Realising the potential of the direct-to-consumer channel

Market Bulletin | Issue 177
08 Oct 2019
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Wine businesses are increasingly recognising the value of direct-to-consumer (DTC) wine sales, with this channel reaching an estimated $1 billion in 2018–19, driven by year-on-year value growth of 9 per cent.

DTC accounted for an estimated 17 per cent of total Australian wine sales value, significantly over-indexing in value compared with its volume share of 3 per cent.

The smaller the wine business, the larger the reliance on DTC for sales revenue. For wineries producing under 5000 cases, DTC represented more than half their revenue (see Figure 1).

Figure 1: DTC share of total wine sales revenue in 2018–19 by winery size (production)

The average value per bottle[1] in the DTC channel was found to be more than double the next highest value channel (Figure 2).

Figure 2: Average revenue per bottle (packaged wine only) by channel

Cellar door at the heart of DTC

Cellar door sales accounted for 53 per cent of DTC revenue – up from 44 per cent in 2018, cementing the place of this category at the heart of a direct-to-consumer strategy for most wine businesses. The survey found that cellar door operations were becoming more diverse and high value, with the majority of survey respondents offering various food options and winery and/or vineyard tours, while many also had other facilities such as galleries, accommodation and weddings.

Cellar door wine sales were also found to be relatively high value at $243 per case compared with $223 per case for website sales and $208 for club/database sales. However, the highest value was for wine sales in an onsite restaurant, which accounted for 5 per cent of all DTC sales value at an average of $367 per case (Figure 3). This underlines the potential value of an onsite restaurant, not only as an additional visitor facility in its own right but as an opportunity to generate highly profitable wine sales and build brand loyalty.

 Figure 3: Average case value by DTC category (exc. GST)

Wine tastings – not just ‘try before you buy’

A big change since the survey was conducted last year was in the approach to wine tastings. The proportion of wineries charging for standard wine tastings increased from 29 per cent to 52 per cent, while the proportion charging for a ‘premium’ wine tasting was 79 per cent. In addition, the proportion of respondents that did not reimburse tasting fees (based on a purchase or wine club sign-up) also increased significantly – from 15 per cent to 30 per cent (Figure 4). This reflects a change in strategy from treating wine tastings as ‘free product samples’ to considering them a valuable experience in their own right, not tied to a purchase of the wine.

Figure 4: Percentage of wineries charging for wine tastings – comparison of 2019 and 2018

Realising the potential of DTC

One area where the survey identified potential to improve was in conversion rates from visitors to wine club members. The average number of visitors per winery was estimated at just over 17,600 per annum, while the average number of wine club sign-ups was 572 – a conversion rate of just 3 per cent.

The conversion rate from visitor numbers to wine club sign-ups is an important measure of DTC success. Other key metrics include: conversion rate from visit to sale, average sale value (cellar door and club), wine club attrition rate and revenue per club member. These can all be derived from the following: total sales value by category, number of visitors, number of sales, number of club members and number of new club sign-ups. Adding the number of names on a mailing list or database provides more key performance measures. Collecting these statistics enables businesses to measure their performance, set targets and assess the success of their DTC strategies. Most of these metrics are simple to collect and provide very powerful insights.

At the recent WineDepot Industry Impact conference, Lesley Berghund illustrated, via a case study, how small increases in order conversion rate per visitor, average order value and number of visitors could lead to a 50 per cent increase in total DTC revenue.

The Cellar Door and Direct-to-consumer survey is an opportunity for wineries to record these key metrics and benchmark them against the average for the sector. The 2019 report includes a matrix to help businesses calculate the important metrics identified above.

The report also covers wine club operations, customer communication methods and software options for customer management and POS.

The full report is available here.

 

[1] Paid to the winemaker excluding GST – not retail value. Figures exclude wine sold in bulk.


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