How to turn cash into profitability for your winery
If you have seen declines in your winery sales this year, you are not alone. At this time, we are seeing flat or decreasing revenue in many of the wineries we work with.
If you are facing this situation, you have a couple different levers you can work to try and change the tide. Whether you will have the power to pull on any of these levers is greatly influenced by whether you have reserves of cash on hand. That's why we recommend that wineries always keep a solid buffer of core capital on hand. If you do have cash reserves, you have many more option for how to get your winery profitable again.
If you don't have cash on hand or other access to capital, you may feel like you are stuck cutting expenses to try to get to profitable again and while cutting expenses can be a short term plug, it isn't always the most sustainable path to growing a more profitable winery.
Don't get me wrong, an expense audit is always a good idea and we recommend conducting a thorough expense audit at least twice a year if not more often to make sure you are not spending more than you need to on operating expenses. Salaries should always be carefully budgeted at least once a year, and part-time labor should be audited more often to make sure it is corresponding with your winery's production needs and sales levels. But if you are convinced that you have gotten all the bloat out of your expenses, it's time to look at how you can increase your sales to where they can support your current level of spending.
If you have cash on hand, here are some ideas for putting that cash to work to improve profitability.
Pay down debt
If the winery is carrying debt, one immediate use of cash is to pay off or reduce high-interest debt. This can alleviate monthly expenses and increase the bottom line.
Revamp marketing & branding
If you're not spending at least 5% of your revenue on marketing annually, it's probably time to rethink your strategy. If you have cash reserves on hand, you may want to consider temporarily bumping up your marketing spend to an even greater percentage of revenue. Yes, this will temporarily drive your bottom line even lower, but consider it a necessary investment in the long term success of your winery.
Partner with a reputable expert in this space! You can certainly be involved in your marketing, but don't DIY it entirely. You will want to partner with the best to make sure your marketing dollars work for you.
Here are some angles to consider:
Digital Marketing. Invest in a digital marketing strategy to reach a wider and younger audience. This can include social media advertising, influencer partnerships, email campaigns, and SEO for your website. You might also want to try virtual tastings.
Rebranding. Ugh, did I just say rebranding? This is a huge undertaking but if your branding is not working for your current market, it may be time to put your ego aside and get a second opinion on whether rebranding might be right for you.
Collaborations. Partner with restaurants, hotels, or other local businesses for exclusive deals or to introduce limited edition wines. This strategy is good for both you and the businesses you partner with.
Community Engagement and Visibility. Being an active part of the community can also bolster local sales and loyalty. You can sponsor local events, charities, or causes to maintain a strong presence in your community. You might also consider what you can do to make your tasting room a place locals want to gather. Can you make your space more family friendly, perhaps by adding some simple playground equipment or outdoor games? Can offering regular live music bring locals in? Can you open your space in the mornings to let local boards or other community groups meet there? Build goodwill and the word will spread. You can also make sure you are attending wine fairs and festivals to increase brand visibility in the wine community.
Customer Ambassadors. Request feedback from your customers to understand what they are looking for and how the winery can meet those needs. Turn your best customers into brand ambassadors and give them an easy way to refer friends and family in exchange for rewards.
Consider new revenue channels
In addition to marketing and branding, you might consider opening up an entirely new revenue channel.
You might want to explore selling your wine into new markets, both domestic and international. If you are selling mostly DTC, consider whether a strategy of increasing distribution or direct-to-retail or restaurants might make sense for you.
A winery also has the ability consider other alternative revenue channels. You might consider what it would look like to start a restaurant or offer some other limited food service. What about hosting weddings or other events? You can also look at offering custom crush or other services to other wineries or offering your services as a consultant. You might also want to consider opening tasting room in a second location, which can expose your winery to a whole new market.
If the winery has extra land or buildings, consider leasing out unused space for other purposes. You may have land that is appropriate for uses ranging from alternative agriculture to renewable energy projects to vacation rentals.
Invest in your staff
It may be worth it to use cash to invest in training for your sales staff. This could lead quickly to increased sales and customer loyalty. Also, make sure you are compensating your employees fairly and staff morale is good. There is nothing that will dampen sales faster than a grumpy tasting room staff.
See this post to see how adding more benefits might increase employee happiness.
Invest in research and development
While putting wine in cans or going biodynamic may or may not be the right decision for you, investing in R&D and thinking outside-the-box in terms of what direction you want to take your product and your portfolio may leads to some unexpected growth strategies. Stay up to date with emerging trends in the wine industry. Don't dismiss new product ideas out of hand.
In conclusion
While holding onto cash provides security, holding onto too much cash can be a missed opportunity. It takes a lot of momentum to turn the trajectory of a winery. But consider the above strategies and what might align with your vision for your winery. Selectively deploying your extra cash can revitalize your winery business and pave the way for future profitability.
Learn more about growth consulting services at Northwest Wine Accounting.
