A fair question posed by Josh at Pinotblogger today reacting to yesterday’s news that Stormhoek’s UK partner, Orbital, has closed.
How could this happen to a wine brand that has grown so quickly in sales while spending so little on marketing?
The retail wine business is cruel and unforgiving. And it’s worse in the UK.
For those not in the wine trade, a winery sells to distributors for 50% of the retail bottle price. The distributor, in this case Orbital, then sells to retailers and restaurants to give them something like a 25-30% margin. They also have to pay for shipping of the wine, storage, some taxes, marketing and staff expenses. So what seems like a large margin becomes razor-thin particularly when dealing with large retailers like supermarkets.
Since the UK market is not nearly as fragmented as in the US, retailers have more leverage to get the lowest price for wine especially for products in the Ã¢â€šÂ¤10 and lower range. It’s also sort of a Catch-22 situation with wines selling in this range since shipping cost becomes such a large factor unless consumers buy in case lots; thus a totally direct strategy is not possible for brands like Stormhoek.
So to answer Josh’s question, yes, social media does work for wine, particularly for lower production, higher-priced wines like he will be selling. For brands like Stormhoek, they will need to forge distribution relationships with those who have a portfolio to support the low margins in their price range. From Jason’s post today, it seems that process is now going on.
Stormhoek is far from dead and social media is the future of wine marketing even if most of the trade in the US hasn’t yet noticed.
Cartoon by Hugh MacLeod of gapingvoid.com
Chris Rawlinson says
Hope all is well, just to let you know the problem wasnt with the stormhoek profit margins or much at all to do with Stormhoek, the problem was that they had several other wine brands in the stable that were not making money and Stormhoek alone couldnt make up for the losses occured from the these other brands.
If you have any questions please feel free to email me at firstname.lastname@example.org
Social media definitely does work for wine. We launched winescorecard.com only very recently, and we have been amazed at how quickly our user base has grown. And we have not yet really rolled out the true “2.0” features yet. They are still in private alpha.
Taster A says
Social media seems to be gaining in popularity and does provide the benefit of disseminating information. We are at the mercy of what the small stores will stock. By reading what others are up to, we can expand our horizons and when we are in a different area, we know what to look for. Also, it is useful to have bloggers post about their local wineries. In the States the small producer has enormous obstacles to overcome. Name recognition is just part of it. It is difficult for a small producer to promote his product with 50 states having their own laws, some down to the county and city level. (http://smellslikegrape.blogspot.com/2007/11/cant-ship-there-from-here.html)
Direct sales are important for the small producer, but the opposition is not insignificant. (http://specialtywineretailers.org/blog/2008/01/07/wholesales-spend-50-million-on-political-influence/) Wine blogging increases awareness.
Thanks for the support.
Yip, we are pretty much here to stay. But like I said to Josh (and Jason also hinted to it in his post) this is probably a necessary cleansing so that we can refocus and re-energise, the blog and the brand in the UK (as well as the rest of the world).
Businesses go under all the time – usually due to circumstances beyond ones control (sub-prime) or diluting focus or overextending ambition. I believe that Orbital was most likely a combination of the above.
Felix Dennis says it best, get out early when there are problems, but as Guy Kawasaki says, you start something to make meaning – especially when there is something worth saving. Stormhoek in the UK is worth it and hopefully a new great white knight will emerge. In the meantime, we are not taking it laying down. Other than actively looking for a potential investor we have also thrown it out on the blog. So if you have a couple of bar lying around???
Once again, thanks for the support.
Udi Barone says
There seems to be connection between social media and MySpace. Look at the new trend of hundreds of small wineries developing direct customer relations with MySpace wine lovers.
Very cool to hear what you have to say about this subject. You wouldn't immediately expect vines to be the branche were social media would be picked up so fast. But on the other hand: when it comes to vines a good relationship with customers is of massive importance, and social media are just the tool for that.
I very much like the reaction of Chris of Stormhoek Vines (the first reaction to this post). It is using social media at it's best.
thanks for the information, Even i am facing the same problem with the social media sites, as the wine category, they are not able to access the things.
this is my wine site grandwinecellar.com
any ideas how to submit social media sites. any list of social media for only wines.
Gift Taxes says
Social media really helped the wine industry. It opened a lot of opportunities for small businesses here and abroad.
Here is what we're doing to integrate social media into our marketing strategy. http://www.onlineprnews.com/news/22970-1266963638…
Woodworking Plans says
Of course it does! Social media works with every product, as it tap out to millions, even billions, of customers around the world.
Perhaps, they have underestimated, or have not made use of a social network’s strengths. If they had, they would have incomes rather than losses.
Dee – Woodworking Plans