The Wake-up Call

Niccolo Machiavelli“Whosoever desires constant success must change his conduct with the times.”

… Niccolo Machiavelli

The Cult

My wife’s friend, New York based designer Joe Macal, told her that this summer in the Hamptons the wine selection on the party circuit is no longer the envy of the wine cognoscenti. The cult wines have been locked in the basement wine cellars of the McMansions, and the famous hosts just don’t think ostentatious displays of conspicuous consumption are cool in this economyHamptons Summer Party. Or so opined a vintner friend over Racer 5‘s in Healdsburg last week . I’m guessing there has been a sort of a reverse Veblen good effect going on here. Well, no doubt the tide is out. Wall Street has sneezed, and it’s looking less like a cold and more like the financial flu. The question being asked in the hills and knolls of wine country is ‘are we in a luxury goods recess, or has long-term consumer, even the most affluent consumer, behavior been modified?’ The luxury category segment of the American wine business known as the cult wine market has been on anKinked Demand Curve Model unprecedented run since 1990. While the term is new the concept isn’t. There have always been wines, as long as wines have been produced and sold, that commanded more attention and higher prices. Although we look at absolute pricing as an identifier of value, pricing is relative to the times, and through the inverted kink in the demand/pricing graph made famous by the late Dr Paul Samuelson in ‘Economics,’ and codified by John Forbes Nash in ‘Equlibrium,’ we’ve come to understand that the stratospheric pricing of cult wines infers on the host and guest the psycho-social attributes, as described by Berkeley’s Erving Goffman, of being accepted as members of the club. However, just ask Silas Lapham, membership in the club may not be long term.

The Call

Screaming EagleRinggggg, ringggggg, ringggggg. Sitting bolt up-right in my desk chair, looking past the glare of the iMac screen in the darkened room, I couldn’t believe that at 5 AM my iPhone was vibrating off the edge of my desk. Quickly shaking my head back-and-forth to loose the remnants of the mind numbing long night’s work of pushing ouHarlan Estatet pricing structures for a client’s new label project, I answered my phone without first checking the caller-ID. At the sound of the click the sonorous voice at the other end of the connection jump started the conversation. “Hi, sorry to call you so early, but did you read today’s Wall Street Journal article on the luxury wine market? Well, it struck home. My sales, for the first time in 15 years aren’t so great, and well, I’d like to toss around a few ideas.”

“Not a problem, I’ve been up working on a project, but no, haven’t read any papers this morning. Ah, excuse me. Who is this?”

“I’m that small cult winery, ha, that you pitched last year about this time and I told you I didn’t need any help. But I just got off the Araujophone with a management contact at my Boston asset management firm and, well, I need it now.” “I’ve replanted about half of my vineyard, changing the potential final blend, and the grapes are in 4th leaf. I could bottle the young juice in my primary brand, but the overall quality would be diminished. And if there was ever a time to push the quality envelop, it’s now.” “I’m thinking about introducing another label, in a more popular tier, something that could be sold in other environments, other channels. I’ve always been at the luxury end of the market, but I do buy other wines all the time, and think it would be great to get this new wine in more hands.” “So, how do I do this?”

The Plan

Yes, it is possible for a luxury brand to execute a lower priced, more egalitarian brand strategy effectively. A clear focus is needed and a tier specific brand plan is necessary. There are key questions that need to be asked and answered.

  1. Theme – name, appearance, label, packaging
  2. Personality – place, product, pricing, promotion
  3. Tactical Plan – what, when, where, how, how much
  4. Reputation Engineering – the PR initiative
  5. Sales Effort – DTC, DTT, existing distributors?

Forts de LatourA great team is in place, and to dislocate them for a new project just wouldn’t make any sense. They are part of the positive story for your existing brands and lend credence to the new project. You’re current cult and luxury portfolio is based on Napa Valley mountain grown Bordeaux proprietary reds. Protect the image of the existing luxury/cult brands by reducing production by further defining selection and maintaining real rarity. Use the traditional Bordelais classified growth second label model. Think Forts de Latour from Chateau Latour, Pavillion Rouge from Chateau Margaux, or Le Petite Cheval from Chateau Cheval Blanc. Share the story of replanting with new clones and the early quality displayed by the young vines, whilimages-3e refining the cult winemaking process. Increase exposure and the positive press and/or wine blog buzz opportunities by providing value and access to wines which were formerly unavailable in the broad market from your winery. In a market in which Michelin star chef Daniel Boulud has decided to focus more on value with DBGB Kitchen & Bar, the idea of a cult brand providing a more value centric model is not only timely, but most likely necessary given the reality of today’s world financial markets.

The Wrap

drafting plansCreating any new brand in a rapidly consolidating and saturated broad market is not without risk. Manage your risk by utilizing research to target the best potential accounts. Work with key lighthouse accounts, both on and off-premises in limited geographic markets, who will provide support through newsletter, blog and/or web endorsements, while avoiding brand image diminishing discounting. Be sharp in your pricing to not only maximize profit but to achieve planned depletion velocity and consumer pick-up and repurchase. Your value proposition is leveraged on your existing reputation, built through hard work and a fidelity to your singular vision over the last 15-20 years. Don’t engage in any activity that will diminish the new brand or your existing brands. And, really only do this if you are totally committed to success, and not just as a short term liquidity fix.

Note: Copyright © 2009 Think Wine Marketing® All rights reserved.

9 thoughts on “The Wake-up Call

  1. Another fantastic piece, and I’m not just being nice when I say that. You’re on a roll.

    Of course, as a consumer I read this and wonder which winery you’re talking about, and I’m guessing at round numbers and thinking “how cult *is* this cult wine maker? how pricey?”

    What recommendations would you have for relative pricing of a 2nd label relative to the flagship label? I’m thinking that for a 2nd label to fly off the shelves it would have to be positioned as “90% as good as the flagship for 1/3 the cost” or something along those lines. What do you think?

    • Robert, thanks for the take on this ‘inside baseball’ think piece. Pricing has as yet TBD. Several factors, and not just the economy or the desire to sell x # of cases factor into pricing decisions. Before the whole meltdown and now the dead cat bounce cycle that we all finds ourselves, pricing at retail most likely would have been north of $125/btl. However, an identification and analysis of competitive frame pricing (TBD) would be constructive in determining where the price point lands. Also, planned points of distribution, play a role. So, no a formula doesn’t exist, but research and conversations with the market will reveal a good strike point.

  2. This is a well written, well thought out piece. Is it perhaps that “cult” wines just aren’t as tasty as the once proud owners thought and now it’s a mere embarrassment to own a wine one paid $250 for and is really only worth (in taste) about $35. When I see wineries describing themselves as “cult”, I first snicker and then my inability to control myself evolves into outright belly busting laughter. Give. me. a. break.

    To all the cult wine owners: Better drink them up, don’t wait as most of those culty wines you have in your cellar are so unbalanced they will not age well.

    • Randy, thanks for the read and the comment. I used the term ‘cult wine’ as a well-known and accepted modifier of a subset of luxury wine products because it is widely understood. Because of my, more or less, ‘back office’ wine industry involvement, I’m really fortunate to have had the opportunity to have tasted current and older vintages of most wines in the ‘cult’ category, and well they’re really quite good. But that’s why I don’t review, in a traditional way, wines. What’s good to me may not be good to my neighbor, or more importantly to you. I also understand the vision, detail and effort put into a limited production wines, whether Petrus or Grange or Mouton or DRC or Harlan. Even when I was starting out in the business, there was a class of wines, mostly Bordeaux, more highly valued and therefore much more expensive, and available to the few. The downside effects on this market are the same macro-market effects as to why I got an incredible deal on my new Audi. Audi is making better cars than ever, but due to a real loss of world and individual wealth we are all searching for intrinsic value, looking for a deal. In a discussion yesterday with a wine distribution exec for whom I hold the highest respect it was agreed that today’s consumer has reset spending habits culturally ingrained over the last 20 years. The rate of savings is up, consumer debt is being paid down, American Express ring and rate of spend are down, etc. When and if we get past this dead cat bounce cycle and income and opportunity return, we’ll see. The class of ‘cult wines’ is actually still selling, just not as quickly and with not as many request. But the psychology of economic stress is affecting the whole of the wine business above $25/btl.

  3. The problem with Cult wines is just that. You literally have to join the cult and sign over all your money to get them. It seems time for the bubble to pop on business as usual for cult wine producers. You certainly offer sound advice for current times.

  4. Pingback: WSJ: Luxury Wine Market Reels from Downturn « grapeful

  5. Hi,
    Well done piece. I have been saying (I work in the wine business) for the past six months to my clients (and anyone else that will listen) that however much we do not like the downturn, the lower sales, the backed up inventory, etc – that this will actually be a good thing (for wine consumption/the wine consumer and the wine industry as a whole) in the longer term. There has been a resetting of reality (your term is consumer modification) when it comes to buying wine – just as (one can hope) there has been a resetting of the unstoppable-American-consumer. You mention that savings are up, Amex charges are down – would this be a longer trend where Americans actually learn to live within their means rather than well beyond, we will all be better of. Would the American wine consumer learn to enjoy their wines, especially wines that are affordable and available on a daily basis – we would be a healthier, wealthier and friendlier nation. People are looking at new wines in new (lower) price-points and this means that the demand for wines that a few years ago would have a marginal market are now getting good attention. We are expanding our horizons beyond the ordinary, looking for the value, looking for what’s new and different because we have gotten away from the belief that price is the primary factor indicative of quality. I look at this downturn and see the effect on the wine business and culture in this country as benefiting from less “cult” wines. We all (should) know that less is more. Less wannabe cult wines means that the true cult wines (and there still are a few) will perhaps get their mojo back, and it will be more fun to find them once again. I would also point out that years ago cult did not always equate to 3 digit prices. Cult referred to rare and hard to find wines that had a legendary (or cult) following because they were Grrreat! Just because you can produce a wine that supposedly sells for $300 doesn’t mean that you should.

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