New Ways to REthink Your Direct Sales

1. New Ways to REthink Your Direct Sales Mitch Schwartz VP, Sales & Client Development Inertia Beverage Group

2. Topics REthink Your Business: Are you effectively planning for direct sales success? REthink Marketing: Would an allocation model be right for your brand? REthink Sales: Is there a direct to trade opportunity for your brand?

3. REthink Your Business: What do we mean by direct? • Tasting room • E-commerce (shopping cart) • Wine Club • Allocation (or release model) • Direct to trade

4. REthink Your Business: To start, set a goal • Goals should be both short and long term • Identify what you need to accomplish in the next year • Know where you’d like to go in the next 5 years • Don’t forget the past • Consider where you came from; results over the past year • Apply key learnings to this years’ plan • Define the optimal mix of sales you would like to achieve. Example: Total Case Production 3,000 cases Direct to consumer 40% 1,200 cases Trade 60% 1,800 cases

5. REthink Your Business: How do your short term goals fit with your long term goals? • Consider this example: • In three years, your production will grow to 8,000 cases • Will your sales mix stay the same? • Will you want to increase or decrease your direct to consumer sales? • Are your sales and marketing actions today preparing you for tomorrow?

6. REthink Your Business: Now what is your plan by segment? • Direct to Consumer • x% to tasting room, club, e-commerce, allocation • Is your plan different by product? • Are some products only sold in the tasting room? • Only sold through club? • Is there a wine(s) that should be sold exclusively to the mailing list?

7. REthink Your Business: Planning by segment (cont’d) • Trade sales • What states do I want to sell in? • Sell direct, or through a distributor? • Broker or direct employee • Do all distributors get all my wines, or do I segment and allocate?

8. REthink Your Business: Details of a plan • Consider this example: • Winery with a tasting room • 5,000 total case production • What percentage of total case sales are direct to consumer?

9. REthink Your Business: Planning Ahead • Assume production increases to 8k cases annually in 3 years. In order to maintain a 36% direct case rate of sale, consider three scenarios: • Your average # of bottles sold per order increase to 10 • Your visitor traffic increases to 19kannually • Your conversion rate increases to 48%

10. REthink Your Business: Planning Ahead (cont’d) • The same logic applies to your wine club. • Consider your total wine club case sales rate currently. To maintain a consistent rate of sale (10%), various scenarios might exist.

11. REthink Your Business: In Summary • Set a macro-goal for the winery, then build goals by channel and by channel segment. • For every goal, there should be at least one strategy. • Understand the metrics which will assist in the evaluation and measurement of those strategies. • With goals, strategies and metrics… build your plan to execute.

12. REthink Marketing: Would an allocation model be right for your brand? • What is an allocated wine? • A wine that is only sold to a mailing list upon release. • The customer is allocated a certain quantity of wine, which is the most they can buy. • Once the offering season is over, the wine is no longer available for the consumer to purchase.

13. REthink Marketing: Allocation Management • What is a mailing list? • A list of contacts and customers that have been elected to receive news throughout the year about current wine releases, winery events, etc. • What is a release program/model? • Wineries will release their wine for purchase several times per year (usually in the fall and/or spring) coinciding with an “offering letter” (direct mail piece) that will include information about the wines • What is an offering season? • An offering season is the window of time that a winery allows for purchase • What is an allocation? • Often used in conjunction with a mailing list when inventory is limited, an “allocation” or reservation of inventory is set aside for each mailing list customer

14. REthink Marketing: The 3 Principles of a Successful Allocation Program • The most successful ‘Mailing-List’ or Allocation wineries uphold 3 key principles that anchor a successful release program: • Exclusivity • Perception of Scarcity • Conditioning of Purchase Behavior

15. REthink Marketing: Exclusivity • The “Velvet Rope” • The first step in building an allocation program is to invite them to be part of small group of people with privileges above and beyond those for your “regular” customer • Limited Access to Wine • Customers that fit this profile are specifically drawn to those wines that are not available to the masses • Relationships are EVERYTHING • For release models in particular, it is very important to retain share of mind my communicating to your customers throughout the year

16. REthink Marketing: Perception of Scarcity • Limited Availability • Every winery uniquely creates the perception of “limited production”, and control of that balance is achieved through strong communication between sales & production • Allocation of Inventory: Direct vs. Wholesale • Begin by allocating inventory by channel: Direct vs. Wholesale; then allocate under each (mailing list, tasting room, by state, etc.) • RECOMMENDATION: sell through the Direct Sales channel FIRST, you will realize increased margins while increasing demand (and supporting prices) in the wholesale channel • The Waiting List • The best kept secret in the wine industry…people want what they can’t have!

17. REthink Marketing: Conditioning of Purchase Behavior • Rules of Engagement • “Invisible Tiers” allow you to manage your customer allocations through a mutual understanding that as your customer purchase more wine, each offering season they will increase their access to wines and allocation for each • Point Systems are sometimes used to make the allocation triggers more transparent to the customer, by allowing them to control their allocations (or lack thereof) • Customer Reward & Penalty Programs • By following the “rules for purchase” a customer can be assured that their allocation is secured for subsequent releases and perhaps even increased to reward loyalty; inversely, a customer’s allocation can be decreased or eliminated altogether (waiting list) if they do not follow the guidelines which grant access to the wines • Messaging is KEY! Touching your customer at each stage of the mailing list offering helps to build up anticipation and ultimate gratification.

18. REthink Marketing: Applying the “3 Principles” Traditional Release Model Mailing List as a “Waiting List” (Cult Wines) Allocation Hybrid Model Wine Club Reward Program

19. REthink Sales: Is there a direct to trade opportunity for your brand? Direct to Trade refers to the ability of a winery to sell directly to a retailer or restaurant, bypassing the wholesaler altogether.

20. REthink Sales: 15 States are reachable through Direct to Trade Sales • Self-distribution states include AZ, AR, CT, IL, MD, MA, MT, OH, OR, VT, WA, WY, • Additionally, CA, FL & NY are exclusively available through Inertia’s Direct-to-Trade system. • Considerations: • Some mirror direct to consumer compliance • Production capacity caps • Shipment volume limits • Possible need for in-state sales rep licenses • Inertia’s Direct-to-Trade system resolves all of the above considerations

21. REthink Sales: Benefits for the winery • Access to a broader market • Direct relationship with the trade account • Control over where your product is sold • Margin improvement • Ease of – and control over - inventory movement

22. REthink Sales: Benefits for the trade • Access to brands not available in the market • Direct relationship with the winery • Margin improvement • Ability to pre-sell before ordering • Potential exclusivity of product

23. REthink Sales: Pricing Strategy and Margins • Establish your SRP target • FOB 50% of retail (maybe) • Wholesale 2/3 retail • Consider margins taken by retailer and wholesaler • Retailer 34- 40% • Wholesaler 23-30% • Don’t forget hidden wholesale costs • Spiffs • Samples • Wine Lists

24. REthink Sales: Pricing example for direct sales Work from the retail price down… Work from the FOB price up… OR

25. REthink Sales: When is Direct to Trade the best strategy? • Consider any/all of the following: • Relationship with distributor • Amount of wine available • Increased access to markets / accounts • Improved margins • Knowledge of trade accounts • Sales comfort level

26. Thank You! Mitch Schwartz | mitch.schwartz@inertiabev.com www.Inertiabev.com | blog.inertiabev.com | www.rethinkcompliance.com 26