The changing face of winery ecommerce around the world.
Recurring purchase wine clubs and adoption levels globally
At BlackSquare, we’re constantly asked “why do you champion recurring purchase wine clubs?” It’s a two-part answer. The quick answer is in every market we serve North America, Australia, Europe, Asia, we continually see successful examples of producers and retailers who sell their wine via a recurring wine club. They cater to their VIP customers and capture high margin, low effort direct-to-consumer (DTC) sales. The more detailed reasons relate to regulatory and cultural issues, as well as the intricate dynamics of the global wine marketplace.
Australia – recurring clubs are developing, regionally
In the global wine industry, there has been an inexorable march towards recurring purchase wine clubs. Over the last five years, Australia’s wine industry has been bruised by its high dollar and by overproduction. Today producers seek ways to increase local demand and profit. Australia has previous experience with wine clubs dating back one or two decades. These previous experiences can sometimes colour a wine producers’ opinions on the veracity of the global trend toward recurring purchase clubs.
“We’ve done it before, we did wine clubs in the ‘80s. How are online recurring purchase wine clubs any different?”
The answer is that technology, social networks, and better educated consumers are driving demand for more detailed wine, brand and winery experiences. Today’s consumer behaviour all indicate DTC success for Australia wineries.
When evaluating global trends in the recurring purchase model, as well as regional and local sales efforts in Australia, there is no cultural barrier to Australians adopting recurring purchase wine clubs. This is validated by the tremendous success of pockets of local and regional wine clubs in such areas as the Hunter and Yarra Valleys.
Australian success stories
Successful wine clubs in the Hunter Valley offer their subscribers premium wines and exclusive experiences. Wine club members receive regular shipments of their favourite wines, and are entitled to winery benefits akin to loyalty programs across other industries.
One mid-sized, Blackboxx powered club in Australia has enjoyed a 15% membership increase in only 5 months. The recurring club for this winery now comprises 2% of their total wine production, not including incremental ad-hoc purchases made by club members through the cellar door or via ecommerce. That 2% of production makes up approximately 5% of the winery’s profit, assuming standard DTC profit margins. Simple, active promotion of this wine club adds new members almost every day of the year and is shifting core revenue channels of the winery’s business towards DTC.
Another Blackboxx-powered Australian wine club sees more than $100,000 revenue each time they ship to club members, not counting the ad-hoc ecommerce and DTC revenue that flows from keen members in between club shipments. Adding such member benefits as first access to premium wines and member-only events also helps drive new member sign ups at these clubs and further increases profits.
These are only two examples of independent wineries successfully driving recurring sales. Additionally, existing national DTC recurring wine clubs in Australia are obtaining a growing share of volumes. Many producers call them the fastest growing and most profitable element of their business. Both anecdotal and quantitative evidence illustrates that the speed of adoption with major producers is accelerating.
At one winery, Sam Miranda, membership benefits are immediately apparent at the cellar door, where every visitor is encouraged to join. Their cellar door experience so integrated with membership it’s no longer independent from the club. Members receive wine quarterly, and enjoy access to exclusive wines, discounts and prizes.
There are consistent positioning statements that most highly successful recurring wine clubs have adopted, both in Australia and globally. The main concept is to not compete on price, but to compete on the experience of the club. Producer owned recurring wine clubs have a number of advantages that retailers or online third parties cannot replicate. The release of library vintages, early release of new vintages, exclusive “club only” lines of wine and the ability to source specific amounts of the flagship wines are all important concepts for any producer’s recurring wine club in Australia.
While recurring wine club members are typically “brand advocates” and less price sensitive, most many “wine only” or “discount” buyers lack loyalty to a specific merchant or channel, and focus on chasing deals. According to Dan Jago, Tesco’s Group Wine Director speaking at the 2013 Wine Vision conference in London, his firm analyzed millions of pieces of club card data, and determined that customers who purchased only wine are:
“not loyal to Tesco, they go after the deals”.
Producers must understand they cannot compete on price with major retailers, but that they can build strength and value in their wine brands, and sell an amazing wine club experience. It had been proven that the most profitable means to build this value is via recurring wine clubs, with recurring DTC purchases yielding 0.5x to 2.0x the profit margin of selling through retail (depending on jurisdiction).
Canada – recurring clubs are developing, nationally
Canada has seen a strong uptake in recurring wine clubs developing over the past ten years, only slightly lagging the even stronger development in the United States. This has occurred in Canada even as wine producer recurring clubs were limited to their regional geographies (provinces) thanks to federal laws held over from Prohibition which restricted inter-provincial shipments of wine. In June 2012, Canada’s Federal Government passed bill C-311 which eliminated the federal restriction on shipping wine across provincial borders for personal consumption. There are, however, still provincial regulations which have made true national clubs slightly harder to run. This strong growth, even with extreme fragmentation of the potential pool of buyers, illustrates a strong motivation by Canadian consumers to support Canadian wine producers, a feature we see repeated in both Australia and the United States.
United States – recurring clubs are highly developed and successful
The United States is the epicentre of recurring wine clubs globally. It is the most developed, has the largest impact to wine producers and the largest consumer following of any geography globally. The market is highly concentrated with 49% of winery direct to consumer shipments originating from Napa Valley and California as a market receiving 32% of total U.S. shipments. That is compared to California making up 12% of the total U.S. population, illustrating that there are still many U.S. states where DTC and wine club shipments are not as common.
The US market’s asymmetrical positioning is primarily due to the three-tiered distribution system. Additionally, that each state has its own regulations around shipping wine direct to consumer is also a major complicating factor and has led to the creation of companies like ShipCompliant, www.shipcompliant.com whose sole purpose is allowing wineries to ship DTC on a state by state compliant basis.
North American success stories
The U.S. has a slightly more liberalized regulatory picture than Canada, but further complicated by having 50 states and almost as many different retail structures. Despite these barriers, recurring wine club shipments and direct-to-consumer ecommerce is more prevalent and successful than anywhere else in the world. This is explained, in part, by the availability of modern ecommerce tools in North America, and in part by buyer behaviour and how consumers like to purchase wine.
Local tourism is a major contributor to the culture of North American recurring wine clubs. BlackSquare sees growth at all wine producer levels, from small boutiques to medium-sized and major producers. The single consistent factor is the presence of a tasting room (cellar door) which enables conversion of tourists enjoying the winery experience into recurring, online wine club members.
Tactics and spend vary greatly but for a small winery, signing up one wine club member will yield ~$600 in revenue, and after one year (assuming 50% out of the year for tourism) roughly $110,000 in gross revenue, assuming a 4% conversion rate and a price point of $150/shipment.
A sample of two small Canadian vineyards on the Blackboxx platform which have achieved success with wine clubs in their first 18 months of club operation show some consistent points. They are both staffed by enthusiastic, incentivized employees; the engagement drives sign ups, and both clubs have been growing steadily. Each of these small producers (under 10,000 cases) now sends quarterly shipments to hundreds of members. In six months, one club grew by 2.4x, with the recurring wine club now representing 2% of the winery’s production. The recurring club continues to grow steadily even in the off season. The other small winery has a club that’s barely 12 months old and already sends approximately 5% of production to wine club members with growth accelerating.
Medium sized wineries
Wine club and winery growth build upon each other. For instance, a medium-sized winery that is open for three-quarters of the year and employs trained tasting room staff should be signing up 2.5 club members per day. This sign-up rate will yield $410,000 in gross annual revenue after one year, assuming a 3.3% conversion rate and a $150/shipment price.
A mid-sized Blackboxx-powered Canadian producer is seeing excellent success with their relatively established wine club. Membership continues to grow, their staff host member-only parties and deliver member-only, limited edition wines. Members are encouraged to refer friends to earn small pricing discounts, and thus, build the community and the wine club size. This winery has increased their club membership base by nearly 9% in just 4 months during the off season and continues to see production shift to DTC shipments.
If we examine a large winery that is open year-round and experiences roughly 50,000 visitors per year (135/day), an expected 3 wine club sign-ups per day yields a gross revenue of $650,000+ after year one.
Large successful clubs in the U.S. sign up members in the tasting room regularly, and can reach 5,000 members or more. One such winery achieves approximately $4 million in revenue every year from its wine club. Each member is worth around $800/year, compared to their ad-hoc ecommerce purchasers’ value of approximately $50/year. This club has been around for a decade, and has been capped since the popularity causes it to send so much of production to club members. They attract and retain members through exclusive vines used only to make member wines, club events, and member only offers. An excellent example of American winery “best practices” is seen at Chateau Ste. Michelle. Their club employs a waiting list to manage the overwhelming popularity of their club.
Though recurring wine clubs offer the highest benefit, there are worthy incremental sales that can be obtained from electronic marketing and promotions, as well as search engine marketing (SEM) and search engine optimization (SEO). These incremental sales to wine club members translate into thousands of dollars in extra revenue from loyal customers who may not be otherwise motivated to make online purchases.
Two common global trends:
- In all geographies, wine club members see value in connecting with the winery and the exclusivity of the wine club experience. Wine club members are not overly sensitive to price differences between their wine club package and retail pricing. The focus is on the range of perks that their loyalty delivers them, and the preferred service they receive from winery staff. Do not compete on price.
- Producers recognize that a successful club stabilizes high-margin revenue streams, gives them greater ability to control production preferences and price points, and allows them to operate in conjunction with retailers, rather than at the behest of retailers. Wineries are empowered to differentiate their brands in ways that suit them, and build a loyal, valuable customer base.
BlackSquare’s global expertise is unique and hands-on, and comes from delivering valuable technology and best practices to wine industry clients on four continents.