‘Shipping Included’ – the Future of Direct to Consumer? An interview with Bonny Doon Vineyard

Randall Grahm

Bonny Doon Vineyard has been an innovative leader in the U.S. wine market for 3 decades. With Randall Grahm at the helm, Bonny Doon will boldly dare to go where no Rhone Ranger has gone before.   In January, they caught my attention as they jumped into new ground with revolutionary changes to their wine club. (I am a member.)

(Note – Simple Hedonisms writes primarily for consumers, but with an increase in demand recently for marketing consulting and input, I will occasionally feature a piece like this for the Industry. I hope my consumer readers will find it insightful as well, and share their feedback.)

The Genesis…

Was Meg Houston Maker, author of Maker’s Table and former executive editor of Palate Press. Meg joined Bonny Doon last September as Director of  Direct to Consumer (DTC) sales. Wasting no time, she applied her Ivy League brilliance to  examine Bonny Doon’s historical direct sales performance, review emerging trends in  DTC, and take their  consumer program down a new path.

Wine Clubs – Friend or Foe

One of my most popular articles in 2010 was “ Wine Clubs – A Review of Different Types and Benefits “ focusing on the benefit of Wine Clubs for the

Meg Houston Maker

Meg Houston Maker

consumer. For wineries, a wine club can represent a significant opportunity  in normalizing cash flow and  revenues; it helps to wake up each quarter knowing  ‘X’ percentage of sales are in the bag. (In my ‘other industry’ we call this backlog.) Wine clubs can also represent a high human touch and labor factor, but since they are sold DTC, carry a higher profit margin than distribution sales, so most wineries view Wine Club sales, and members, as very valuable.

Bonny Doon’s Challenge

Bonny Doon has a large, loyal wine club of over 3,000 members. The company has been managing multiple wine club categories at high labor cost and fulfillment complexity. Each shipment  requires considerable consumer interaction to update shipping addresses, credit card numbers, expiration dates, and member shipment customizations.

Additionally, about forty-five percent of members received 2 bottles of wine 6 times per year, and paid $14.25 per shipment for UPS charges. This meant that customers were paying about $86 per year to have a case of wine shipped to them—even though Bonny Doon was subsidizing part of these shipping costs.  (Shipping costs vary widely by state.)

Meg’s goal was to move more wine in the direct channel. To do so, part of the strategy was to encourage members to take more wine per shipment, fewer times per year. Through number crunching and detailed analysis, it became clear that simply sending more bottles per wine club shipment four times per year rather than six would lower the total shipping costs to club members while also reducing the effort needed to process the shipments.  It would also be greener: this change alone meant 31% fewer shipments per year, a substantial carbon savings.

One possible consumer objection to larger shipments, especially in tight times, is  that smaller shipments allow the consumer’s cash payout to be more spread out.  Could the perceived negative of larger shipments be  addressed by capitalizing on people’s general abhorrence of shipping costs?  When Bonny Doon has run ‘shipping included’ offers for orders over a certain dollar threshold—$99 or $129, for example—they see a significant jump in large orders.

Shipping Included, Explained

What does “shipping included” really mean? Free shipping? A hidden cost buried in?  Unfortunately, consumers often think the latter.  So why do wineries use this term? The good people at the ABC , protecting us from harm’s way,  do not allow wineries to say ‘free shipping.’ (Some businesses still do, but that’s technically not allowed and can lead to trouble.) “Shipping included” almost always means free.  But people aren’t sure, which is why you may also see offers like “shipping for $1.”)

Back to Bonny Doon Wine Club & Numbers Analysis

Through detailed analysis, Meg realized that fully subsidizing shipping cost to wine club members might be the answer to shipping more wine in fewer shipments, increasing the volume of wine sent to wine club members and making it easier  to sell the club to new members in the tasting room, online, and at events. And the consumer would win by paying less overall per bottle.

But what about profits? Bonny Doon already has consumer friendly pricing (see my Clos du Gilroy review) and they have to make a profit. Clearly net margins (profits) per transaction would be lower with a higher shipping subsidy. But would net margin dollars, be higher, if overall more bottles of wine were moved to offset the lower transaction margins?

The Math

Lets look at some sample math. (These numbers are my own invention for illustration purposes.)

  • Let’s assume a wine club shipment of 6,000 bottles at $20 a bottle with a 30% margin.
    • This shipment would yield $36,000 profit.
  • Now let’s assume a shipment of 10,000 at $20 a bottle and a 23% margin.
    • This would equal $46,000 net profit—in other words, a lower margin per sale, but a net overall increase in margin dollars.

Now that the onus is on BDV to carry shipping costs, they’re exploring an alternative shipping company to save costs, too, and increase consumer satisfaction.

Results To Date

How has it worked?  So far – wonderfully.  BDV launched a massive communications effort in January to roll out the new shipping-included offer to all existing club members. A key goal was to get those who currently receive 2 bottles six times per year to take 4 bottles four times per year; any who did would pay no shipping fees. The result: Ninety percent of those 2-bottle, six times per year members have agreed to step up to 4 bottles, four times per year.  It’s kind of a no brainer, really, for most. They buy more wine, but this is almost completely offset by the savings of $86 in shipping costs. The net result is that for about $25 more dollars per year, they get four additional bottles of wine.

There are also other inherent benefits of consumers drinking your wine more often: they become brand ambassadors, share the wine with friends, cellar some for later, etc. Broadened impressions and consumer awareness also leads to an increased chance of re-orders, especially when reinforced by other shipping specials, like no-cost shipping for orders over $99.

Why buy plonk wine at Safeway, when for $102 (at the 15% discounted member price of $12.75 per bottle), you can have 8 bottles of Clos du Gilroy Grenache sent to you without a shipping fee? Seriously, consumers, think about it.

Additionally Tasting Room conversions are up significantly since the new club structure was introduced in January.  People are responding well to paying no shipping. I can personally relate. I buy a lot of wine, and have more wine clubs than I should, and paying for shipping is one of my largest mental barriers to buying wine. If I can’t will-call, or if a club threatens me with shipping charges 30 days after release, I don’t join, or I drop the club.

As another reflection of their love for members, no one is being left behind; club members unwilling to convert are allowed to stay status quo, even though it adds complexity.

Conclusion:

As wineries look to grow sales, especially Direct To Consumer, which has been the 2010 mantra, “shipping included” represents a significant shift and potentially positive impact.  For those willing to adopt, it can represent a win both for the consumer and the winery. My hat’s off (and my $$ in wallet) to Bonny Doon for continuing to forge new paths, staying focused on a positive consumer experience, and of course, for making great wines.

Bravo

Thanks for reading! I’d love comments and feedback from both consumers as a Wine Club member, and from Wineries as well.viagra in canada

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14 Responses to “‘Shipping Included’ – the Future of Direct to Consumer? An interview with Bonny Doon Vineyard”

  • Here are my thoughts, William. I have wanted to make shipping included at Inman Family Wines from the beginning, and I do subsidize the costs for my cusotmers; I have always grappled with the question, “is it fair for the CA consumer to pay the same price as someone who has it shipped to New York?” I am making more profit on the local people, or from the consumer perspective, the Californian customer gets a smaller financial benefit from shipping inclusive than the New Yorker does. Doesn’t seem equitable to me.

    You are correct that the magic word “free” – the “F-word” in the CA ABC’s vocabulary (along with the “C-word” – “Complimentary”)- makes people pull the trigger on a purchase more than “one cent” or “$1″ shipping. Interesting psychology at work there.

    I applaud BDV for reducing their carbon footprint be reducing the number of shipments. Our clubs are only one or two shipments a year and using the newest, lightweight bottles also saves on shipping costs and lightens the footprint!

  • William, great piece on what I consider to be the critical factor in wine club selection and online wine purchasing. I am in the process of “re-swizzling” My wine club memberships and the wineries I drop will be chosen based on shipping costs. My next club to add will be Bonny Doon, which I have “rediscovered” thanks to you. I love their wines but the changes to save members shipping costs are what really caught my eye. You touched on the downstream benefits of wine club members sharing wines with their friends. I’ve long sung the praises of Wilson Winery offering wine club benefits to all members of wine clubs in the family of properties they own. I am a Mazzocco Winery Club member (another Wilson family winery) but I buy lots of Wilson wines, often with free or reduced shipping, and share them with my friends. My friends (in 5 different states) bought 8-12 CASES of Wilson wines last year alone. Again, a great piece and very insightful analysis.

  • Really solid piece covering a specific consideration for wineries to consider when organizing their wine clubs.

  • Great points and opinion. I am just formulating the outline of what I want our Champagne Club to encompass and your article has given me some timely advice. Thank you, Bryan

  • For my California deliveries (which is about 90% of my sales because I simply can’t keep up with all the _ _ _ _ barriers for the small guys in most other states) for over a year I have included Overnight Express Shipping in my bottle pricing. Weather you are in wine country or San Diego if your order is in before 10:00 AM on Thursday it’s in your hands Friday!
    When I did have my unique highly acclaimed wine scattered in wine shops folks who discovered it in fine Restaurants, read about it in a article or heard about prestigious medal/ rating it was extremely hard to find & could have been out on some shelf for a while now my wine can come to my customers fresh from the cellar & I give steep discounts on multiple bottles which encourages most people to order more bottles and saves my shipping cost…. Those in the know love it, reorder and tell their friends.

  • Great Post! I found this really interesting and informative. It’s neat to see how your sales background is really starting to make for some interesting analysis of the wine industry. It seems to me you are really an asset to the field.

  • William, thanks so much for the opportunity to talk about our club changes, and thanks, everyone, for your thoughtful comments. Randall Grahm and I both believe that the future of DTC sales lies in shipping-included; I think of it as simply removing friction from the sale. But it does require one to do one’s homework to make sure margins remain reasonable.

    William makes a great observation here that wine consumers who receive wine directly from the winery become brand ambassadors through sharing the bottles with family and friends (some who presumably also live their direct-ship state). Customers who buy directly from the producer naturally feel a stronger product affinity, especially if the winery takes the opportunity to include materials that help tell the wine’s and winery’s story, as narrative and context are both extremely important to experiencing wine fully. (See Matt Kramer’s excellent case for this recently: http://bit.ly/epz2bG ).

    Finally, as a follow-up: Bonny Doon Vineyard’s communications effort to explain the new protocols and convert existing club members has been running for a little over a month now. In that time, we’ve managed to hear back from about 21% of our membership (reaching 3,000 people is not an insignificant undertaking).

    Still, as William mentioned, 90% of those who were formerly receiving 12 bottles per year have stepped up to 16 bottles. What’s more, 100% of those who were receiving only 8 bottles per year have also stepped up to 16 — a doubling their annual amount. Sometimes a customer just needs to be asked.

    Most significantly, these increases have already accounted for an additional 300+ cases in the club channel this year — a 9% increase in only one month. We have high hopes that if the conversion rate holds for the remaining 79% of members, our DTC volumes will become a much more significant portion of our revenue this year — and for years to come.

  • Excellent article!

    It’s fascinating to read about the challenges wineries/wineclubs face re shipping. As a fulfillment house in Napa, we understand that we play a huge part in this DTC game and are constantly gaining more knowledge and understanding about the problems wineries face. Creative solutions to keep shipping charges normalized and simple for easy absorption from the winery is key in facilitating these “shipping included” offers.

    Thank you, Nohemi

  • Miryam:

    This is definitely the way to go for Wine Clubs. I revamped one of my Paso Robles wine clubs two years ago to include shipping and our conversion rates went from 2.5% to over 6% with some months as high as 10%. I’ve also adjusted some of my Sonoma clubs to bi-annual case clubs doubling the amount of wine shipped to members in a year.

  • Tom Scott:

    I spent 19 years at Gloria Ferrer and was there at the inception of the wine club until my departure a few years ago. Shipping has gone through so many cycles since I got into the business back in 1986. From the free-wheeling “we’ll ship anywhere” days of Flying Tiger to fuel surcharges and state by state compliance models that are reality today.

    Sparkling wineries in particular have an issue (with free shipping) because of the weight surcharge they pay. A case of table wine comes in (packed in an approved container) at around 36lbs where the a case of sparkling is just over 48lbs. With COG (cost of goods) already higher absorbing the weight surcharge is tough. This holds true for those “vanity arm weights” some wineries are using for their high-end products. Impressive, but expensive to ship.

    I love the idea of shipping more wine (per shipment) but less actual shipments. In addition to lower per bottle cost (on the base shipping rate) you also save a ton on the pick & pack fees. The winery can also more easily maneuver the time frames to avoid weather holds from heat and cold. You also get a break if your shipments fall into certain uniformity standards for the shipper.

    The reason the 2-bottle rate is almost the same as for 6 bottles has two parts. First the cost of the shipping box (and the labor to pack and seal it) is almost the same. Second is what they call dead space. In essence you are paying for what isn’t there. (in this case, the other 4 bottles). Bottom line, the fewer times you go through the process the better.

  • [...] ‘Shipping Included’ – the Future of Direct to Consumer? An interview with Bonny Doon Vineyard [...]

  • JOSEPH RAFAEL:

    Such an interesting article, I enjoyed a lot. On a side note I reside in California. I want to gift wine to my girl on her birthday. She loves wine like anything especially Red wine. I heard about wine clubs . They offer a wide variety of gifts for wine lovers to suit all tastes and all budgets. So any opinion about them is greatly appreciated.

  • [...] ‘Shipping Included’ – the Future of Direct to Consumer? An interview with Bonny Doon Vineyard [...]

  • [...] one point, wine maven and head of Direct to Consumer Sales, Meg Houston Maker, had scared me that there might not be a 2010, as Randall is uncompromising in what he puts his [...]

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