Is it good to be a value brand?

by Eve Resnick on December 9, 2008

in General

Today’s WineSpiritsDaily newsletter is titled: “It’s good to be value”. According to its author, “After years of little or no growth, value brands are starting to gain share and grow at a faster rate, as seen in Nielsen numbers to October 18. Dollar sales of value spirits grew 2.4% in the 52 weeks, 3.2% in the 12 weeks and 4.3% in the four weeks.”

May I politely disagree? A financial crisis lasts for one, two, a few years if we’re really unlucky. A brand manager has to see further than the crisis. What will he/she be able to sell to potential customers if, once the crisis is over, there’s no new brand in the portfolio or only cheap brands? It doesn’t make sense. The best answer I found on the subject: “do you buy cheaper wine?” comes from a member of the OWC forum, Jeff Munsey, from “Sort this Out Winery” in Buellton, California, who answered to a would-be winemaker worried about making expensive wines in his future boutique winery:

“As a small winery, less than 2,000 cases, we are not planning for any issues related to economic concerns. We produce two brands, one under $20 and one with limited production reserves generally priced above $30. We split the odds on the revenue stream with feet on both sides of the fence. As a consumer direct winery with 90% of sales initiated in the tasting room, value is a much different equation that what is factored at a wine retailer. In a tasting room environment, Value=(Packaging+Environment) x Wine Quality. Notice no $ figure association. In our business model escapism replaces price point. Standing in front of a wine rack at a retailer, value is factored differently.

Consider this, 2,000 cases equals 24,000 bottles. Deduct the bottles we use for tastings, personal consumption, and trade 2,500 and I now only need to sell 21,500 bottles. Our tasting room is located 2-3 hours away from 9 million people in greater Southern California area. Add our consumer direct web based sales in the mix and we aren’t worried about anything including our prices. If I produced 15,000 cases, I would have already called Henry Paulson and asked to get in on some of the Federal TARP funded bailout because at this volume and larger the ripple effect is going to be big. Downturns in the wine market are going to be significant in the on premise market (restaurants). That’s where I think you will see the greatest weaknesses. Perhaps the consumer will benefit as restaurants may need to adjust margins because Cost of Goods will be less important that percap spending. No more 250% mark up.

The larger wineries that survive the economy are going to be those that are savvy about leveraging the concepts here on OWC. Ed, regarding your start up, by the time you have your juice pressed off and in the bottle, the entire country will have either been sold at auction to China or things will be getting back to normal. You should be able to get your $42 and work on a 48%-55% cost of wine. Good luck and do everything you can to keep your S,G&A expenses tight and you’ll do well. “
Doesn’t it make sense? Instead of burying your head in the sand while waiting for the economy to get better, go ahead with your plans and look ahead in time: think about new brands, reposition the existing ones and get rid of those who are not doing good in this new market.

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