Marketing Wines From Small Wineries NMSU AGE 420 – M03 CRN 40680© 2011

Economic Concept: Law of Supply and Demand The lower the price of a product the greater the quantity demanded by consumers If you increase the price less will be demanded This is true for most products but not necessarily true for all products in all situations Wine can be one of those products NMSU AGE 420 – M03 CRN 40680© 2011

Consider This Situation You are selling oaked Cabernet Sauvignon at $14 per bottle and are selling 5 cases per week You re-label the wine to Proprietor's Reserve and price it at $18 per bottle and sales stay at 5 cases per week or possible increase How might this happen? NMSU AGE 420 – M03 CRN 40680© 2011

Association of Price With Quality Some consumers – particularly those with higher incomes – will associate higher prices with better quality Wines don’t come with a USDA stamped quality grade The quality is judged by the consumer and can be based on taste as well as many other factors NMSU AGE 420 – M03 CRN 40680© 2011

Factors Influencing Demand of Branded Products The number of potential consumers Income of consumers Taste and preferences of consumers Price and availability of substitute products NMSU AGE 420 – M03 CRN 40680© 2011

Segmentation of Markets There are many ways to segment your potential wine customers Income Age Situation (holiday seasons, weddings) Ethnicity Tourists verses locals You need to consider these factors in determine which wines to sell and in pricing NMSU AGE 420 – M03 CRN 40680© 2011

Impact of Winery Name Can the winery name affect sales? What factors should be considered in choosing a name? Regional Affiliation Unique favorable characteristics…….Santa Fe vs. Deming Referencing the industry—winery or vineyard Easy to remember & pronounce NMSU AGE 420 – M03 CRN 40680© 2011

Impact of Labels Varietal Name– identify the grape/type of wine Different demographics—particular labels appeal to different segments Labels for tourists—green chile NMSU AGE 420 – M03 CRN 40680© 2011

Impact of Winery Location The location will impact the number of customers as well as the demographics of the customers Which is preferable? Street with a high volume of traffic or a low volume Higher income location or lower income location Close to an Interstate? Close to a major tourist attraction NMSU AGE 420 – M03 CRN 40680© 2011

Market Outlets Tasting room (can be more than one) Festivals Participate in the 5 or 6 major state festivals Have your own festivals Wine clubs and Internet sales Direct to retail stores and restaurants Sales to wholesale distributors NMSU AGE 420 – M03 CRN 40680© 2011

Boutique Winery sales by type of outlet NMSU AGE 420 – M03 CRN 40680© 2011

Millennial Generation NMSU AGE 420 – M03 CRN 40680© 2011

Labeling Cater to the restaurants by providing wines labeled exclusively for restaurant sales Green stickers Special Reserve NMSU AGE 420 – M03 CRN 40680© 2011

Packaging NMSU AGE 420 – M03 CRN 40680© 2011

Notes on Tasting Room Sales 1.You need to have a reasonably accurate estimate of your direct production cost and variable expenses to have accurate profit contribution estimates. 2.The cost items that go into the production cost include: 1). Cost of growing or buying grapes, 2). All costs associated with getting the wine in the bottle, and 3). Deprecation expenses on selected winery equipment including oak barrels used for some of the wines but not all. 3.The variable expenses will depend on the type of outlet you are selling into. The example is for tasting room sales with the expenses being tasting room labor, advertising, loss of wine for pouring samples, and special entertainment. 4.Overhead expenses usually include depreciation and maintenance of the buildings, payments to management, insurance, interest, accounting, and repairs. 5.The contribution to profit and overhead method will not provide an exact procedure for maximizing profit but can give insight on possible combinations of prices and resulting quantities sold that will result in potentially increasing profits. It will also prevent you from selling below variable costs unless you choose a wine as a loss leader which usually does not work for a tasting room like it does for a grocery store. NMSU AGE 420 – M03 CRN 40680© 2011