Defining the “Fifth Column” of Wine.

It’s taken me a little while to finally get around to reading the whole Silicon Bank 2012-2013 Wine Industry Report, and the only reason that I do so was that I stumbled across this article on the ShipCompliant.org blog. It reads:

The historical metaphor of the “Fifth Column” is new to the world of wine marketing. As used by Rob McMillan and the authors of Silicon Valley Bank’s recent “State of the Wine Industry” report, it is a reference to the Spanish Civil War of the 1930s and the idea that “an ad-hoc group of loyalists emerging from within the city [of Madrid] who would rise up against the incumbent order”.
Silicon Valley Bank uses the term “Fifth Column” to refer to a “group of wine businesses partnering with producers to help sell direct”.

The Silicon Valley Bank report is referring to various companies in the wine industry that have been founded to support direct to consumer sales such as logistics, compliance, third party marketers and others companies that, taken together, provide suppliers with a support system for getting wine into the hands of consumers across the country.

Another way of understanding the “Fifth Column” is the recognition that after many fits and start, innovations, failures, successes and the introduction of new technologies, the wine industry now has new paths to market by which new and old customers can be cultivated with confidence. We view the emergence of compliantly operating third party marketers as the final piece of the “fifth column” puzzle.

We are convinced that 2012 is the year that third party wine marketers will demonstrate not only their staying power but also their long term importance to the wine consumer and wine supplier that they bring together.

The first glimpse of the real value that third party marketers provide to the direct-to-consumer market came during the recent recession when these talented marketers were able to use private or “flash” sales, membership platforms and outstandingly executed e-mail marketing campaigns to help suppliers move through distressed inventory during a decline in demand. Third party marketers played a key role putting suppliers’ wines in front of motivated consumers.

While some people have predicted either the end of the road for these marketers as inventory has dried up and the recession wanes, or the end of firms that focus on discounting, we believe that the third party marketer is here to stay and will continue to play an important role not only in giving suppliers a new path to market, but in introducing brands to new customers.

Click here for the full article.

My Thoughts…

My major concern is that if a winery does in fact take onboard the advice suggested by the Silicon Valley Bank report, they will most likely look for the easy way out and throw themselves towards the method(s) with the quickest payback. Guaranteed.

As far as I’m concerned, marketing wine through “flash sale websites” shouldn’t be part of the marketing strategy for ANY winery!

Here’s my rationale behind that rather ballsy statement:
When I ran a wine bar, I would often be handed “closeout lists” of wines from distributors. These lists contained wines that they needed to move through in a hurry (for a few reasons). Usually the discount would be around half of the cost which the distributor had originally paid i.e. if they paid $10 a bottle, it would be on the closeout list for $5.
Sometimes though, the discounts would be slightly greater. To give you an idea of how much greater, I have a few bottles of a wine that I saved for myself (that for the sake of this article we’ll just call “wine x”) which I bought on closeout for $8 a bottle. This wine retails for $150 a bottle.

Now; not that I’m looking to bite the hand that feeds, but what do you think the chances are that I would ever pay close to $150 retail for that wine? This is the exact same thing that most (not all) of these flash sites are doing.
It’s identical to businesses that overuse services such as Groupon and LivingSocial. How is a winery supposed to turn-around in their next vintage and charge full price, when the vintage before was sold at a heavy discount? Great for the customer, but not-so-great for the business.

Short sale websites, discounted coupon codes, and I’ve even heard of wineries using third party cold calling services to sell their wine, are all examples of short-term sales gimmicks.

I have full faith in the “Fifth Column,” mainly because I’m a part of it, but wineries (and indeed all businesses) need to be careful to choose their methods carefully and decide for themselves whether they are looking to make a quick buck, or would rather invest in more long-term customer relationships.