new ways to rethink your direct sales

1

New Ways to REthink Your Direct Sales

Mitch SchwartzVP, Sales & Client Development

Inertia Beverage Group

INERTIA | CONFIDENTIAL

Topics

• REthink Your Business: Are you effectively planning for direct sales success?

• REthink Marketing: Would an allocation model be right for your brand?

• REthink Sales: Is there a direct to trade opportunity for your brand?


REthink Your Business: What do we mean by direct?• Tasting room

• E-commerce (shopping cart)

• Wine Club

• Allocation (or release model)

• Direct to trade


REthink Your Business: To start, set a goal

• Goals should be both short and long term– Identify what you need to accomplish in the next year

– Know where you’d like to go in the next 5 years

• Don’t forget the past– Consider where you came from; results over the past year

– Apply key learnings to this years’ plan

• Define the optimal mix of sales you would like to achieve. Example: Total Case Production 3,000 cases

Direct to consumer 40% 1,200 cases

Trade 60% 1,800 cases


REthink Your Business: How do your short term goals fit with your long term goals?

• Consider this example:– In three years, your production will grow to 8,000 cases

– Will your sales mix stay the same?• Will you want to increase or decrease your direct to consumer

sales?

– Are your sales and marketing actions today preparing you for tomorrow?


REthink Your Business: Now what is your plan by segment?• Direct to Consumer

– x% to tasting room, club, e-commerce, allocation

• Is your plan different by product?– Are some products only sold in the tasting room?– Only sold through club?– Is there a wine(s) that should be sold exclusively to the

mailing list?


REthink Your Business: Planning by segment (cont’d)• Trade sales

– What states do I want to sell in?– Sell direct, or through a distributor?– Broker or direct employee– Do all distributors get all my wines, or do I segment and

allocate?


REthink Your Business: Details of a plan

• Consider this example:– Winery with a tasting room– 5,000 total case production– What percentage of total case sales are direct to consumer?

Per month Per YearAverage visitor traffic to tasting room 1,000 12,000

Total # orders through tasting room 300 3,600 Conversion rate: % of Visitors who purchase 30% 30%

Total average # bottles sold per order 6 6 Total # bottles sold through tasting room 1,800 21,600 Total cases sold through tasting room 150 1,800

Total winery case production 5,000 Tasting Room case sales rate (as % of total) 36%


REthink Your Business: Planning Ahead

• Assume production increases to 8k cases annually in 3 years. In order to maintain a 36% direct case rate of sale, consider three scenarios:A. Your average # of bottles sold per order increase to 10B. Your visitor traffic increases to 19k annuallyC. Your conversion rate increases to 48%

Scenario A Scenario B Scenario CAverage visitor traffic to tasting room 12,000 19,200 12,000

Total # orders through tasting room 3,600 5,760 5,760 Conversion rate: % of Visitors who purchase 30% 30% 48%

Total average # bottles sold per order 10 6 6 Total # bottles sold through tasting room 34,560 34,560 34,560 Total cases sold through tasting room 2,880 2,880 2,880

Total winery case production 8,000 8,000 8,000 Tasting Room case sales rate (as % of total) 36% 36% 36%


REthink Your Business: Planning Ahead (cont’d)• The same logic applies to your wine club.

• Consider your total wine club case sales rate currently. To maintain a consistent rate of sale (10%), various scenarios might exist.

Current Scenario A Scenario B Scenario CTotal number of club members 750 750 1,200 750 Total number of club shipments per year 4 4 4 6 Average # bottles per shipment 2 3 2 2 Total # bottles sold through wine club 6,000 9,600 9,600 9,600 Total cases sold through wine club 500 800 800 800

Total winery case production 5,000 8,000 8,000 8,000 Wine Club case sales rate (as % of total) 10% 10% 10% 10%


REthink Your Business: In Summary

• Set a macro-goal for the winery, then build goals by channel and by channel segment.

• For every goal, there should be at least one strategy.

• Understand the metrics which will assist in the evaluation and measurement of those strategies.

• With goals, strategies and metrics… build your plan to execute.


REthink Marketing: Would an allocation model be right for your brand?• What is an allocated wine?

– A wine that is only sold to a mailing list upon release.

– The customer is allocated a certain quantity of wine, which is the most they can buy.

– Once the offering season is over, the wine is no longer available for the consumer to purchase.


REthink Marketing: Allocation Management

• What is a mailing list?– A list of contacts and customers that have been elected to receive news

throughout the year about current wine releases, winery events, etc.

• What is a release program/model?– Wineries will release their wine for purchase several times per year (usually in

the fall and/or spring) coinciding with an “offering letter” (direct mail piece) that will include information about the wines

• What is an offering season?– An offering season is the window of time that a winery allows for purchase

• What is an allocation?– Often used in conjunction with a mailing list when inventory is limited, an

“allocation” or reservation of inventory is set aside for each mailing list customer


REthink Marketing: The 3 Principles of a Successful Allocation Program• The most successful ‘Mailing-List’ or Allocation wineries

uphold 3 key principles that anchor a successful release program:

– Exclusivity

– Perception of Scarcity

– Conditioning of Purchase Behavior


REthink Marketing: Exclusivity

• The “Velvet Rope”– The first step in building an allocation program is to invite them to be

part of small group of people with privileges above and beyond those for your “regular” customer

• Limited Access to Wine– Customers that fit this profile are specifically drawn to those wines

that are not available to the masses

• Relationships are EVERYTHING– For release models in particular, it is very important to retain share of

mind my communicating to your customers throughout the year


REthink Marketing: Perception of Scarcity

• Limited Availability– Every winery uniquely creates the perception of “limited production”, and control

of that balance is achieved through strong communication between sales & production

• Allocation of Inventory: Direct vs. Wholesale– Begin by allocating inventory by channel: Direct vs. Wholesale; then allocate

under each (mailing list, tasting room, by state, etc.)

– RECOMMENDATION: sell through the Direct Sales channel FIRST, you will realize increased margins while increasing demand (and supporting prices) in the wholesale channel

• The Waiting List– The best kept secret in the wine industry…people want what they can’t have!


REthink Marketing: Conditioning of Purchase Behavior• Rules of Engagement

– “Invisible Tiers” allow you to manage your customer allocations through a mutual understanding that as your customer purchase more wine, each offering season they will increase their access to wines and allocation for each

– Point Systems are sometimes used to make the allocation triggers more transparent to the customer, by allowing them to control their allocations (or lack thereof)

• Customer Reward & Penalty Programs– By following the “rules for purchase” a customer can be assured that their

allocation is secured for subsequent releases and perhaps even increased to reward loyalty; inversely, a customer’s allocation can be decreased or eliminated altogether (waiting list) if they do not follow the guidelines which grant access to the wines

– Messaging is KEY! Touching your customer at each stage of the mailing list offering helps to build up anticipation and ultimate gratification.


REthink Marketing: Applying the “3 Principles”

• Traditional Release Model

• Mailing List as a “Waiting List” (Cult Wines)

• Allocation Hybrid Model

• Wine Club Reward Program


REthink Sales: Is there a direct to trade opportunity for your brand?

• Direct to Trade refers to the ability of a winery to sell directly to a retailer or restaurant, bypassing the wholesaler altogether.


REthink Sales: 15 States are reachable through Direct to Trade Sales• Self-distribution states include AZ, AR, CT, IL, MD, MA, MT, OH, OR, VT,

WA, WY,

• Additionally, CA, FL & NY are exclusively available through Inertia’s Direct-to-Trade system.

• Considerations:– Some mirror direct to consumer compliance

– Production capacity caps

– Shipment volume limits

– Possible need for in-state sales rep licenses

• Inertia’s Direct-to-Trade system resolves all of the above considerations


REthink Sales: Benefits for the winery

• Access to a broader market

• Direct relationship with the trade account

• Control over where your product is sold

• Margin improvement

• Ease of – and control over - inventory movement


REthink Sales: Benefits for the trade

• Access to brands not available in the market

• Direct relationship with the winery

• Margin improvement

• Ability to pre-sell before ordering

• Potential exclusivity of product


REthink Sales: Pricing Strategy and Margins

• Establish your SRP target– FOB 50% of retail (maybe)

– Wholesale 2/3 retail

• Consider margins taken by retailer and wholesaler– Retailer 34- 40%– Wholesaler 23-30%

• Don’t forget hidden wholesale costs– Spiffs– Samples– Wine Lists


REthink Sales: Pricing example for direct sales

Work from the retail price down…

Work from the FOB price up…

OR

Assume SRP of $30 Retail Price Down FOB ForwardRetail Price (case) 360.00$ 360.00$ Retail Margin 33% 41%Retail Cost 240.12$ 211.50$ Freight 30.00$ 30.00$ State Excise Tax 1.50$ 1.50$ Net to Winery (FOB) 208.62$ 180.00$


REthink Sales: When is Direct to Trade the best strategy?

• Consider any/all of the following:

– Relationship with distributor

– Amount of wine available

– Increased access to markets / accounts

– Improved margins

– Knowledge of trade accounts

– Sales comfort level


Thank You!

Mitch Schwartz | [email protected] | blog.inertiabev.com | www.rethinkcompliance.com

26

new ways to rethink your direct sales

Documents