Wine Business Monthly's third annual Tasting Room Survey provides an inside look at how tasting rooms are evolving as key revenue sources for wineries. In fact, for the amount of revenue they generate, tasting rooms at smaller wineries could be considered their leading "distributor." Among this year's survey results, we find that more wineries are seeking to maximize sales in their tasting rooms by charging higher tasting fees and increasing wine club sign-ups by offering greater cash incentives for employees who enroll new club members.

Survey data reveal that 65 percent of winery tasting rooms are now charging a fee for tastings (6 percent more than last year) and that charging tasting fees in the "above $5" range has become considerably more popular (up 17 percent since 2006). As for wine clubs, 74 percent of wineries now have them (although there are nearly twice as many associated with West Coast wineries), and 15 percent of wineries are now paying an incentive of $15 or more for each wine club sign-up (up 7 percent since 2006).

Since differing trends often exist between West Coast (California, Oregon and Washington) wineries and wineries from all other states, many of this year's survey figures have been broken out along this division to provide a more accurate picture of tasting room activity in these two broad regions.

Tasting Room Sales

Sales from tasting rooms represent a significant portion of all winery sales. On average, about half of all winery revenue comes from tasting rooms, a number that has held steady since 2006. By region, this number is higher for non-western tasting rooms (67 percent) than for western wineries (39 percent) (Chart 1).

Non-western wineries rely more heavily on direct sales from their tasting rooms than western wineries for various reasons. One is that it can be more challenging to stir the interest of distributors, local restaurants and retailers who may not be willing to take on wines from often smaller wineries from lesser known regions. Because they lack a broad market, these wineries place a greater emphasis on selling directly through their tasting rooms.

"We do so much business through our tasting room because we'd rather earn $200 a case by selling directly to our customers than $100 a case selling through a distributor," said Chrysalis Vineyards' hospitality director Hump Astorga. Chrysalis, a world leader in the growing of Norton grapes, is located in Middleburg, Virginia (10,000 cases) and relies on its tasting room for 90 percent of its total revenue.

When we look at tasting room sales by winery size, we find that tasting rooms at smaller wineries represent a higher ratio of overall sales. Tasting rooms for wineries selling less than 5,000 cases annually generate 52 percent of all winery sales for western wineries and 66 percent for non-

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western wineries (Chart 2). For mid-size wineries (5,000-49,000 cases), tasting rooms in non-western states made a leap in this area, with 20 percent more sales coming from their tasting rooms since 2007.

Wineries having the largest number of annual case sales appear to rely on their tasting rooms less as a factor of overall sales due to their relationships with distributors and restaurants although large wineries in both regional categories have seen slight increases in this percentage. Not surprisingly, most all tasting room sales dollars are derived from wine purchases: about 86 percent (followed by purchases of food, glasses and clothing).

In an effort to reach out to more customers, some wineries have taken a less traditional approach to the location of their tasting room, choosing to operate more than one or not have their tasting room on the winery premises at all. However, having one tasting room only located at the winery is still most common, with about three-quarters of all wineries operating with this arrangement. While single winery locations are on the increase for non-western wineries, western wineries are experimenting with multiple tasting rooms, with at least one at the winery (Chart 3).

Flying Dutchman Winery in Otter Rock, Oregon (less than 2,000 annual cases) operates one tasting room at the winery, one in nearby Astoria (next to a restaurant where tourists from docking cruise ships dine), and has a third in the works six miles away in Depot Bay (which will open later this year). Since the winery relies on its tasting rooms for most of its revenue (80 percent) and is off the main highway, having multiple locations has made good sense for owner and winemaker Richard Cutler. According to Shannon Macias, who works at the winery, the Depot Bay tasting room will be much more inviting. "It will be more of a destination, with decks and views and a fireplace: a place where visitors can sit and have more of an experience rather than just a tasting."

Wine Clubs

With wine clubs growing as a popular revenue stream for wineries, we decided this year to ask wineries if they had their own club. Nearly three-quarters of all respondents said they have a wine club, a percentage that seems to indicate wineries have become sold on their benefits.

"I would no sooner start a winery without a wine club than buy a car without a fuel injector," said Craig Root, a tasting room consultant who has helped create over 75 wine clubs. Root believes that one of the best reasons to have a wine club is that it has the highest margin in the wine business: over 50 percent versus around 30 percent for tasting rooms (with their higher overhead). In addition, wine club members become unpaid ambassadors of the winery; and because they're getting more attention from the winery, they tend to visit more frequently, often with friends in tow.

Root shares an example to illustrate the worth of even the most conservative wine club: With 100 members receiving $25 shipments just four times a year, that's still $10,000 a year. "Sometimes I feel like I'm saying, 'Hey, there's $100 on the sidewalk,' and people complain about having to bend down and pick it up," said Root.

There are different factors that may explain the regional split in wine clubs: 87 percent of western wineries have clubs, and only 45 percent of non-western wineries have clubs (Chart 4). Many non-western wineries are small or fairly newand are run by owners who have outside jobs or are raising families in addition to running a winery. Having adequate time and money to set up, staff and process a wine club year-round can be a challenge. In other cases, many of these states' regulations place various restrictions on the direct shipping of wine.

Fenn Valley Vineyards in Fennville, Michigan (20,000 cases) points to some of these factors as reasons why they have yet to start a wine club. "We've been batting around the idea, but we are not set up with wine club software and credit-card processing," said tasting room manager Molli Young. "In addition, the ever-changing shipping laws and compliance issues we'd need to abide by have made us not want to jump into it." (For more on wine club software, look for a product review in the July issue of WBM.)

However, non-western wineries are becoming much more interested in wine clubs than they have been in the past. "I find that the requests for wine club seminars and information about wine clubs are growing in these states, and that more wineries are eager to start clubs," said Elizabeth Slater, founder of In Short Direct Marketing, a company that presents seminars and advises individual wineries and winery associations on marketing and public relations projects. She added that as many of these wine regions become more popular there will be a greater call for their wines to be shipped.

Tasting Fees

One of the most significant changes between this year and past surveys is the number of wineries that are now charging for tastings. Of all responding wineries, 65 percent now charge for tastings compared to 51 percent in 2006.

When looking at this trend by region, we see that while the number of non-western wineries has held steady over the last three years (around 50 percent), the number of western wineries that charge for tastings has steadily increased to 73 percent in 2008, compared with 51 percent in 2006, a 22 percent jump (Chart 5).

White Oak Vineyards and Winery located in Healdsburg, California (22,000 cases) decided to start charging a tasting fee this year. "We wanted to introduce a second tier of estate-grown, limited-production varietals to our tasting menu, so we thought it would be a good time to start charging a nominal tasting fee for our first tier," said tasting room supervisor Ron Roselli. The winery charges $5 for its first tier tasting (5 tastes) and $10 for its second tier (up to 7 tastes), both of which are refundable with a purchase.

About 35 percent of all wineries still do not charge any tasting fee. Fenn Valley Vineyards has chosen to forgo a fee. "We're off the beaten path, so there is no competition, and very few people abuse this privilege," said Young.

Lakewood Vineyards in Watkins Glen, New York (29,000 cases) also does not charge a tasting fee. "We've gone back and forth about it, but we have so many repeat customers who tell us they appreciate the fact that we don't charge," said assistant tasting room manager Teresa Knapp. "Our percentages are good in other areas, so it's not a necessity." For large groups of 12 or more, however, the winery charges $2 per person.

For those that do not charge because they feel it may deter visitors, they can take comfort in the fact that charging is becoming increasingly well-accepted and even expected by many visitors. To make the transition less abrupt, tasting rooms can choose to start off with a small fee, such as $3 to $5 per person, explaining to visitors that each fee can be applied to the purchase of one bottle of wine (if state regulations allow this practice).

In addition to more wineries charging for a tasting, many tasting rooms are raising their fees for a tasting. We see this trend with wineries in all regions. For western winery tasting rooms, 48 percent are now charging $6 or more for a tasting (up from 33 percent in 2006), and in non-western tasting rooms, 26 percent are charging $6 or more for a tasting (up from 7 percent in 2006) (Chart 6).

Fee increases may be attributable to rising production costs (fuel surcharges, employee labor, glassware, utilities) in more populated areas. In addition, wineries realize they can charge (and can charge more) as the wine tasting experience becomes more likened to enjoying a glass of wine when out to dinner or to wine bars which typically charge for tastings.

One winery has taken a creative approach to raising tasting fees. Ponte Family Estate Winery in Temecula, California (20,000 cases), which generates most of its revenue through the tasting room (90 percent), has two different fees: $10 per person Monday through Friday and $12 on Saturdays and Sundays. "We get such large groups in here on the weekends, it can be overwhelming; so the slightly higher fee helps make room at the tasting bar for those who are more serious about tasting," said tasting room manager Lauren Todd. Because of the region's marketing efforts and its proximity to Orange County and San Diego (and the three to four hour drive to the next closest major wine region, Paso Robles), Todd says their tasting room usually draws between 500 to 700 people each weekend day and 50 to 100 during weekdays.

When asked if their tasting fee could be applied to a wine sale, 56 percent of western wineries said "yes" while only 24 percent of non-western wineries said "yes." There has been little change in the numbers of wineries deciding to apply the tasting fees since last year, but it is interesting that twice as many western tasting rooms apply their fee than non-western tasting rooms (Chart 7).

Veronica Barclay, founder of Barclay and Company, a wine marketing and consulting firm specializing in sales and marketing projects for small- to medium-sized wineries, offers some reasons for this divide. "Some non-western states do not allow their wineries to give away free tastes, so they have to charge a separate tasting fee to stay legal," she said. "In the West, because there are so many wineries in close proximity, the competition is stiffer, and being able to apply the tasting fee to purchases gives visitors more of an incentive to buy."

It has become a popular perk for wine club members to have their own tasting fee waived as well as fees for a certain number of guests. Tasting fees can also be used as a wine club recruitment tool, where at the conclusion of the tasting the winery offers the taster free entry into its wine club in lieu of paying the tasting fees.

Chrysalis Vineyards charges $5 for an estate tasting of seven wines and $10 for a reserve tasting of 12 wines, but chooses not to apply the fee to purchases. "We don't apply our tasting fees because we feel we give visitors so much already: all the different tastings, an hour-long tasting presentation, a free glass and great views," said Astorga. "We provide visitors with an experience and make them feel welcome when they are here."

Employee Compensation

Every other year our survey includes the topic of tasting room employee compensation (excluding tasting room managers). We can see looking at Chart 8 that "hourly wage" leads the way as the most popular form of compensation, followed by "incentive on wine club sign-ups," which is more popular in western tasting rooms.

As for the compensation of tasting room managers, we saw in our "2007 Salary Survey Report" (October 2007) that their salaries are on the rise as a result of the wine industry's increased focus on direct sales. From 2006 to 2007, salaries jumped 5.4 percent to $49,519 (and almost 20 percent over the last six years).

However, Barclay believes that wine club managers are still generally under-valued. "Wine club managers are the least paid yet probably bring in the most revenue at the highest profit levels," she said. This, she feels, is due to the fact that in many cases winery management does not understand wine club operations and software, and often underestimates the time involved in updating club databases, processing credit cards and handling returns, all of which demand substantial time during every subscription shipment.

Employee incentives for wine club sign-ups in the West have increased considerably since 2006. For western wineries the incentive amount offered to employees has more than doubled in the $15 and over category in the last two years, going from 8 percent in 2006 to 19 percent in 2007. This may reflect wineries' better understanding of the long-term revenue stream that can be generated from wine club members. In 2008, we also see that western wineries offer much higher cash incentives to tasting room employees than non-western wineries in the $10 and over categories (Chart 9).

According to tasting room consultants, selling a wine club membership should never feel like a hustle. Wine fans enjoy being in wine clubs and view them as a fun way to send themselves gifts in the future. However, a significant number of tasting rooms are still not offering any cash incentives to employees who sign up new wine club members: 70 percent of non-western wineries and 35 percent of western wineries do not offer any cash incentives.

"Not offering employees an incentive to sign up new wine club members ends up costing wineries money," said Root. "The incentive is a pittance compared to what can be made in the first 18 months of a wine club membership--paying an incentive can't hurt you." On average wine club members stay in a club at least 18 months before dropping out.

Root explained that the amount paid to employees should be high enough to motivate them but not so high that they become aggressive "club sharks" who end up ignoring other aspects of the job. "For most of my clients I usually suggest an incentive of between $15 and $20," he said, adding that an incentive needed to be structured so that the winery will make 10 to 20 times that amount from the wine club member.

Many wineries have come to understand the value of each new wine club membership, and so they provide a healthy cash incentive to employees. The Chrysalis Vineyards wine club is almost four years old and has around 430 members. With every new sign-up, employees earn $25. "We give our tasting room employees good wines and a long time to present--we do timed tastings so they have an entire hour to do more than just pour wine," said Astorga. "At the end of this presentation they talk about the wine club and ask for sign-ups."

Training

As for training tactics, a variety are popular, including job shadowing, formal written materials, meeting with the winemaker and/or vineyard manager, and responsible beverage hospitality training (Chart 10). Ironically, meeting with the wine club manager and receiving formal sales training rank lowest as training methods (although both of these areas have seen slight improvement since we asked this question in 2006).

A good training program allows wineries to hire people that are friendly but might not have much wine knowledge or sales experience. "Wine knowledge helps, but you can teach someone about the wine; what you can't teach someone is how to treat others," said Ponte Family Estate Winery tasting room manager Lauren Todd. New part-time employees are trained in a variety of ways, including shadowing a senior server for anywhere between two to four weeks to become comfortable behind the counter.

In addition to product knowledge, Barclay believes customer service and sales training are two of the most important, yet most lacking, aspects of a new employee's training program.

Respondents reported different time periods spent training each new tasting room employee, with the most popular being 1 to 4 hours (33 percent) while an average of 26 percent of respondents spend "more than two days" in training. Any ongoing training that employees receive consists mainly of wine tasting (75 percent indicated) followed by seminars with winemakers and vineyard managers, seminars on food and wine pairings, and seminars on compliance and tasting room management (Chart 11).

Customer Information

Mining information from winery visitors and customers is an important part of generating revenue. We asked wineries if they collected information from people at the three most common customer contact points: the winery tasting room, website and winemaker dinners. There was little fluctuation in the responses over last year, but it is clear that information is still most frequently collected via the tasting room for both western (94 percent) and non-western wineries (88 percent) (Chart 12).

Other points of interaction are also valuable. Eric Groves, senior vice president of Worldwide Strategy and Market Development for the email marketing company Constant Contact, said that the telephone is still under-utilized when it comes to collecting customer information. "Many people will call the winery or tasting room first before they come by, and this is a golden opportunity to ask if they would like to be added to the winery's email list," he said, adding that most people overlook this opening, especially at larger wineries where the employees answering the phones are rarely trained about the value of collecting information and how to ask for it.

Putting out a guest book and hoping that tasting room visitors will leave their contact information is simply not enough. "I go into many tasting rooms, and I am always amazed at the number of times I buy wine and leave the winery without being asked for any contact information," said Elizabeth Slater. "All wineries selling direct to consumers should collect as much information as possible about the people who purchase, or may purchase, their products through as many avenues as they can." Slater emphasized that even if you only get the basics, such as a name and email, you can ask for additional information later.

Email addresses are still the most sought-after type of information, with practically all wineries that collect information saying they ask for it. Requests for email addresses are followed most by mailing address, phone numbers and birthdates (in this order) (Chart 13). However, wineries who are thorough in their information collecting will generally ask for three levels of information: basic (name and email), comprehensive (basic plus mailing address, phone, birthdate) and targeted (comprehensive plus a person's special wine/winery-related interests).

Toward maximizing information gathering, Slater suggested that when tasting room visitors make a purchase, they are handed a card that asks for all their contact information (or an employee can fill it out for them). The card should have a check box to opt-in to receive winery information while other more specific questions can also be asked, such as the person's wine preferences and whether or not they enjoy attending wine events.

According to Groves, wineries that sell a wide variety of products often collect targeted information so they can better segment and tailor their email campaigns. "Since the targeted email or newsletter you are sending them talks specifically about what interests them, the likelihood that your email will actually be opened increases and therefore gives people more incentive to buy from your winery." But, said the experts, if you're going to go to the effort of collecting more information, be prepared to use it because it will take time, resources and content to follow up on it in a timely manner.

The number of wineries offering incentives to join their mailing list has remained unchanged since last year, with about only a quarter of all wineries doing so. Part of the reason for this lower percentage, said Slater, is that all wineries and tasting rooms are not necessarily marketing-oriented, so many direct marketing concepts and techniques are not considered. "Wineries and tasting rooms need to be more aware of the ways they can encourage consumers to add themselves to mailing lists and become more connected with the wineries and wines," she said.

The types of incentives provided to entice customers to join the winery's mailing list also remain consistent with last year's findings. The most popular incentives are giveaways, entry into a contest, and discounts or special offers (Chart 14). Discounts on future purchases are especially motivating and help to ensure you get an accurate email address. A few creative wineries also noted that they offer free entry into their wine club, gift certificates, recipes, and information on wine and winery events.

A new twist on incentives, said Groves, is to offer people on your mailing list entry into a contest for wine or another related prize each time they forward the email message (from the winery) to a friend (the number of forwards can easily be tracked by an email marketing service). "This technique not only allows you to quickly grow your mailing list, but you can use it with existing customers as opposed to waiting for someone to walk into the tasting room or visit your website," he said.

Tasting Room Tactics

Tightening up your tasting room tactics can make all the difference between a slight increase in annual revenue and a record-breaking year. Keep in mind, if people are visiting your tasting room, they are already interested in your winery so don't be afraid to ask for all three levels of customer information (at every contact point) while offering them an attractive incentive (like a free pass into your wine club). If you don't have a wine club yet, start one if you can, even if it's small and simple. If you don't currently charge for tastings (and are able to), test the waters; you may find visitors are more than happy to pay for the unique experience you are providing. And last, don't underestimate employee compensation and training. wbm

About The Respondents

This year's survey received a total of 372 responses (252 Western wineries and 120 non-Western wineries), including 175 from California, 39 from Washington, 38 from Oregon, 16 from Canada, 14 from Virginia, and nine each from Texas and New York.

Forty percent of responding wineries produce fewer than 5,000 cases annually, another 33 percent produce 5,000 to 24,999 cases, and the remaining 26 percent produce 25,000 or more cases (2 percent of which produce a million cases or more).

Fifty-five percent of survey respondents reported their job as working in the tasting room, 47 percent as president/owner/GM, and 47 percent in sales and marketing (respondents were able to choose more than one function).

The purpose of the survey was to determine trends in tasting room practices and procedures. Please note that the findings of this survey are meant to offer a general picture of tasting room trends and practices. It is not a scientific study, and should be used only as a tool and a point of reference for further inquiry.

Thank you to all respondents who participated in this year's survey.

Cathy Fisher lives in Sonoma and has been writing on the wine industry for four years.