In our last ‘dribblings’ piece we talked about why allocations as a marketing strategy were created. Essentially it started as a way to apportion in demand goods to a wide range of customers, as well as a way for the seller to control the distribution patterns of his wines. Admittedly, the fact that wine is a unique product that cannot be replicated or reproduced creates some scenarios that most businesses do not face, though the wine industry (mostly wineries themselves) have gone beyond what would be enough to effectively deal with the problem of limited stock to supply overwhelming demand.
Many wineries have taken the position that they not only want to sell their juice, but also micro-manage who gets the opportunity to purchase said juice. Why would someone care about that as long as the wine gets bought and paid for? We are not the people to ask, and can generate volumes with stories of wineries going out of their way to control where every bottle goes. But it is a fact of life in the wine business and has been for a long time, both among those who have those high-demand, limited items, and those who’d like to think they do.
We regularly see special offers from wineries that have been so effective in ‘allocating’ that they haven’t sold much of anything. But that is a story for another time.
At the end of our last piece, we made reference to some of the new techniques wineries are using in their ‘allocations’. Another term for it would be ‘bundling’. Wineries that have a successful item or two that people clamor for every year on their mailing list are now adding other products to peoples ‘allocations’ with the tacit understanding that the consumer is expected to take the entire offering. If they don’t, it may adversely alter the amounts they are offered on the future.
We’re sure some of you have been in situations where your allotment letter of a particular in-demand, high dollar Cabernet comes and you note that the winery has also blessed you with a few bottles of their new $45 Sauvignon Blanc that they will tell you is very special, too. You may not even like Sauvignon Blanc, but if you care about the Cabernet, the winery figures you’ll pony up for the Sauv. Blanc as well. This is an aggressive tactic that takes FOMO (fear of missing out) and uses it to shoehorn more items into the consumers ‘cart’.
Hey, it happens out in the trade to some extent as well, though it is on the wane because, these days, there is simply too much great wine out there for a single winery to get away with it for very long. We hear from a lot of consumers who want to sell their multi-year verticals of the ‘other wines they had to buy’ in order to get the wines they really wanted. We stopped playing those games with suppliers decades ago but understand that people get super passionate about certain wines and will put up with a lot of silliness to get them.
The winery knows that, too. If the winery is hot enough, they’ll just figure if you don’t want to play, someone else will. It seems to be accepted practice these days, particularly among some of the direct-to-consumer wine programs. We think the days of such things might be numbered. The power of the single critic to create an instant icon isn’t what it used to be in the ‘print’ days, prices have soared on such wines to greatly reduce the potential demand, and we seriously doubt the next generation would respond to this kind of nonsense anyway.
Still, for whatever reason, people who make wine seem to believe it is their birthright to decide who can buy their wine. We’ll go out on a limb and say that as much as vintners will try and tell you they allocate because they want to ‘protect their brand’ and ‘insure the widest possible distribution’, there’s more than a little ego involved. Plus vintners would be indignant if you suggested to them that this process might create some of the problems they seek to resolve.
A number of ‘cult’ California wines turn up at auction every year because people on the mailing list have created a nice little income supplement by reselling their allocations. The wines have become too expensive for normal people to drink, but there are some people out there willing to pay ‘mad money’ to get some of these items. So people on the ‘mailing list’ will continue to take their allocations because they don’t want to lose them, and simply resell some or all of it. Allocating didn’t solve that problem, it prolongs it.
“Wine, like water, will often flow to the place it is destined to be.”
You have likely heard about the ‘grey market’ in certain higher end European wines. This market exists because of the allocation process. We’ll illustrate how it works with a curious American example that happened years ago. A certain sales manager of a famous California winery was bragging that he exported wines to 25 countries and was about to add a 26th. He was going to send 3 cases of his highest demand reserve Cabernet to Lichtenstein. Could he have sold them here in a nano-second? Clearly. Does anyone in Lichtenstein care about this wines? He couldn’t answer, but was going to do it anyway so he could add another pin to his map.
Now to illustrate how the ‘grey market’ works, let’s use our Cabernet in Lichtenstein. Obviously the three cases are not enough to stimulate international trade, but it is the reason and mechanics we want to show. So let’s say the buyer in Lichtenstein has no idea what he is going to do with this big time California Cab, nor does he think he can sell it for enough to make it worth the effort. He will look around the world and see who is willing to pay a premium and perhaps try to sell it all in one shot to some other market, maybe even back to America if the price is right. The American winery guy still smugly has his 26th pin in the map, but it really didn’t accomplish anything.
Wine, like water, will often flow to the place it is destined to be. Say some top notch Burgundy house has a relationship with a distributor in Switzerland, developed over the years because the winery felt it needed to be represented in that country among others. If there is enough profit, or an easier transaction to sell Switzerland’s allocation out the ‘back door’ to another market, it will happen. The winery intended for this wine to be in Switzerland for lord-knows-what reason, but the mechanics of the marketplace will often prevail.
The winery/domaine decided to allocate its wines in a certain way to various world markets to achieve some perceived marketing strategy and distribution. Why? Again, don’t know. But the point is he isn’t balancing supply and demand appropriately if the wines are being resold to other markets. So what did this ‘allocation’ do really? Clearly one or more of those markets didn’t need all they were given…and what were they supposed to do with the wine?
It is one of the great mysteries why the wine industry spends so much time worrying about apportioning wines to entities who may not care at all about them. But it seems to be ingrained in the system, and we don’t see that changing any time soon. If you ever wonder why our California section is more moderate these days, far too many wineries make it way more difficult than it needs to be to simply get products we’d be interested in selling. Thankfully there is enough great wine in the world that such things as ‘allocations,’ and other such gamesmanship, really don’t have the impact they used to because there are simply too many great choices, most of which don’t have some sort of ‘sales prevention’ agenda.