opinions assembled by the staff and industry friends of Charles Communications Associates, a marketing communications firm with its headquarters in San Francisco, California. We invite you to explore more about our company and clients by visiting www.charlescomm.com.