While today we have the luxury of worrying about the survival of the Ag Preserve and the Valley as a whole, not that long ago we were worrying about our own survival. During the recession that began in 2007, premium wine sales fell off a cliff. Tasting room traffic in Napa slowed. The economy ground to a halt and with that so did our financial well-being. Restaurants could not sell the high-end wines they had in inventory, so they certainly were not buying more. In late 2007 and throughout 2008, everything just started to crumble. The following year, it looked like the industry was diving headfirst into a big black hole.
As challenging as our wine sales were, our other businesses (and investments) were worse. American Airlines, in which our family had invested heavily, was at the center of our financial woes, but we had others. To make matters worse, in 2005 we had gambled on increasing the quantity we made of our largest wine, our Napa Valley Cabernet Sauvignon. Whereas we made 5,000 cases in 2004, we made 20,000 cases in 2005. This represented an enormous increase in quantity of wine to sell in 2008 (the time the 2005 vintage was ready to be released) in the face of that year’s contracting economy. So even though our sales grew, they did not grow nearly fast enough to move our additional inventory. Talk about adding insult to injury. We had lost lots of money before, but this time it was affecting our wines. We had to survive until we thrived.
The whole economy in 2008 and 2009 just got worse and worse, and 2010 was no better. Sales—especially of wine—continued to be tough. Many of our friends were seeing some slowdown, but we were in a tailspin. While we were selling more wine than the year before, the growth in inventory far exceeded our ability to sell through normal methods. How do you sell lots of high-end wine in a disastrously down market?
In general you would think that excess supply means lower prices, right? Not entirely. Discounting wine can cheapen your brand for years to come. Especially with a brand as young as ours was in 2008, any significant discount could have tarnished our image. It also would have made a subsequent adjustment back to the “right,” pre-recession pricing very difficult.
Kathryn, along with our sales team, hit the road, calling on every relationship we had to try to get people to buy our wine. We had three battles to fight. In addition to the economy, the 2005 vintage—which is what we were selling—was considered mediocre, and HALL was an unknown brand.
It’s never easy to sell a wine that the buyer hasn’t heard of. In difficult times it’s worse. Wine buyers for stores and for restaurants will default to brands that are safe. So it quickly became a time to get creative.
By-the-glass restaurant sales—where the customer purchases wine not by the bottle but by the glass—became a good option. Here’s how it works.
To entice a restaurant to carry a particular wine by the glass, the winery significantly drops the wholesale price. This dramatic price reduction is not visible to the consumer, so it doesn’t impact public perception regarding the wine’s value. At the same time, the by-the-glass placement significantly increases the volume of wine sold. We sold a lot of wine this way in 2008. In short, by-the-glass programming is a win-win-win. Consumers can buy a glass of wine at a much lower price than they otherwise could, since the bottle has been discounted. The winery is able to sell overstocked wines in a larger quantity. And the restaurant makes a very nice profit. Even though we have a shortage of wine these days due to accelerated demand, we still do by-the-glass programming because it helps give the brand exposure to a new audience. This is especially helpful for a new brand like WALT. We want people to try our wine and this is a good way to encourage that.
To further help sales during the challenging market of 2008, we also made a few very specific deals with some very special retail friends. We sold a large quantity of the 2005 vintage to an upscale supermarket chain in Texas at a very deep discount. This can be a dangerous practice, as once you discount to a retailer they expect that lower pricing to continue. Bringing the price back up to “normal” levels is almost impossible. We did the deal because we trusted—and had a solid relationship with—this company. We believed that they would sell our wine quickly and be willing to buy from us at the normal price in subsequent years. That’s exactly what happened. The chain did floor stacks (those large stacks of wine cases in the middle of the aisles that you have to walk around) of our wine in most of their locations. And they lowered the price to a very, very competitive price, but not so low that our image would be damaged.
This placement and the significantly reduced price allowed us to move a lot of our 2005 Cabernet Sauvignon in a very short period of time. Everyone was happy. The store made a good profit. Their patrons got a fabulous deal. And we cleared out the 2005 vintage without compromising future dealings with the store.
It took us more than the normal one year to sell through our 2005 Napa Cabernet Sauvignon. In the fall of 2009, as we prepared to release our 2006 Cabernet Sauvignon, we submitted the wine for review to the Wine Spectator critic James Laube. We were yet to have a wine rated over 90 points by the Wine Spectator, although with each vintage our wines were getting better. Despite submitting our vintage to wine critics, scores were not on our radar in 2009. It was all about surviving to see better days.