New Ways to REthink Your Direct Sales

New Ways to REthink Your Direct Sales • Mitch Schwartz • VP, Sales & Client Development • Inertia Beverage Group 1

Topics • REthink Your Business: Are you effectively planning for direct sales success? • REthink Marketing: Would an allocation model be right for your brand? • REthink Sales: Is there a direct to trade opportunity for your brand? INERTIA | CONFIDENTIAL

REthink Your Business: What do we mean by direct? • Tasting room • E-commerce (shopping cart) • Wine Club • Allocation (or release model) • Direct to trade INERTIA | CONFIDENTIAL

REthink Your Business: To start, set a goal • Goals should be both short and long term – Identify what you need to accomplish in the next year – Know where you’d like to go in the next 5 years • Don’t forget the past – Consider where you came from; results over the past year – Apply key learnings to this years’ plan • Define the optimal mix of sales you would like to achieve. Example: Total Case Production Direct to consumer Trade 60% INERTIA | CONFIDENTIAL 3, 000 cases 40% 1, 200 cases 1, 800 cases

REthink Your Business: How do your short term goals fit with your long term goals? • Consider this example: – In three years, your production will grow to 8, 000 cases – Will your sales mix stay the same? • Will you want to increase or decrease your direct to consumer sales? – Are your sales and marketing actions today preparing you for tomorrow? INERTIA | CONFIDENTIAL

REthink Your Business: Now what is your plan by segment? • Direct to Consumer – x% to tasting room, club, e-commerce, allocation • Is your plan different by product? – Are some products only sold in the tasting room? – Only sold through club? – Is there a wine(s) that should be sold exclusively to the mailing list? INERTIA | CONFIDENTIAL

REthink Your Business: Planning by segment (cont’d) • Trade sales – – What states do I want to sell in? Sell direct, or through a distributor? Broker or direct employee Do all distributors get all my wines, or do I segment and allocate? INERTIA | CONFIDENTIAL

REthink Your Business: Details of a plan • Consider this example: – Winery with a tasting room – 5, 000 total case production – What percentage of total case sales are direct to consumer? INERTIA | CONFIDENTIAL

REthink Your Business: Planning Ahead • Assume production increases to 8 k cases annually in 3 years. In order to maintain a 36% direct case rate of sale, consider three scenarios: A. B. C. Your average # of bottles sold per order increase to 10 Your visitor traffic increases to 19 k annually Your conversion rate increases to 48% INERTIA | CONFIDENTIAL

REthink Your Business: Planning Ahead (cont’d) • • The same logic applies to your wine club. Consider your total wine club case sales rate currently. To maintain a consistent rate of sale (10%), various scenarios might exist. INERTIA | CONFIDENTIAL

REthink Your Business: In Summary • Set a macro-goal for the winery, then build goals by channel and by channel segment. • For every goal, there should be at least one strategy. • Understand the metrics which will assist in the evaluation and measurement of those strategies. • With goals, strategies and metrics… build your plan to execute. INERTIA | CONFIDENTIAL

REthink Marketing: Would an allocation model be right for your brand? • What is an allocated wine? – A wine that is only sold to a mailing list upon release. – The customer is allocated a certain quantity of wine, which is the most they can buy. – Once the offering season is over, the wine is no longer available for the consumer to purchase. INERTIA | CONFIDENTIAL

REthink Marketing: Allocation Management • What is a mailing list? – A list of contacts and customers that have been elected to receive news throughout the year about current wine releases, winery events, etc. • What is a release program/model? – Wineries will release their wine for purchase several times per year (usually in the fall and/or spring) coinciding with an “offering letter” (direct mail piece) that will include information about the wines • What is an offering season? – An offering season is the window of time that a winery allows for purchase • What is an allocation? – Often used in conjunction with a mailing list when inventory is limited, an “allocation” or reservation of inventory is set aside for each mailing list customer INERTIA | CONFIDENTIAL

REthink Marketing: The 3 Principles of a Successful Allocation Program • The most successful ‘Mailing-List’ or Allocation wineries uphold 3 key principles that anchor a successful release program: – Exclusivity – Perception of Scarcity – Conditioning of Purchase Behavior INERTIA | CONFIDENTIAL

REthink Marketing: Exclusivity • The “Velvet Rope” – The first step in building an allocation program is to invite them to be part of small group of people with privileges above and beyond those for your “regular” customer • Limited Access to Wine – Customers that fit this profile are specifically drawn to those wines that are not available to the masses • Relationships are EVERYTHING – For release models in particular, it is very important to retain share of mind my communicating to your customers throughout the year INERTIA | CONFIDENTIAL

REthink Marketing: Perception of Scarcity • Limited Availability – Every winery uniquely creates the perception of “limited production”, and control of that balance is achieved through strong communication between sales & production • Allocation of Inventory: Direct vs. Wholesale – Begin by allocating inventory by channel: Direct vs. Wholesale; then allocate under each (mailing list, tasting room, by state, etc. ) – RECOMMENDATION: sell through the Direct Sales channel FIRST, you will realize increased margins while increasing demand (and supporting prices) in the wholesale channel • The Waiting List – The best kept secret in the wine industry…people want what they can’t have! INERTIA | CONFIDENTIAL

REthink Marketing: Conditioning of Purchase Behavior • Rules of Engagement – “Invisible Tiers” allow you to manage your customer allocations through a mutual understanding that as your customer purchase more wine, each offering season they will increase their access to wines and allocation for each – Point Systems are sometimes used to make the allocation triggers more transparent to the customer, by allowing them to control their allocations (or lack thereof) • Customer Reward & Penalty Programs – By following the “rules for purchase” a customer can be assured that their allocation is secured for subsequent releases and perhaps even increased to reward loyalty; inversely, a customer’s allocation can be decreased or eliminated altogether (waiting list) if they do not follow the guidelines which grant access to the wines – Messaging is KEY! Touching your customer at each stage of the mailing list offering helps to build up anticipation and ultimate gratification. INERTIA | CONFIDENTIAL

REthink Marketing: Applying the “ 3 Principles” • Traditional Release Model • Mailing List as a “Waiting List” (Cult Wines) • Allocation Hybrid Model • Wine Club Reward Program INERTIA | CONFIDENTIAL

REthink Sales: Is there a direct to trade opportunity for your brand? • Direct to Trade refers to the ability of a winery to sell directly to a retailer or restaurant, bypassing the wholesaler altogether. INERTIA | CONFIDENTIAL

REthink Sales: 15 States are reachable through Direct to Trade Sales • Self-distribution states include AZ, AR, CT, IL, MD, MA, MT, OH, OR, VT, WA, WY, • Additionally, CA, FL & NY are exclusively available through Inertia’s Direct-to-Trade system. • Considerations: – – Some mirror direct to consumer compliance Production capacity caps Shipment volume limits Possible need for in-state sales rep licenses • Inertia’s Direct-to-Trade system resolves all of the above considerations INERTIA | CONFIDENTIAL

REthink Sales: Benefits for the winery • Access to a broader market • Direct relationship with the trade account • Control over where your product is sold • Margin improvement • Ease of – and control over - inventory movement INERTIA | CONFIDENTIAL

REthink Sales: Benefits for the trade • Access to brands not available in the market • Direct relationship with the winery • Margin improvement • Ability to pre-sell before ordering • Potential exclusivity of product INERTIA | CONFIDENTIAL

REthink Sales: Pricing Strategy and Margins • Establish your SRP target – FOB – Wholesale 50% of retail (maybe) 2/3 retail • Consider margins taken by retailer and wholesaler – Retailer – Wholesaler 34 - 40% 23 -30% • Don’t forget hidden wholesale costs – Spiffs – Samples – Wine Lists INERTIA | CONFIDENTIAL

REthink Sales: Pricing example for direct sales Work from the retail price down… INERTIA | CONFIDENTIAL OR Work from the FOB price up…

REthink Sales: When is Direct to Trade the best strategy? • Consider any/all of the following: – Relationship with distributor – Amount of wine available – Increased access to markets / accounts – Improved margins – Knowledge of trade accounts – Sales comfort level INERTIA | CONFIDENTIAL

Thank You! Mitch Schwartz | mitch. schwartz@inertiabev. com www. inertiabev. com | blog. inertiabev. com | www. rethinkcompliance. com INERTIA | CONFIDENTIAL 26