DTC Transformation

A few years ago, I helped a family-owned winery assess their missing market opportunities. They were conducting due diligence on the business and assessing potential avenues to sell or grow. The family was hyper focused on what they might be “leaving on the table.” They had several spectacular wines of limited production and were concerned the wines were not delivering the maximum market value. I agreed they were not achieving maximum market value and asked a simple question: “why are you selling ultra-premium, limited production wines through wholesalers?” The sales leadership team said those wines drove on-premise value and off-premise portfolio pull through. I saw something different, even criminal (a figure of speech).  I saw prized possessions flying out of the cellar for 46% MSPR.

Worse, we saw retailers using these prized wines in “bate and switch” advertising schemes with offers that matched or beat “club membership” pricing. First, retailers bought these wines in tiny quantities simply to advertise that they had the wine. When a customer arrived looking for the prized wine, the retailer pulled a bait-and-switch to some “similar” selection. Sure, the retailer had six bottles hidden somewhere in the back of the store, but those bottles were never being sold. The practice also forced the winery to bid against itself with online advertisers like Meta and Google, ensuring very few customers ever visited their online store. Second, many retailers created offers below wine club pricing, further eroding the value of prized clubs. While pull-through made sense for high-end on-premise, wholesale made little sense otherwise.

The struggle for wine clubs

Historically, wineries have struggled to grow and sustain their DTC and club programs. One only needs to read Rob McMillan’s “2023 State of the US Wine Industry” to understand the pressures. Specifically focusing on the club model, most wineries increase new club membership at approximately the same rate at which they suffer attrition. This is spectacularly consistent across decades. Yes, a few wineries focused on club/membership have found a way to grow, but most hit a brick wall. In my experience, the combination of acquisition and attrition is within 10% year over year. The question is “why does this happen?” While you’ll get reasons from onsite licensing and maximum occupancy to boomers aging out and full wine cellars, the truth is that wineries know very little about developing customer-centric value.

Sure, they make people feel loved while in the tasting room. But after twenty years of digital marketing and advertising for wineries, I know this to be true: wineries do not know 95% of the customers walking into their tasting rooms and 90% of the customers walking out. They treat their tasting rooms like kiosks at Disneyland, each expecting their fair share of the overall traffic. They win new club members but rarely speak with them after the first visit. They rarely follow the customer home to understand how wine fits into their lives. The tasting room is a turnstyle that keeps spinning and they just need to grab their fair share of the built-in market.

But this approach is wrong… and it’s catching up with them.

A radical rethink

Consumers do not experience wine regions the way owners and staff think they do. Sure, they like to visit wine country and experience the lifestyle while they’re here. But consumers don’t fit into a wine country lifestyle. It’s a short escape. Then they go home, and wine needs to fit into their lifestyle. In this respect, wine brands fail on a massive scale. They lack processes, personnel, and best practices to acquire, nurture, support, and sustain meaningful and lasting customer-brand relationships “at a distance, over time, on the customer’s terms.”

This was my feedback to the family winery. It was straightforward, based on evidence, and it was terrifying to them: they had to revolutionize their end-customer relationships and drive a personalized, sustainable, and meaningful value proposition across 8,000 to 10,000 relationships at a distance. They had to become customer-centric rather than brand and product-centric. They had to put the customer in the center of their essence wheel, not the family patriarch. If they were able to pull it off, they would generate $20M in additional annual net revenue and their market valuation would jump considerably.

For decades, wine producers existed in two distinct and vastly different worlds: CPG and hospitality. These are strange bedfellows. Wine producers happily funneled products through wholesalers, retailers, and exporters in the CPG world to gain shelf space and depletions (with no responsibility for brand building, which is a different article.) They promised local and regional marketing budgets and fought for middle price, eye-level shelf space and points or ratings based neckers and shelf-talkers. It’s a pure CPG game.

Meanwhile, back at home, they developed high-touch, white-glove experiences on their properties that told a fairly repetitive wine story for people visiting Disney kiosks. Unfortunately, these experiences were not customer-centric. Most wineries showed little brand love beyond their property lines, tasting rooms, vineyards, and cave parties. You had to be on site to experience the brand. Few consumers beyond the property lines knew why they should care about or love the brand. Few knew why they should stay loyal. And most end up cancelling their subscriptions within three or four shipments, flipping to new recommendations made by retailers, or sampling new wines on the restaurant wine list. Loyalty to the brand is gone.

While this duality between CPG and hospitality may not have hurt when the market and profits were growing, it will not work anymore. The family-owned winery knew it because the business they had built over forty years was suddenly in trouble and they needed a new way forward. Change is painful in any environment, but it seems particularly painful to the winery industry and the family owned wineries that grew up on the CPG + hospitality model. Nonetheless, we started at the other end of the looking glass.

The restart

The first part was easy: it was a simple revenue conversation. If we develop a customer-centric approach to the wine club and give customers a reason to believe, we could reduce annual attrition by 50% and increase new customer acquisition by 50%. Without any price or volume increases, the family winery would double its DTC revenue within five years and continue to grow at 20% to 40% annually. If pricing or volume did increase, the outcomes were even better. Most importantly, the family-owned winery would consistently and dramatically increase the value of end-customer relationships and generate increased value for their prized wines.

The second part was challenging but transformative. The key to this transformation is identifying, acquiring, nurturing, and maintaining customer-centric relationships “at a distance, over time, on the customer’s terms.”  In this mindset, we would not “maximize” every customer conversion but rather “optimize” every customer relationship based on individual lifestyles. We would transition the club from quarterly drops based on winery needs to on-demand, modern retail based on customer needs. We would pair individual brand representatives (brand ambassadors) with the brand’s most important customers to drive recurring value. And, of course, we would layer on technology and artificial intelligence to support the team's success.

The role of technology

This is where Umego.ai will help. At its core, Umego is about re-establishing the economic value of human connection by combining old-world values with new-world capabilities. We activate hyperpersonal human relationships between brands and their most important customers by fusing powerful behavioral and social science-based BLMs (brand language models) with immersive omnichannel e-commerce experiences delivered by invested and inspired brand ambassadors. These brand ambassadors leverage our proprietary BLMs with differentiated data built on trust, empathy, care, and anticipation.

We created Umego because the market lacks up to 50% of the intelligence to build meaningful and lasting customer-brand relationships. If you have any doubts, reflect on how the wine industry treats its most important customers – club members. What kind of engagement do they receive from the winery? Outbound email about offers and impending orders, call-center reps trying to sell them more wine, an occasion invitation, more emails, more call center reps, and wine shipments (with a club management team praying nobody cancels.) What’s missing? Rich, hyperpersonal, contextually relevant engagement. Recurring one-to-one relationships with someone who knows them well. Personalization that says “we care about you.” the intelligence gained from these kinds of relationships are what analysts call “zero-party intelligence.” We call it human experience lost in the digital age.

Historically, offering this kind of attention to individual customers would have been too expensive. With Umego, the essential becomes achievable. Our AI-driven customer intelligence platform unlocks and unleashes differentiated, zero-party data to optimize predictive brand experiences and drive revenue at scale. We humanize brand experiences, making them hyperpersonal – like a billion-person coffee shop.

We have started this transformation across several family-owned wineries. We have tasked these wineries to reimagine the tasting room staff, enhance experiences, rethink the quarterly club model, optimize and personalize outreach, change allocations, and leverage technology to build relationships “at a distance, over time, on the customer’s terms.” For my dear friends at this family-owned winery or any business willing to take a customer-centric approach to business growth, investing in profound, meaningful, recurring 1:1 customer-centric relationships will transform their business.

The old CPG-hospitality model is coming to an end. It’s not a growth market any longer. It's a mature market. Winning and maintaining market share by building direct end customer relationships is key. The untapped potential is enormous – and likely the only way to survive.

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