A Look at the Supply Side of the Walla Walla Wine Industry

The thriving wine industry is one of Walla Walla’s most essential features. According to Ron Coleman of Tamarack Cellars (one of Walla Walla’s original wineries), many people dream of starting a winery in quaint, lovable Walla Walla and basking in the romantic lifestyle winemakers are perceived to have. Starting a successful winery isn’t always as easy as it’s cracked up to be, though. Last Tuesday I sat down with both Coleman and Duane Wollmuth (Executive Director of the Walla Walla Wine Alliance) and talked with them about the challenges Walla Walla wineries face. The first challenge they each described is the creation of their business model. Many different business models exist as possibilities for wineries in the Walla Walla Valley. Winery owners must decide upon size of production, pricing, and distribution method, among many other complicated factors. Method of distribution is one of the most determining factors of a winery’s success. The three avenues of distribution winery owners employ are the three-tier system, the direct-to-consumer method, and (most commonly employed) a combination of the first two.

Three-Tier Distribution

The three-tier distribution model is how most wine in America is sold. Producers (wineries) sell their product to wholesalers throughout the country, who in turn sell to retailers and restaurants, who in turn sell to consumers. This method is valuable in that it allows the name of the winery to spread past the local area much more easily, which is necessary in building a brand. The downside is that the winery receives approximately half of the retail price. In order to be successful in this model, wineries must depend upon volume to gain profit. The other difficulty is that they must compete with extremely large companies who sell huge volumes of wine and who dominate the wine distribution system. Shelf space is limited and competition is fierce.

Direct-to-Consumer

The other path winery owners can take is the direct-to-consumer method, which involves selling the product from tasting rooms and through mailing lists. This model is advantageous in that it allows the winery to receive 100% of the retail price. In the early years of the Walla Walla wine industry, this method was less difficult than it is today because there were only a handful of wineries from which consumers could chose to buy from. Today, there are more than 100 wineries in Walla Walla, all trying to sell to a limited number of customers. While the number of wine tourists coming to the valley has grown in leaps and bounds over the last decade, this increase has been outpaced by the growth of new wineries. It has become increasingly difficult for new start up wineries to attract attention among the growing local competition. Most startup wineries hope to depend mostly upon the direct-to-consumer method, because of the high profit margins. New owners see the success of a few cult wineries and hope to emulate that model. The reality most eventually face, is that for every one Leonetti Cellar or Cayuse Vineyards, there are scores of less successful ventures. The term ‘cult’ by its very nature implies exclusivity, and therefore implies competition.

Another Source of Competition

When considering the likelihood of starting a successful winery, we must examine not only the local competition but also the international competition. According to Duane Wollmuth, every state has wineries now, something that wasn’t the case 15 years ago. Nationally and internationally, wine production is increasing. Wineries have to get very creative in how they market and how they sell their products so that they can compete with national competition. Wollmuth says, “The number of wineries nationally and internationally are growing, too, so we have to keep in mind that we need to compete against the Napa Valleys of the world or the Yakima Valleys or the Columbia Valleys and continue to raise awareness of Walla Walla wines.”

The Moral of the Story

In spite of all the challenges Walla Walla wineries are currently facing, the fact that the industry is growing rapidly, on local, national and international scales must not be overlooked. As in any market sector, whether it be restaurants or dry-cleaners, not all new businesses will succeed, but many will. What those who wish to start a winery must keep in mind is that it is a very difficult business to compete in, and that unless you’re starting a winery with no concern of how much profit you make, much work will be required before reaching the romantic aspect of the industry.

Sources:

Coleman, Ronald. Personal interview. 30 Sept. 2014.

Wollmoth, Duane. Personal interview. 30 Sept. 2014.

Advertisements

2 thoughts on “A Look at the Supply Side of the Walla Walla Wine Industry

  1. I enjoyed this article, the wine industry is such a unique market in that it has this three-tier distribution process as you mention. I’m curious to how much influence the wholesalers have in the productivity of a winery. I’m slightly confused to what exactly the wholesalers’ role is. Are the wholesalers the company who owns delivery trucks to transport the wine? Or are they companies like Costco who sell wine in bulk? I bet there are restaurants in Walla Walla that have direct relationships with certain wineries and in that case could just cut out the wholesalers entirely from the process of selling wine. This market is also heavily influenced by weather fluctuation, I wonder if there is a term/concept for a market that is affected by the natural world. A fascinating industry that I hope to study more in the wine economics course.

    Liked by 1 person

  2. Wow this article was very interesting! My grandpa is a wine maker and small business owner. Rather than following the three tier model, they sell their wine directly to the consumer, like you said, through tasting rooms, events, and their “wine club.” It has been interesting seeing how they run their business, and how it has grown tremendously in the short amount of time that they have been running. My grandpa is a phenomenal wine maker and has won numerous awards and medals, but they continue to sell their wine directly rather than put it in a store. What I find most interesting about their situation is that the majority of their income is made during just two events: a fall and spring wine tasting.

    Liked by 1 person

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s