The tasting room at Annefield Vineyards is closed effective 31 March 2016. We thank you for your support.
There are several pithy sayings about the wine business. One of our favorites has a punchline.
Question: “How do you make a small fortune in the wine business?” (Pause for effect). “You start with a large one.” Everybody laughs, refills their glasses, then you change the subject because it’s a slightly uncomfortable truth.
But the fact of the matter is it does take an awful lot of money to be in the wine business, whether successful or not. You can’t measure success by profit, but we’ve looked at other things to justify it: the reception of the wines (generally positive), the reviews in trade publications like Wine Enthusiast, Wine Spectator and The Wine Advocate, mentions in national magazines like Southern Living, features in newspapers like The Richmond Times-Dispatch, and the numerous awards from wine competitions, validating our self worth. A casual glance at the medal-festooned bottles resting on the fireplace mantel in the tasting room offers tangible proof of how good the wines are.
We worked to broaden our market with entreaties to distributors, who for the most part ignored us; those that bothered to respond were not interested in adding Virginia wine to their books, but but one came to us unsolicited, and placed us in stores in Virginia, Maryland and Washington, DC. One vintage was favored, the next not so much, surely because of “vintage variability, ” driving home the point that in this business, like in Hollywood, you are only as good as your last movie (or bottle of wine). It isn’t entirely their fault; they have to please their customers, who in turn are reliant on a very fickle public. Remember “locally produced” being such an important watchword? Now, no one seems to care much about that.
You can’t really blame the public, given that there is literally an entire world of wine out there to choose from. Think of the possibilities! Crazy little producers from, say, Croatia or Tasmania may produce a wine that tickles the fancy of sommeliers and wine shop owners for a minute because its an accessible grape from a little known region. Take, for example, a Pinot Noir from Tasmania which is now touted as a cool climate region (for Australia); this could be followed by perhaps a frisson caused by little known grapes vinified with unusual production methods, like a Poulsard from the Jura region of France. So much wine, so many choices, and available for so little money.
Which in the end, is the crux of the problem. Money. Making wine in Virginia is expensive, what with the fungicides and the labor (rather, the lack of skilled labor), the equipment, the buildings, the utilities. You practically need a self-sufficient facility to produce a couple of thousand cases, which in Virginia is typical, whereas in California (for example), a “small” winery produces in the range of 8,000 to 50,000 cases each year. How do you compete with that? Walk into any Trader Joe’s, Kroger or Wegman’s (any supermarket, for that matter), and you can find wines for less than $10/bottle from France, Italy, Portugal, Spain, Austria, California, Oregon — you name it. That retail price is awfully close to our cost of production. When purchase decisions are based in part on price, how can we compete with that?
We’ve explored the issues surrounding the cost of wine production in Virginia in other posts. See, for example, “The Grey Lady Takes Notice of the Virginia Wine Business” (17 July 2013) and “Some Thoughts on the Vineyard Shortage in Virginia” (2 April 2014).
Winery Business Plans: Five Themes
We can’t speak for other winery business plans, but we see that they can be grouped into five different themes.
The Chronic Festival Attendee. There are those that seem to send a team to each and every wine festival they can find. In our experience you don’t make money, but you move a lot of product. We picked up a handful of wine club members at festivals, but these can be counted on one hand. Festivals do not lead to repeat sales, but you do become familiar among chronic festival goers who will buy a bottle or two at a festival. Do these buyers patronize wine shops? We don’t know. We do know that we would pour just as many bottles as we sold; more often than not, the net result was we actually lost money when you take into account the value of the wine poured — and that would be at cost, not retail. When we did festivals, more often than not several attendees would lean in and say conspiratorially, “Your wine is the best wine here!” Then they don’t buy anything.
Primarily Wholesale. Others have tried to go it alone with just wholesale with no tasting room, of if there is one, only by appointment. That’s a “tough row to hoe” that requires putting a lot of mileage on your car (if self distributed); you are essentially selling one bottle at a time, by hand. There might be an effort to have a wine club or promote sales online, but that remains moribund absent spectacular publicity, because for some reason the public won’t bite unless they can sample the goods first (yet are happy to take home an offering from a European producer without that first sip). Eventually one succumbs to the pressure of having to move product, and the winery adapts and opens to the public.
The Urban Tasting Room. Still others have tried to vertically integrate and open tasting rooms in metropolitan areas, taking charge of their distribution. This isn’t a bad approach, but the tasting room eventually must meet consumer expectation and devolves into a wine bar with some form of food service, which opens up a whole host of other things to worry about, what with visits from the health inspector and the like. Plus, to keep people coming, there’s the need for a little variety, which means having to stock and sell wine other than your own.
Diversified Operations. Survival calls for a diverse sources of income. Sure you’re a winery, but have other ways to make money — open a restaurant (if zoning allows it; some counties forbid it), open a bed and breakfast on the grounds, host weddings and wedding receptions in a facility built just for them — all are fair game — and increasingly expected by the public, which has grown to view wineries as entertainment venues and not as working farms.
On-site Sales. Those wineries with staying power had the good sense (or good fortune) to build their facility close to large urban areas and convenient to interstates. Wineries in Northern Virginia and in Albemarle County near Charlottesville draw day-trippers from Washington, DC and its suburbs in Maryland and Virginia. Loudoun County even markets itself as “DC’s Wine Country.” These lucky souls don’t need to worry about distribution or selling things close to cost in order to get on a distributor’s list — in this instance, the mountain comes to Mohammed. But even then, the winery needs to stage “events” to keep attracting people and to remain in the public’s eye. Gluttons for punishment stage small things weekly; others do a couple over the course of the season, which is probably the smarter way to go.
In our own case, we originally planned just to grow fruit, but then Virginia changed its laws, making custom crush operations legal, so we entered into the wine business. We did not acquire Annefield with the intention of opening a winery; the business evolved that way. And knowing our region was lightly traveled, our plan was to concentrate on wholesale sales (a rarity in Virginia), and on the retail side promote wine club. We rarely signed up wine club members at festivals, and if we did, invariably their credit card was bad or they dropped out immediately. The most loyal wine club members are those who visited the tasting room and usually spent a good hour or more on the premises, and return to purchase fairly often. Unfortunately, these are rare birds indeed.
Mahomet made the people believe that he would call a hill to him, and from the top of it offer up his prayers, for the observers of his law. The people assembled; Mahomet called the hill to come to him, again and again; and when the hill stood still, he was never a whit abashed, but said, If the hill will not come to Mahomet, Mahomet will go to the hill.
— Francis Bacon, Essays (1625)
Francis Bacon’s retelling of this fable is the first English language use of a phrase we now know as “If the mountain won’t come to Muhammad then Muhammad must go to the mountain.” As you can see, the meaning has shifted; originally, the story counsels accepting the inevitable, whereas today’s usage is interpreted slightly differently — taking action, one supposes, in the face of the inevitable.
That is where we are now. It is time for us to accept the inevitable, which in this instance is the fact that the only Virginia wineries that are financially sustainable are those conveniently located near urban areas, and that put on numerous events to attract the public. The business model that involves attending festivals nearly every weekend, while not profitable, generates cash flow that allows the business to continue. We’ve considered the other models — the remote urban tasting room or diversifying with other income streams, and decided they were not for us. The one business plan definitely not for the faint of heart is “all wholesale,” which calls for either lots of footwork and fast talking, or a very large checking account to cover expenses while you build your brand and distribution network.
We suspect that many smaller wineries do not take into account the value of their own labor when pricing their products, and may even be delusional as to the cost of production. You’ve seen it in print (mostly blogs) time and again — a wine aficionado rhapsodizing about the time they spent with the owner/winemaker in the tasting room of this little winery out in the country, and what a special experience it was. If that owner/winemaker wasn’t in the tasting room, a salaried employee would be (and I can tell you that is what they would prefer). That owner/winemaker not only makes the wine, he or she prunes and sprays the vineyard, works the tasting room, and makes deliveries to customers. If they were to put a value to their own labor and include that in their production costs, the cost of that bottle of wine would rise exponentially. There are hidden costs not accounted for in this business. The winery that buys fruit is quite sensitive to the cost of that input, and their need to meet certain margins keeps the price of grapes low, making it difficult for growers to ever make a profit.
As the Virginia industry matures, it may be possible for a winery to survive in strictly through wholesale sales. But not now. Today if you go to a mass market grocery store, wine shop or Virginia ABC store, you see the same small handful of Virginia wines. They are “safe” choices, and handled by large distributors. You’ll also notice that the bottles are a bit dusty, compared to their brethren from other places. Distributors can’t get excited about adding Virginia labels to their books because their customers don’t want it. It’s a self-reinforcing loop. So that leaves sales from the tasting room as the lifeblood of the business.
In the end, no matter the approach, it’s a tough business. Sure, when customers make it to the door and sample it, the wine sells itself. People have signed up for wine club almost every week, but the majority take only their bi-annual allocation with no additional purchases. Most seem to sign up based on the prospect of free tickets to our fall harvest party, one of those dreaded “events” that seem to be required to draw people in. We had committed to doing just two events each year — our Spring Bacchanalia in May, and our fall harvest party in October, but apparently that wasn’t enough.
Half the money I spend on advertising is wasted; the trouble is I don’t know which half.
— John Wanamaker (1838-1922)
Did we advertise enough? We tried all manner of advertising — traditional print, Google ads, Twitter ads, Facebook ads, online newsletters, direct mail postcards — all to little measurable effect. As John Wanamaker noted, its difficult, if not impossible, to gauge which approach is effective. Road signage has helped, but it has not been enough. We are bombarded with requests for donations to various causes, each with the same entreaty: “This will provide you with great exposure!” Uh, no, it doesn’t. We’ve poured at assorted fundraisers for worthy causes, again with the promise of “good exposure,” only to be seen as and treated as “the help,” while the organizers benefit from having a free bartender for their event. The attendees at these events have little interest in what they are drinking, and likely leave not knowing — or caring — what they drank.
Our website analytics show that there’s great interest from Russia, some days nearly all of the traffic came from there. This was puzzling until we came across a trade news item in the blog SVB on Wine (“250,000 Credit Cards Stolen in Wine Industry Hack,” 5 July 2015), reporting that Russian hackers have been targeting the wine business and making off with credit card data for hundreds of thousands of customers from eCellar Systems, a web-based, single vendor sales and marketing software solution company that was used to handle online orders (the wineries themselves were not hacked).
Our greatest disadvantage is being located in an area that is terra incognita to many. Sure, its unspoiled country with a fascinating history and we love it, the grape growing conditions are phenomenal (the soil and the season), and compared to Northern and Central Virginia, the land is affordable, but none of these attributes sell wine.
We do have a large number of loyal supporters who we count as friends; we would not have met them were it not for this business, and for that we are very thankful. Also for the wine shops and restaurants that have carried our wine, particularly the first to give us a chance, Charley’s Waterfront Cafe in Farmville. Other local restaurants have been particularly loyal — Bistro 1888 in South Boston, and Molasses Grill in Halifax. One shop has been a tremendous supporter — Galleria on the Lake in Clarksville.
We thought we could buck the conventional, but the fact remains that in order to survive as a Virginia winery, most of your sales must be from your tasting room. One winemaker put that figure at 85 percent, and that is from the perspective of selling in Northern and Central Virginia, where traffic is not so much an issue, but here in Southern Virginia, it is a big problem. If there is a lesson here for someone thinking of opening a winery, as far as sales are concerned, location matters.
Since we don’t see our wine sales prospects improving in the near term — at least not to the level that would support the continued commitment of time and money in promoting that part of the business — we have decided to cease producing and selling wine. This decision is easier for us than most because we never made the commitment to developing a full-blown winery, since we relied on a custom crush winery and chose to pay cash for everything rather than get into debt. Had we developed the very expensive infrastructure a winery requires (and had we done that, most likely we would have had to borrow from banks and bring in investors that we would then have to answer to), we probably would not be making this decision now, and would be forced to find a way to muddle through. Without that burden, we are free to cut ties, and we are doing so now. We are closing our tasting room on 31 March 2016. We will “go back to our roots” with the original plan from ten years ago, and concentrate on growing and selling fruit.
If you wish to order wine, please do so by March 15. We particularly recommend the Annefield Vineyards Cabernet Sauvignon 2013, which we feel is the best wine we have ever produced, and likely rivals our Annefield Vineyards Viognier 2013 in quality and depth. The remainder of our inventory is being donated to charity (and being picked up March 19), so the window to complete purchases is very brief.
Will this blog continue? Yes, but expect occasional reports. We remain part of the industry, but will occupy a quieter corner of it, for now. The original intention of the blog was to raise the profile of the region and encourage tourism; that goal remains, especially if we ever elect to make wine again.
It’s been fun, it’s been real, and we will miss you — à bientôt.